Bloomberg News

Michigan AG to Join Detroit Bankruptcy Case to Protect Pensions

July 27, 2013

Michigan’s attorney general said the state’s constitution protects public employees’ pensions from being reduced and he will join the Detroit bankruptcy case on behalf of retirees and current workers facing benefit cuts.

“Michigan’s constitution, Article 9, section 24, is crystal clear in stating that pension obligations may not be ‘diminished or impaired,’” state Attorney General Bill Schuette said today in a statement. Earlier this month, he helped block state court lawsuits seeking to protect pensions.

Detroit filed for Chapter 9 bankruptcy July 18, the biggest bid for court protection by a U.S. city. Schuette said he would file an appearance Monday in the federal bankruptcy court there as the “people’s attorney” on behalf of pensioners who could lose benefits during the proceedings.

Schuette, a Republican, said he would also continue to represent Michigan Governor Rick Snyder in legal proceedings related to the Detroit bankruptcy. Snyder, also a Republican, authorized the city’s filing.

The attorney general’s office “will still be representing us in the other pieces, while trying to get clarity on this,” said Sara Wurfel, Snyder’s spokeswoman. “We appreciate the efforts to get clarity and help determine the best path moving forward that is fair to all,” she said in a phone interview. There isn’t a “specific plan” yet on the pensions in the bankruptcy, she said.

Suits Blocked

Schuette’s statement comes three days after U.S. Bankruptcy Judge Steven Rhodes, who is overseeing the case, blocked lawsuits by public employee groups and pension funds who alleged the state overreached in seeking court protection.

Three lawsuits against Snyder and other officials asked state courts to find that the Michigan constitution barred cuts in public pensions. Schuette defended Snyder in the state court lawsuits.

Rhodes found Detroit and state officials could halt pursuit of those suits under U.S. bankruptcy code. No bankruptcy court action has been initiated on the pension issue yet, Schuette said of pensioners who could lose benefits during the proceedings.

Detroit’s bankruptcy filing came amid negotiations between Kevyn Orr, the city’s emergency manager, and creditors including bondholders, public workers and retirees. Orr said that six decades of economic (9845MF:US) decline had left Detroit unable to both pay creditors, including retired city workers, in full and provide residents necessary services.

Bill Nowling, Orr’s spokesman, didn’t immediately return a call seeking comment.

The case is City of Detroit, 13-bk-53846, U.S. Bankruptcy Court, Eastern District of Michigan (Detroit).

To contact the reporter on this story: Margaret Cronin Fisk in Detroit at mcfisk@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net


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