Just a day after Detroit filed for Chapter 9 bankruptcy, an Ingham County judge ruled that the move was unconstitutional, because it violates a law stating that pension benefits cannot be reduced after they have been promised to retirees in Michigan. Because Michigan Gov. Rick Snyder, and Snyder-appointed Detroit Emergency Manager Kevyn Orr filed the bankruptcy with knowledge that it would cut into pensions, Judge Rosemarie Aquilina ruled that the bankruptcy was invalid.
Aquilina was also disturbed that Orr filed Detroit’s bankruptcy five minutes before a meeting with representatives of pensioners:
“I have some very serious concerns because there was this rush to bankruptcy court that didn’t have to occur and shouldn’t have occurred,” Aquilina said.
“Plaintiffs shouldn’t have been blindsided,” she said. “This process shouldn’t have been ignored.”
Michigan’s Attorney General, Bill Schuette, promised to appeal the ruling, and request that the Judge’s orders be stayed pending his appeal.
Detroit’s fiscal status is left even more in limbo, but Judge Aquilina’s ruling that the bankruptcy was unconstitutional on grounds that it denied pensioners gave that group new life in the inevitable fight over who will lose money from Detroit’s fiscal woes: pensioners or creditors. In order to proceed with the bankruptcy, Orr may be forced into more negotiations with pensioners that would allow them to reach a more favorable settlement. Approximately half of Detroit’s $18 billion in debt is due to health care and pension checks for city employee retirees.
The ruling that Detroit’s bankruptcy is unconstitutional will set off a legal battle that will likely climb up the court system.