[quote=CDMA ENG][quote=CA renter][quote=The-Shoveler]It’s very simple really,
When the City files BK, it does so in Federal court.
If the Federal court over rules the State Law saying that “public employee pensions cannot be diminished or impaired”
Well I guess that’s where the real battle begins.
Interesting times.[/quote]
Employee compensation (including pensions), are priority claims. The only question is how they will determine the limits of the priority claims for a municipal BK, as opposed to limits for a business BK. Bondholders do not have priority claims.[/quote]
Priority claim is what is at stake in Detroit. I know in CA that Pensioner are a priority claim. That being said I hope your right.
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It’s much more complicated than just a matter of priority claims. Debts to employees may not even be priority claims in municipal bankruptcies, as they are, with limits, in business bankruptcies. (The language in the law is not the same, and there just isn’t that much precedence.)
TS quoted a piece of the Michigan constitution, but I think he skipped the more important part. What the law says is:
The accrued financial benefits of each pension plan and retirement system of the state and its political subdivisions shall be a contractual obligation thereof which shall not be diminished or impaired thereby.
If the pension plan benefits “of the subdivisions” are a contractual obligation of the state, then even if Detroit succeeds in wiping out those obligations, they remain obligations of the state. (The state is not a party to the bankruptcy.) So the question that the bankruptcy court has to answer is whether state law makes the state a co-obligor on those debts, and if they pass on answering that question, whether the wording of the state law (both the quoted part, and subsequent sections) creates a security interest in municipal funds.
