Michigan attorney general backs pensioners in Detroit bankruptcy
Source: Reuters
Sat Jul 27, 2013 3:34pm EDT
(Reuters) - Michigan's Attorney General Bill Schuette, a Republican, said on Saturday he would defend retirees who risk losing public pensions because of Detroit's bankruptcy, putting him at odds with the city's emergency manager appointed by fellow Republican Governor Rick Snyder.
Schuette, an elected official, said the Michigan state constitution is "crystal clear" in stating that pension plans are a contractual obligation that may not be diminished or impaired.
"Retirees may face a potential financial crisis not of their own making, possibly a result of pension fund mismanagement," Schuette said in a statement.
The attorney general said he would file in federal bankruptcy court on Monday on behalf of the pensioners affected by the biggest municipal bankruptcy filing in U.S. history.
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Read more: http://www.reuters.com/article/2013/07/27/us-usa-detroit-idUSBRE96Q0A220130727
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As the State Attorney General, both legal obligation and politics demand that he defend Michigan's constitution. Stating that you want to protect pensioners is really a no lose political proposition, even for a Republican. I would also assume that he will advise that it is his opinion that the DIA artwork should similarly be protected.
However, the devil is in the details. Schuette is definitely aware that federal bankruptcy courts are notoriously independent, and his actions, while possibly and mildly persuasive (and even if in good faith), will likely have little ultimate impact on the court's decisions concerning the pension obligations (and art). Note that although bankruptcy courts consider and often incorporate state law into bankruptcy plans, federal bankruptcy law overrides state law, even the state constitution. Also, the court will appoint one or more committees to actually represent the interests of the pension and health plans. As an attorney, I am more interested if Schuette also takes any position on the status of the remaining unsecured debt. Don't be surprised if Schuette both advocates for protecting the pensions and art while simultaneously discussing the sanctity of the general obligation bond debt, including how failure to satisfy such debt will result in much higher longer term borrowing rates for Detroit and other Michigan cities and town, and could adversely affect the entirety of the municipal bond market. Advocating both positions would effectively cancel each other out as a matter of policy.
Regardless of the above, I'm greatly saddened that Detroit has reached such a nadir. Even without the formal bankruptcy and the City's obligations to the retiree pension and health plans, Detroit is borrowing money under seemingly usurious conditions and still miserably failing to provide basic city services. It would be bad enough if the choice was between funding the pension and heath plans OR providing services and maintaining infrastructure, but it appears that Detroit cannot provide either in its current condition. Add in the fact of the cost to remove unsafe and abandoned buildings, the rapid and continued flight of its tax base, both businesses and individual taxpayers, the poor condition of its schools (70% drop-out rate!), outrageous levels of violent crime, etc., I cannot fathom how Detroit can reasonably recover for generations. 
