OT: Judge rules on Detroit pensions in BK case

[davelj]

From the article:

The judge made it clear that public employee pensions are not protected in a federal Chapter 9 bankruptcy — even though the Michigan Constitution expressly does protect them.

“Pension benefits are a contractual right and are not entitled to any heightened protection in a municipal bankruptcy,” he said.

Federal law, he said, trumps the state law — making the pensions of 23,000 workers fair game for the city to include in its plan of adjustment.

http://www.nytimes.com/2013/12/04/us/detroit-bankruptcy-ruling.html?hp&_r=1&

I predict that pension payments will be reduced. It’s just going to be a matter of who’s and by how much.

[Coronita]

With pensions looking like fair game, looks like this is going to be watershed moment for other municipalities that is in dire financial situation in the future.

[Anonymous]

Although I’m not surprised by this ruling, it’s difficult to say to what extent it can be used to predict the outcome of California’s pension crisis. States cannot file for bankruptcy, and many of our municipal pensions are legally entangled with the state pension system.

My prediction for CA is that taxpayers, public safety, education, and infrastructure will bear the cost of unrealistic and extraordinarily generous promises made in past decades, as the state is forced to guarantee a minority of the population a long and comfortable retirement.

I’m optimistic about most things, but the next couple decades in CA are going to be difficult to watch.

[livinincali]

[quote=harvey]Although I’m not surprised by this ruling, it’s difficult to say to what extent it can be used to predict the outcome of California’s pension crisis. States cannot file for bankruptcy, and many of our municipal pensions are legally entangled with the state pension system.
[/quote]

States can’t declare bankruptcy but they can default. Look at how the state resorted to paying bills in IOUs a few years back. What if the state just skips a pension payment, and then another every time it doesn’t have the money. You’ll never get that missed payment back because the payments stop when you die. What if they pass a special pension income tax. We honored the promise we just paid for it by taxing the recipients.

The net result is the same. Even if we get the inflation solution that some here like to claim is a solution. They will play with the CPI numbers so that your payment won’t go up as much as the inflation. Bottom line is most public employee pensioners are not going to get the 60%+ of highest salary in purchasing power during retirement. They’ll likely get something unless the current beneficiaries and courts decide the pension fund balances need to be zeroed before doing something.

[no_such_reality]

They don’t need to do that, just pass a prop like we did to do taxes on the rich, but classify tax from government pensions differently and subject them to a 50% tax over a certain amount, say $50,000.

[The-Shoveler]

If the city of L.A. would just adopt anti pension spiking rules and make them retro-active they may be even OK.

But that is unlikely.

Most likely outcome is to not do anything until the fund balance is zero, and then go negative for several years before the above happens.

[SK in CV]

I think this is a long way from over. What the judge ruled is that the Detroit bankruptcy can go forward. Even if the City of Detroit pension obligations are reduced, that doesn’t necessarily reduce the obligations of the State of Michigan to pay.

[Anonymous]

From the OP link:

The judge made it clear that public employee pensions are not protected in a federal Chapter 9 bankruptcy — even though the Michigan Constitution expressly does protect them.

“Pension benefits are a contractual right and are not entitled to any heightened protection in a municipal bankruptcy,” he said.

Seems that any claim that the state has an obligation to pay was dismissed by this ruling.

Agree that it’s far from over, but if I were a former Michigan public employee on a pension, I’d be cutting back on my Christmas shopping this year.

[SK in CV]

I’m not sure where it says the state’s obligation can be dismissed. The state isn’t even a party to the bankruptcy.

If two parties owe a debt, and one of them is bankrupt, that doesn’t dismiss the other party. I don’t think the bankruptcy judge has the power to dismiss any obligations of the state.

[Anonymous]

I don’t see anywhere where it says the state has any obligation to pay Detroit’s debts.

If it were just a question of the state cutting the check vs. the city, I don’t think the creditors and pensioners would be as concerned as they appear to be.

[CDMA ENG]

[quote=harvey]I don’t see anywhere where it says the state has any obligation to pay Detroit’s debts.

If it were just a question of the state cutting the check vs. the city, I don’t think the creditors and pensioners would be as concerned as they appear to be.[/quote]

That’s worth investigating becasue some states do have it in the consitution that they cannot let a city fail… I remember reading about in MISH…

CE

[SK in CV]

[quote=harvey]I don’t see anywhere where it says the state has any obligation to pay Detroit’s debts.

If it were just a question of the state cutting the check vs. the city, I don’t think the creditors and pensioners would be as concerned as they appear to be.[/quote]

Michigan constitution has an awkwardly worded section:

§ 24 Public pension plans and retirement systems, obligation.
Sec. 24. 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.

This can be read to mean that pensions of political subdivisions {cities} are an obligation of the state. I’d be lying if I said this is clearly what it says. But neither do I think that it’s clear that it says something different.

[paramount]

I would think this ruling would be relevant to San Bernardino, at least I hope it is….

[njtosd]

[quote=SK in CV][quote=harvey]I don’t see anywhere where it says the state has any obligation to pay Detroit’s debts.

If it were just a question of the state cutting the check vs. the city, I don’t think the creditors and pensioners would be as concerned as they appear to be.[/quote]

Michigan constitution has an awkwardly worded section:

§ 24 Public pension plans and retirement systems, obligation.
Sec. 24. 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.

This can be read to mean that pensions of political subdivisions {cities} are an obligation of the state. I’d be lying if I said this is clearly what it says. But neither do I think that it’s clear that it says something different.[/quote]

Supremacy clause of the constitution states that federal law (i.e. bankruptcy law) supersedes the state constitution:

“The Supremacy Clause reads “This Constitution, and the Laws of the United States which shall be made in pursuance thereof; and all treaties made, or which shall be made, under the authority of the United States, shall be the supreme law of the land; and the judges in every state shall be bound thereby, anything in the constitution or laws of any state to the contrary notwithstanding”. This clause can be interpreted as saying that a federal court has the power to supersede a state law or even a state constitutional provision.”

http://msue.anr.msu.edu/news/what_is_at_stake_for_pensioners_in_municipal_bankruptcy

[SK in CV]

[quote=njtosd][quote=SK in CV][quote=harvey]I don’t see anywhere where it says the state has any obligation to pay Detroit’s debts.

If it were just a question of the state cutting the check vs. the city, I don’t think the creditors and pensioners would be as concerned as they appear to be.[/quote]

Michigan constitution has an awkwardly worded section:

§ 24 Public pension plans and retirement systems, obligation.
Sec. 24. 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.

This can be read to mean that pensions of political subdivisions {cities} are an obligation of the state. I’d be lying if I said this is clearly what it says. But neither do I think that it’s clear that it says something different.[/quote]

Supremacy clause of the constitution states that federal law (i.e. bankruptcy law) supersedes the state constitution:

“The Supremacy Clause reads “This Constitution, and the Laws of the United States which shall be made in pursuance thereof; and all treaties made, or which shall be made, under the authority of the United States, shall be the supreme law of the land; and the judges in every state shall be bound thereby, anything in the constitution or laws of any state to the contrary notwithstanding”. This clause can be interpreted as saying that a federal court has the power to supersede a state law or even a state constitutional provision.”

http://msue.anr.msu.edu/news/what_is_at_stake_for_pensioners_in_municipal_bankruptcy%5B/quote%5D

If the Michigan constitution is interpreted to mean that city pension obligations are also obligations of the state, federal supremacy is moot. The federal bankruptcy court can only rule on the obligations of the bankrupt debtor. The bankrupt debtor is the city of Detroit. It can’t rule on the obligations of a non-bankrupt debtor. It has nothing to do with supremacy.

[Author]

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