Detroit is making history. Yesterday a federal judge ruled that Detroit’s bankruptcy could proceed and that the pensions of past and present city workers were not protected by the state’s constitution:
DETROIT — In a ruling that could reverberate far beyond Detroit, a federal judge held on Tuesday that this battered city could formally enter bankruptcy and asserted that Detroit’s obligation to pay pensions in full was not untouchable.
The judge, Steven W. Rhodes, dealt a major blow to the widely held belief that state laws preserve public pensions, and his ruling is likely to resonate in Chicago, Los Angeles, Philadelphia and many other American cities where the rising cost of pensions has been crowding out spending for public schools, police departments and other services.
The judge made it clear that public employee pensions were not protected in a federal Chapter 9 bankruptcy, even though the Michigan Constitution expressly protects them. “Pension benefits are a contractual right and are not entitled to any heightened protection in a municipal bankruptcy,†he said.
What remains to be seen is whether this ruling will touch off a wave of municipal bankruptcies. And I wonder if Chicago is far behind.
Detroit’s and Chicago’s problems are much like the problems in healthcare: too many people making too much money. Chicago and Detroit add to that gross mismanagement over decades. You can only kick the can down the road for so long.
. “Pension benefits are a contractual right and are not entitled to any heightened protection in a municipal bankruptcy,†he said.
That’s huge! Stockton, San Jose, San Bernardino… all CA cities that could be saved by such a ruling.
Yes, but jan, its all because of San Jose’s declining auto industry – whatta ya gonna do ’bout that? ……..oh, wait. Que PD, but the money quote seems to be “contractual.”
Seriously. I’m sure Dave has been following this. Yesterday IL passed a pension reform bill (snicker) that was reform in name only. The public pension system is still a godawful mess, and the “sunsetting” income tax increase of two years ago will inevitably be extended, if not increased. Property taxes will increase.
Dave, you seam to speak with local politicos. Is the view that the electorate are sheep, have an (economic) death wish, are stupid, or what?? This state can’t dig its own hole fast enough…..
My sense is sheep. After all where do they have to go? This is Illinois. There’s no hope of getting anybody who’s not part of the team on the ballot.
BTW, the award for “Most Unhinged Comment of the Day” goes to a comment over at OTB blaming Republicans for Detroit’s bankruptcy. I’m no fan of Republicans but that’s like blaming the firemen for the fire that burns down your house. That space heater just might have had something to do with it.
I thought the language of Illinois’ constitutional guarantee was stronger than Michigan’s, but I really don’t understand the nuances of public pension guarantees.
One thing I’ll be curious about is whether a plan seeks to take advantage of the difference to the city’s economic wealth from paying pensions to residents versus non-residents. Probably cannot do it, but as a practical matter its a world of difference to how cuts would impact future revenues.
Remember that the Detroit ruling is in the context of a bankruptcy. I’ve never questioned that if, say, the city of Chicago were to declare bankruptcy, a federal judge could set aside pension agreements in bankruptcy proceedings. But I don’t think the state legislature has the power to do so.
I probably should read the ruling, but to clarify, when I read Michigan discussion of the public pensions, they appear to be talking about a vested right just to payment of those moneys actually set aside in the fund, instead of those simply promised. In Illinois they talk about a Constitutional guarantee to the promise.
Looks like the judge just made remarks from the bench and a written opinion is still to come.
Credit Slips is a pretty good bankruptcy blog; they observe the most immediate consequence of this decision is that it gives mayors like Rahm leverage to extract voluntary concessions from the public unions.
“BTW, the award for “Most Unhinged Comment of the Day†goes to a comment over at OTB blaming Republicans for Detroit’s bankruptcy.”
I didn’t realize Michael or Ed Schultz commented there. Ah, but if Detroit only had a Cal-Tech……
Ah, but if Detroit only had a Cal-Tech……
LOL, that’s especially true because of the similar climates of Pasadena and Detroit!
…“Most Unhinged Comment of the Day†goes to a comment over at OTB blaming Republicans for Detroit’s bankruptcy.
Blaming the republicans has become the instant default position taken by social progressives, whenever their party’s own policy-driven ideas or politicians go south. When you look at Michigan, it has been a long-term democratic-union-run city. Only recently has there been interjections of more pragmatic governance trying to turn it around. Unfortunately, though, it was too little too late to help much. I still think, had the auto bail-out gone differently, with a managed bankruptcy spreading the pain equally, instead of just dumping on stockholders, investors, and auxiliary businesses, the hit would not have been as big as it is now.
Generally speaking, though, the WH has been captain of the blame-republicans/Bush-for-everything troupe. Ever since 2009, the echo of blame, aimed at republicans, has ricocheted off of every glitch, downturn, growing debt, policy hiccup that has been abundantly present during the Obama administration. I really don’t recall such an intensive pin-it-on-the-other-party reaction during the days of republican rule. Initially, after 911, there were groans that if only Clinton had reacted more aggressively to some of the terrorist attacks on his watch, and had captured OBL rather than concentrating on BJs, especially when he was offered up by the Saudis, then 911 might never have happened. But, these allegations didn’t go on forever. And, during these past 5 years there has not been one word of criticism, coming from Bush to Obama, even though there has been plenty of fodder and reason to do so.
…also, when you look at the last 3 elected Congresses — 110th, 111th, and current 112th Congress — the democrats have controlled both branches of Congress, except for the current 112th House. IMO, it just doesn’t add up that democrats could be the majority party five-sixth of the time, in the last 3 Congresses and yet still have the hubris to blame any and all problems of failed policies and governance on republican obstructionism! This even defies kindergarten logic!
Jan, you’ve miscounted. The Republicans took control of the House after the 2010 elections, so they Dems have only had the majority for one third of the time in the last three Congresses. If you extend it back to the term starting in 2007, Dems had an outright majority half the time, and have controlled the Senate in other half of the time.
Ice —
Yeah, you’re right. Here’s my recount:
110th — Senate and House both democratic
111th — Senate and House both democratic
112th — Senate democratic; House republican
113th –Senate democratic; House republican (current)
Republicans have held a majority 25% of the time in the Senate/House branches of the 110th -113th Congresses, while the democrats have been in the majority 75% of the time. Broken down strictly into separate branch percentages, the dems and Rs have each held majority rule 50% of the time in the House, while the Senate has held a solid 100% democratic majority since 2007, under Harry Reid.