Circuit court judge blocks Detroit bankruptcy

By Rick Moran

A circuit court judge has ruled that the governor and emergency manager of Detroit acted unconstitutionally in filing for bankruptcy.

Judge Rosemary Aquilina gave the following rationale for her decision:

Ruling the governor and Detroit's emergency manager violated the state constitution, an Ingham County Circuit judge ordered Friday that Detroit's federal bankruptcy filing be withdrawn.

"It's absolutely needed," said Judge Rosemary Aquilina, observing she hopes Gov. Rick Snyder "reads certain sections of the (Michigan) constitution and reconsiders his actions."

The judge said state law guards against retirement benefits being "diminished," but there will be no such protection in federal bankruptcy court.

State-level legal skirmishing over the Chapter 9 bankruptcy effort by Snyder and Detroit Emergency Manager Kevyn Orr now will quickly move to the Michigan Court of Appeals.

Attorney General Bill Schuette, on behalf of Snyder, filed an application for Appeals Court consideration of Aquilina's order an hour after it was issued.

Schuette asked the Appeals Court to put a hold on present and future lower-court proceedings and was planning to seek emergency consideration to expedite the process, said spokeswoman Joy Yearout.

Meanwhile, U.S. Rep. John Conyers Jr., D-Detroit, said Friday that Aquilina's ruling justifies the need for congressional hearings on whether Detroit is misusing the bankruptcy process to slash retiree pensions and health insurance coverage.

While experts say federal proceedings take precedence, state-level legal maneuvering could delay the process. Pension board attorneys said their pleadings could wind up in federal court, too.

Snyder authorized Thursday's bankruptcy filing in U.S. District Court in Detroit by Orr and his legal team. That was to set in motion a process in which the court determines whether Detroit qualifies for bankruptcy.

Prior to her ruling, the judge made some partisan statements that should raise a few eyebrows:

"It's cheating, sir, and it's cheating good people who work," the judge told assistant state Attorney General Brian Devlin. "It's also not honoring the (United States) president, who took (Detroit's auto companies) out of bankruptcy."

Yes, you read that right. Detroit can't file bankruptcy because it woud dishonor Obama.

This has become a surrealist nightmare. Pension trustees are suing to prevent a bankruptcy that is based largely on the city's inability to pay into the pension and health plans.

Detroit Free Press:

By 1991, for instance, a Wayne County Circuit Court judge was forcing then-Mayor Coleman Young to make $53 million in overdue payments to the pension funds. Young, attempting to plug a $50-million deficit, had delayed the payment pending a tax-credit sale.

Detroit officials have also made a habit of convincing unions to accept pension sweeteners -- shorter terms of employment required, more generous multipliers, or a "13th check," essentially an annual bonus -- rather than pay increases. But that has raised pensions costs and had the unintended effect of shrinking the city's work force to the point where employee contributions can't keep pace with the needs of current pension recipients. The city has just 9,700 workers but 21,000 retirees drawing benefits.

Meanwhile, the Hill is cranking up the bail out machine. Rep. John Conyers wants hearings on the pension mess, and Detroit pols are already begging President Obama to save them.

The GOP will resist and probably prevail, but not before the Democrats portray them as heartless monsters who hate the police and firefighters. The Republicans will make the argument that caving in to Detroit and giving them a bailout will start a chain reaction of municipal bankruptcies that could cost the government trillions.

I don't think this will be an issue in 2014, and if it is, it should break the GOP's way fairly decisively. Most Americans are sick of bailouts and would not look kindly on one for public employee unions.

Detroit will have to find a way to muddle through on its own.