Lansing— Attorney General Bill Schuette on Monday asked the 6th Circuit Court of Appeals for an expedited decision on whether Michigan’s constitution protects pensions in Detroit’s bankruptcy case.
The filing by Schuette marks the first time the state’s chief law enforcement officer has forcefully waded into the bankruptcy after making early pronouncements about the constitutional sanctity of pensions.
The Republican attorney general did not get involved in the bankruptcy eligibility battle last fall, though his office represented Gov. Rick Snyder in defense of the Chapter 9 filing.
Schuette said Monday a clause in the state constitution prevents cuts to retiree pensions. That contradicts a ruling by U.S. Bankruptcy Judge Steven Rhodes, who said said vested retiree pensions could be cut in federal bankruptcy court like other contracts.
“The city can no more discharge these debts than it can suspend civil liberties, seize the property of former employees, or cancel elections — all fundamental violations of Michigan law,” Deputy Solicitor General B. Eric Restuccia wrote.
Schuette said he wants to “vindicate” the state’s constitution, which says earned pensions “shall not be diminished or impaired.” But he is not asking the appeals court to reverse a ruling by Rhodes that Detroit is eligible for Chapter 9 bankruptcy relief.
Rhodes has refused to recommend an expedited appeal, saying an appeal should wait until after he confirms the city’s plan to adjust more than $18 billion in debt — including an estimated $3.5 billion pension shortfall. The debt-cutting plan is expected by mid-February.
Schuette’s request for an appellate decision on pensions comes as mediators are trying to broker a settlement in the bankruptcy case.
Snyder and nine local and national foundations have pledged nearly $700 million in state and private funds to bolster the city’s two pension funds.
The pension ruling needs to be addressed while mediation is underway, according to Monday’s filing.
“The parties need this court to correct the bankruptcy court’s error now: for the retirees, the reduction of pension payments for any duration is a significant harm,” Restuccia wrote.
Schuette’s office said last week the attorney general was not available for comment about Snyder’s plan to pledge $350 million in state tobacco settlement funds over 20 years to Detroit’s pension funds.
“Attorney General Schuette will continue to aggressively defend the constitution throughout the bankruptcy proceedings,” spokeswoman Joy Yearout said in a statement to The Detroit News.
“We agree that hard-working retired firemen and police officers, many of whom live on fixed incomes, should not be victimized by this process.”