Detroit’s pension funds on Wednesday filed a request to appeal Judge Steven Rhodes’ decision that the city is eligible for bankruptcy, citing, among other things, that the state constitution provides special protection for pensions, even under Chapter 9.
The bankruptcy process will hurt the city’s retirees and future retirees and must be stopped, said Michael VanOverbeke, general counsel for Detroit’s General Retirement System, a pension plan with about 12,000 retirees and about 8,000 active employees. The General Retirement System and Police and Fire Retirement System filed the appeal together.
Rhodes’ ruling officially made Detroit the largest municipality in US history to enter Chapter 9 bankruptcy. Representatives from the American Federation of State, City and Municipal Employees had filed an appeal separately Tuesday, asking Rhodes to send the case to the US Court Of Appeals.
The two pension systems combined have about $5 billion in assets, and although Detroit’s emergency manager Kevyn Orr has said they lack an additional $3.5 billion needed to pay future retirement benefits, pension officials have said the Michigan Constitution protects those pensions from being reduced.
Allowing the bankruptcy process to proceed would mean that some retirees would fail to receive their full pensions, pension system officials have said. But Orr has argued that federal bankruptcy law trumps retirement provisions in the state constitution.
Rhodes’ ruling essentially focused on the pensions being a “contractual obligation,” and that under federal bankruptcy code, cities are allowed to void contracts.
The pension funds claimed in their filing Wednesday that the protection afforded the pensions under the state’s constitution is broader than that afforded other contracts, and that the pension clause in the constitution is an “impermeable imperative” that is “not subject to discharge,” including under Chapter 9.
“There are people out there who are panicking and there’s no reason for that,” VanOverbeke said, while pension board trustees including Detroit City Councilwoman Saunteel Jenkins and Detroit NAACP president the Rev. Wendell Anthony looked on. Pension board trustees have declined interviews during the city’s bankruptcy hearings.
“We are aggressively pursuing a good resolution,” VanOverbeke said. “We still believe in our assertion - that the vote of the people and the (state) constitution overrides the will of the Legislature and the governor” in deciding whether Detroit’s retirees must sacrifice some of their benefits for the city’s bankruptcy, he said.
Pension officials said the appeals could delay the bankruptcy process for weeks or even months. But Orr said Tuesday that the process will proceed as planned, short of any stay issued by a higher court. Orr plans to release a “plan of adjustment” by the end of the year or first part of next year. The plan would detail how Detroit will dig itself out of debt - including how much pensions will be cut - that’s estimated at about $18 billion, including long-term obligations. Detroit Free Press