According to The Daily News, Michigan's Attorney General has come out on the side of retirees in Detroit who stand to lose big time if the city goes ahead with its bankruptcy plans. Republican Bill Schuette said the state's constitution is clear that those pension plans are a contractural obligation that cannot be disposed of through bankruptcy.
Detroit's Emergency Manager Kevyn Orr, appointed by Michigan's Republican Governor Rick Snyder, has announced that he is going ahead with a plan to begin revitalizing Detroit by ridding it of its old debt. But that includes pensions owed to policemen and firefighters.
"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 General Retirement System of the City of Detroit and the Police and Fire Retirement System of the City of Detroit have already initiated a civil action against City of Detroit Emergency Manager Kevyn Orr and Governor Rick Snyder in the Ingham County Circuit Court, Lansing, Michigan.
The Retirement Systems challenge the authority of the Emergency Manager and the Governor to authorize bankruptcy proceedings for the City of Detroit that would in any way impair the accrued financial benefits of the Retirement Systems’ plan participants and beneficiaries.
The System says those benefits are protected by the Michigan State Constitution. To file and walk away from those obligations would be considered an “impairment”. By allowing any such impairment, the lawsuit asserts that the Emergency Manager and the Governor would be in violation of their respective oaths of office.
"The emergency manager plans to establish the city's eligibility to file for Chapter 9 bankruptcy protection and then move as swiftly as possible to propose a plan of adjustment that will help create a strong and viable Detroit and will enable the city to provide essential public services to its 700,000 residents," Orr spokesman Bill Nowling said in a statement.