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Bankruptcy court judge sets hearing on pension case

U.S. Bankruptcy Court Judge Steven Rhodes has declared that his court has the authority to rule on a dispute between the city's pension funds and the city of Detroit — not the state court in Ingham County, Mich.

Rhodes, in an order filed Monday, said he will hold a hearing Wednesday to consider the city of Detroit's request to put all lawsuits filed before the city filed for bankruptcy Thursday on hold.

The decision by Rhodes means that the first hearing of Detroit's bankruptcy case could prove to be a crucial moment in the city's effort to restructure under court protection.

Last week a Michigan state judge issued an injunction blocking the emergency manager of Detroit from filing a bankruptcy petition in federal on the grounds that doing so violated the Michigan constitution. There was controversy over whether an appeal of her order should be heard in state or federal courts.

One of the provisions of chapter 9 of the US bankruptcy code which specifically addresses municipal bankruptcies requires that municipal officials must have state authority to file. Judge Rhodes will be making a ruling on that in terms of Michigan law.  

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Comment Preferences

  •  there's been some smart commentary (1+ / 0-)
    Recommended by:

    on reddit, of all places, predicting that based on the bcy code.

  •  Good explanation. I expected this. Seems (1+ / 0-)
    Recommended by:


    Join us on the Black Kos front porch to review news and views written from a black pov—everyone is welcome.

    by TomP on Mon Jul 22, 2013 at 04:46:54 PM PDT

  •  Wherever the bankruptcy ends up, (7+ / 0-)

    look for the pension funds to be raided.  That's the way it works.  Always.

    Dogs from the street can have all the desirable qualities that one could want from pet dogs. Most adopted stray dogs are usually humble and exceptionally faithful to their owners as if they are grateful for this kindness. -- H.M. Bhumibol Adulyadej

    by corvo on Mon Jul 22, 2013 at 04:47:53 PM PDT

    •  It seems to me that if the bankruptcy (4+ / 0-)
      Recommended by:
      Farugia, corvo, Lujane, nextstep

      proceeding is initiated, the emergency managers are likely to get a pretty sympathetic response to their effort to reduce pension benefits. Chapter 9 provides more leeway for that than does Chapter 11 dealing with private businesses.

    •  My understanding is that the funds in the pension (14+ / 0-)

      plan are held in trust and cannot be "raided". This is a common structure and not surprising. What is at issue in the bankruptcy is the amount of additional contributions the city will make to the pension fund trust. It's those contributions, not the existing assets, that are competing with the thousands of other creditors and the cash flow needed to operate essential services.

      "let's talk about that"

      by VClib on Mon Jul 22, 2013 at 04:53:29 PM PDT

      [ Parent ]

      •  There are time in bankruptcy cases (2+ / 0-)
        Recommended by:
        Adam B, Lujane

        when if the fund can be shown to be "over funded" that assets can be withdrawn. That is not likely to be the case here.

        •  Richard - the fund is not in excess (5+ / 0-)

          although your point is well taken. There can be situations where the pensions are over-funded, although post the 2008 market crash we don't see many of those any more.

          "let's talk about that"

          by VClib on Mon Jul 22, 2013 at 05:10:06 PM PDT

          [ Parent ]

          •  I was not saying that Detroit (2+ / 0-)
            Recommended by:
            VClib, Lujane

            was over funded. I believe that the police fund is close to being in balance.

            •  depends heavily on assumed ROR, smoothing, (4+ / 0-)
              Recommended by:
              Richard Lyon, VClib, Lujane, nextstep


            •  fund for firemen is funded at 96% (0+ / 0-)

              There is no doubt in my mind that this is a raid on the pensions and assets of the City of Detroit by Snyder and his corporate pals.  

              They are heavily invested in "reinventing" the whole damned state and the city.    They want everything to be "regional" and are forcing mergers of schools districts, local governments, legislatively designated federal programs, i.e., job training WIBs, economic development agencies, mental health - the whole thing.   He thinks a higher bureaucracy is somehow more efficient than one with less levels.  

              Snyder is an ass.   If this state re-elects him, and the DeVos Grand Rapids and Holland teapots could, people might as well pack up and leave.  He is pulling everything apart - irregardless of outcomes or performance - with no replacement strategy in sight.   Snyder is a corporate ideolog surrounded by teapots.  

              What we need is a Democrat in the White House. Warren/Spitzer 2016

              by dkmich on Tue Jul 23, 2013 at 04:05:12 AM PDT

              [ Parent ]

              •  Mergers would be great for Detroit (0+ / 0-)

                Detroit's current problem is that it has no tax base, with a per capita income in the $10-15k range, but it has massive expenses. I'm not just talking about the shit Snyder is "haircutting" with bankruptcy -- bonds, and retiree costs mostly. I'm talking about operating expenses. No criminal has ever moved from the city, therefore we have crime levels appropriate to a 2 million + Metropolis in a 700k smallish City. We need millions for demolition. We have a lot of roads.

                The same is true for the local School Board. It has no money, but it has a bunch of kids who cost an awful lot of money to educate. I went through that School System. The working class black kids aren't dumber then the middle class black kids (I was generally one of 1 or 2 non-black kids in the class), but they need a lot of attention. And attention = teachers = not minimum wage drones with no benefits.

                The suburbs benefit greatly from, being near Detroit. They get big city type amenities, cheap labor, etc., but they never pay any of the costs associated with that. So a merged Wayne/Oakland/Macomb would be wonderful.

                Ideally the merged City/County would abolish places like Ecorse, and the County government, so there'd be fewer levels, but realistically speaking Metro Detroiters are incredibly attached to the idea of their little box on the map having it's own Mayor so you'd probably end up with Ecorse as a Borrough, and the Counties as a Greater Detroit government.

                •  education funding comes from the state (0+ / 0-)

                  merger or no merger, they won't get anymore.   He wants to voucher each kid at 5/6K.   That isn't even close to what the bottom school districts currently get.  

                  No, he isn't going to merge the counties or cities.  He is merging school districts and other government programs and agencies.      

                  What we need is a Democrat in the White House. Warren/Spitzer 2016

                  by dkmich on Tue Jul 23, 2013 at 12:22:53 PM PDT

                  [ Parent ]

                  •  So he's gonna merge the Detroit Public Schools? (1+ / 0-)
                    Recommended by:

                    That's still good for the City.

                    The two problems within the City are crime is high and education sucks. If there's a tax base because the Grosse Pointes and Downriver are in the School District, then that means there may be enough money to save Detroit's schools.

                    Looking at the plan you're talking about, it doesn't really seem to be a plan. There's no details. Is that $5,000 Voucher in addition to property taxes or not? If it's not it's terrible for the state because the Public Schools will all die, but it's great for Detroit because there's no longer a reason to move to a place with a different school district.

                    And believe me, an awful lot of these shiny, happy, white people planning for Detroit's future will bail as soon as their kid hits 5. Roughly 10% of my white friends growing up went to DPS, and in 1999 DPS was a much better option then it is today.

                    •  I'm not sure what it will look like. (0+ / 0-)

                      Nobody does including him.   He might turn all of the public schools in Oakland County into one giant district.  Things like payroll and other administrative services would go up to the ISD.   Since ISD's already serve multiple schools districts, will he also merge ISD's.   Will Oakland, Macomb and Wayne Intermediate School Districts also be forced to merge?  

                      If he has a clear vision, it is up his @__.    How many school districts are in wayne county including Detroit?  

                      What we need is a Democrat in the White House. Warren/Spitzer 2016

                      by dkmich on Tue Jul 23, 2013 at 02:55:53 PM PDT

                      [ Parent ]

                      •  There are 34 districts in Wayne County... (0+ / 0-)

                        This system would suck for the 'burbs, and not be great for the state, but as a Detroiter I can't help but feel a bit of schadenfreude.

                        It gets really fucking annoying to spend decades being lectured on how our schools (which are designed just like suburban schools) suck because we're corrupt idiots, especially since the people doing the complaining frequently don't know what the words they're using mean (hint: Detroit has not had a political machine since the 19th century). But since they're white, and they send their kids to a school fool of middle class white kids who test incredibly well; clearly the entire problem is we're idiots who don't understand sense.

                        I know it's evil, but I really am having trouble feeling sorry for all the poor little suburban kids whose educations are gonna be ruined if Snyder's Evil Plan gets through. I am just enjoying this too fucking much.

      •  So there are "contracts" and there are "contracts" (2+ / 0-)
        Recommended by:
        Lujane, corvo

        Bondholders' contracts are sacrosanct, or at least more "privileged" (popular word around here) than pensioners' contracts.

        That's Capitalism for ya'.

        For the rich, it's heads they win, tails you lose.

    •  The funds that have been paid are probably safe (2+ / 0-)
      Recommended by:
      Lujane, sturunner

      The problem is that the retirees cannot rely on any of the shortfall being paid.

      Underfunded payments by states and municipalities is a huge problem and it has nothing to do with Democrats, Republicans, union or non-union. It has to do with a lazy way to borrow when borrowing isn't supposed to be happening.

      Americans can make our country better.

      by freelunch on Mon Jul 22, 2013 at 05:34:35 PM PDT

      [ Parent ]

      •  There is also the matter (3+ / 0-)
        Recommended by:
        Lujane, sturunner, Justanothernyer

        of health care benefits to supplement Medicare. They are seeking to terminate that.  

        •  Any of the unfunded promises may be fair game (0+ / 0-)

          The problems are at least three-fold in trying to settle this:

          1. This is a rarely used bankruptcy chapter with little appellate guidance.

          2. State law supplements the bankruptcy code (e.g. in individual bankruptcies, the rules about homestead exemptions are state-by-state) and the state constitution would seem to count as such a supplement, depending on what the state courts have said.

          3. Does Detroit have the legal right to file? Another question that needs to be answered and isn't automatically a yes.

          Americans can make our country better.

          by freelunch on Mon Jul 22, 2013 at 06:40:23 PM PDT

          [ Parent ]

          •  There current municipal bankruptcies (0+ / 0-)

            definitely have some unplowed ground. It looks like there more coming down the pike, so some case law will likely get developed.

          •  Keep in mind... (0+ / 0-)

            That the State Supreme Court is 5-2 GOP. It's not likely to rule that a GOP-appointed official, technically acting on the advice of  GOP Governor, should be nationally humiliated. They are also unlikely to object strenously to any claiom from said Governor that the union-pension-protection provisions of the Constitution should be gutted.

            And if the State Supremes rule that a) this filing was totally legal, and b) the Constitutional provisions protecting unions are BS that should go away the Federal Judge has to go along with it.

  •  Why are pensions unfunded? (2+ / 0-)
    Recommended by:
    johnny wurster, Lujane

    Honest question. I don't get the whole thing or how the unions or the law allow it.

    He who would trade liberty for security deserves great customer service.

    by Publius2008 on Mon Jul 22, 2013 at 05:01:18 PM PDT

  •  Probably good for bankruptcy law to prevail (4+ / 0-)

    Not good in this case, but in general it would seem bad for state laws to inhibit the "fresh start" that bankruptcy provides under federal law.  I'd hate to see lobbyists for payday lenders get a law passed that those debts are not dischargeable in bankruptcy.

    •  It's a two edge sword. (0+ / 0-)

      Bankruptcy can literally be a life saver and it can also be put to some nefarious purposes.  

    •  Let's be honest. (2+ / 0-)
      Recommended by:
      NYFM, wayoutinthestix

      Bankruptcy for private persons has been gutted over the past 35 years (since '79 revisions).  On the other hand, it's become a great tool for the 1% to void their contractual obligations to the 99%.

      Pretty typical in this society.  Bankruptcy, a reform initiated to protect workers, is now a tool for the rich to avoid their responsibilities.

      As Brunner said:

      Capitalism is irresponsibility organized into a system.
    •  States need to control municipal bankruptcies (1+ / 0-)
      Recommended by:
      peregrine kate

      The problem with municipal bankruptcies is that they are often avoidable because all municipal government is a creature of the state. This is a decision by Michigan to screw the creditors of Detroit, including some of Detroit's retirees, because Michigan doesn't want to pay the bills that it let Detroit run up.

      This might be best for Michigan in the long run, but the folks running the municipal governments in Michigan (and elsewhere to a lesser extent) will have to explain to voters what Snyder's decision will cost them over the next few years. It might have been cheaper for Michigan to bail out Detroit than send it into bankruptcy.

      Americans can make our country better.

      by freelunch on Mon Jul 22, 2013 at 06:59:58 PM PDT

      [ Parent ]

      •  I live in California. (1+ / 0-)
        Recommended by:

        The state government have been passing the buck back and forth for years. That is why we are ground zero for municipal bankruptcies.  

      •  It would be really nice if Michiganders (1+ / 0-)
        Recommended by:
        peregrine kate

        Stopped thinking of their cities as tiny little sovereign nations, which all have an absolute right to survive forever unmolested by their neighbors desires, while inserting a level of market competition into the government sector.

        This would allow the long-term solution to Detroit's problem to finally be implemented: fire all the cities (including Detroit), and rename the Combined Oakland-Wayne-Macomb City "Greater Detroit." No more tax base problems causing terrible numbers in Detroit proper, thus causing everyone who lives in NYC to think Livonia's a third-world hell-scape. No more institutionalizing petty racial disputes. We'd probably get trains It would truly be wonderful.

        But that ain't happening.

      •  "Municipal govt created by state" Huh? (0+ / 0-)

        Here in New England, actually, town government preceded state government, and in RI especially, the state (colony) was basically cobbled together from four separate entities, now cities. Maybe in the Midwest and West states preceded and are the source of municipal authority, but that's not true everywhere.

        And at least here, the state doesn't have control over local finances, either public employee salaries, pensions and their management and investment, schools, property tax rates, or anything else that matters.

        •  In some cases that is historically true (0+ / 0-)

          But in all legal sense of the term your Township is simply the agency the state government has created to run certain specific functions in your little box on the map. That's why the state Constitution defines the functions of your town, and state statutes define the governmental structure of your town.

          OTOH all the Federal Constitution has to say is that have to be Republics, that changing state boundaries requires an act of the relevant state Legislature, that states have to respect each-other's court rulings, and that states retain certain powers that are otherwise Unconstitutional (such as the right to control their Alcohol markets).

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