Judge Rhodes Takes The State of Michigan to the Woodshed Over EM Law

[313WX]

Finally someone with common sense in this mess.

http://www.detroitnews.com/article/2...RO01/310160113

[professorscott]

Finally someone with common sense in this mess.

http://www.detroitnews.com/article/2...RO01/310160113

This brings us to an interesting question. Assume there is no EM law, or a judge [[Mr. Rhodes or any other judge) throws the current law out. So in that circumstance, Mr. Orr is gone. The city is still flat effing broke and has absolutely no borrowing ability.

What happens next, in my scenario?

[313WX]

This brings us to an interesting question. Assume there is no EM law, or a judge [[Mr. Rhodes or any other judge) throws the current law out. So in that circumstance, Mr. Orr is gone. The city is still flat effing broke and has absolutely no borrowing ability.

What happens next, in my scenario?

Theoretically, the city still has the right to file for bankruptcy under federal law [[if there's no EM law). The difference is, elected officials would guide the city through the proceeding.

[Gistok]

Theoretically, the city still has the right to file for bankruptcy under federal law [[if there's no EM law). The difference is, elected officials would guide the city through the proceeding.

Well that ought to make the city residents sleep better at night.....

[BankruptcyGuy]

This brings us to an interesting question. Assume there is no EM law, or a judge [[Mr. Rhodes or any other judge) throws the current law out. So in that circumstance, Mr. Orr is gone. The city is still flat effing broke and has absolutely no borrowing ability.

What happens next, in my scenario?

The City only has the right to file bankruptcy with the state's authorization. If PA 436 is unconstitutional, then PA 72 is likely the controlling law. I don't know the bankruptcy authorization process under that law.

It was a nice discussion by the Judge, but a) this issue is not in front of Judge Rhodes, except in an inane filing by Krystal Crittendon, b) the Michigan Court of Appeals already weighed in on the issue, indicating that PA 436 was in fact, validly passed according to the state, and c) a Bankruptcy Court judge cannot decide on the constitutionality of a state law [[Stern v. Marshall).

I can't repeat it enough: state residents have no right to a local government. All local power comes from the state, and the state can take that power away whenever it wants.

[Ray1936]

Bankruptcy guy, since the Michigan Constitution states pensions for state and local employees cannot be comprimised, wouldn't that make the state liable for costs of those funds if the local entity doesn't have the bucks????
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[corktownyuppie]

Bankruptcy guy, since the Michigan Constitution states pensions for state and local employees cannot be comprimised, wouldn't that make the state liable for costs of those funds if the local entity doesn't have the bucks????
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Ray, that is the million dollar question, and it's something that will likely be fought in the bankruptcy battlefield. I'm looking forward to hearing BankruptcyGuy's position on it.

With that said, there's no logical conclusion that would both require the state to back local pensions while preventing them from overseeing the decision of those pension boards.

Translation? If the State's on the hook for the pension shortages, every municipality in the state can kiss local control goodbye.

[professorscott]

If the State's on the hook for the pension shortages, every municipality in the state can kiss local control goodbye.

Just so. As BankruptcyGuy [[who knows of which he speaks) and myself [[who does not but sometimes guesses correctly) have agreed in previous threads.

[jj84]

If the State's on the hook for the pension shortages, every municipality in the state can kiss local control goodbye.

Which if that is the law, you will see Municipalities stop funding pension funds totally and giving insane pensions as they won't have to fund them as the state will save them.

[corktownyuppie]

Which if that is the law, you will see Municipalities stop funding pension funds totally and giving insane pensions as they won't have to fund them as the state will save them.

What you have just mentioned is what I would call the *opposite* of losing local control. Local control isn't just how the money is invested. It's also how much the pensions will pay.

[jj84]

What you have just mentioned is what I would call the *opposite* of losing local control. Local control isn't just how the money is invested. It's also how much the pensions will pay.

I agree, You couldn't have local control if the state is on the hook for any contract that had a pension with it, from the beginning of even offering it the state would need to sign off.

There are communities now that pay special milage for pensions that court settlements have placed on them, how would this bankruptcy filing change that? Would those communities then sue saying the state needed to make up their pension shortfalls vs just that local community? The court has many interesting questions to answer.

[MikeyinBrooklyn]

Perhaps the city should be dissolved as a political entity, with essential functions being taken over by the state and county [[or contracted out by them to regional authorities or vendors). The city government could be retained as a shell corp [[like the old Chrysler & GM), with limited taxing ability in place to pay off existing debt and pension obligations. That shell corp would go away when the obligations were retired.

[Honky Tonk]

It's funny to me how much time, money, and energy is being spent going after, repealing, and removing the EFM, and how little time, money, [[well, a LOT actually), and energy was spent trying to avoid the situation the City is currently in.

[BankruptcyGuy]

Bankruptcy guy, since the Michigan Constitution states pensions for state and local employees cannot be comprimised, wouldn't that make the state liable for costs of those funds if the local entity doesn't have the bucks????
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Great question. I think the answer, if ultimately litigated, is probably yes [[again, to the extent of vested pension benefits). Gov. Snyder is a practical man. You don't fight a battle that you might lose, in his mind. So my guess is that:

a) the state pays something toward the pensions;
b) the state gets something from the City [[DWSD? Art?);
c) local control of pension benefits and investment decisions goes away.

As to someone's question about municipalities then stopping pensions, I'd guess it will something like what the state does for schools now--gives money to the cities and then takes a chunk back for pension obligations.

[BankruptcyGuy]

There are communities now that pay special milage for pensions that court settlements have placed on them, how would this bankruptcy filing change that? Would those communities then sue saying the state needed to make up their pension shortfalls vs just that local community? The court has many interesting questions to answer.

That's a good group of questions. I think the state may take the position that if you are bankrupt, and have gone through the EM process, then and only then can you get some state relief.

In a "politics makes strange bedfellows" moment, the result would be that some localities with the strongest opposition to PA 436 will rush to go through that process to get out of the pension shortfall funding obligation. Maybe.

[iheartthed]

Bankruptcy guy, since the Michigan Constitution states pensions for state and local employees cannot be comprimised, wouldn't that make the state liable for costs of those funds if the local entity doesn't have the bucks????
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Exactly! If the state is operating under the ideology that local government is just an extension of the state then local budgets are an extension of state budgets. If the state is operating under the premise that Detroit is just an extension of the state -- especially, hypothetically, if this idea is somehow enshrined into Michigan's constitution -- then does Detroit even have the right to file bankruptcy since states are not allowed to do so by the federal government?

One of the most interesting things about this bankruptcy is how it is highlighting the bipolar way in which Michigan has decided to delegate responsibilities to local level.

[Hermod]

One of the most interesting things about this bankruptcy is how it is highlighting the bipolar way in which Michigan has decided to delegate responsibilities to local level.

You don't delegate responsibility for things. You delegate authority to do things.

[Eber Brock Ward]

BKGuy, does your "probably yes [[again, to the extent of vested pension benefits)" consider the federal preemption issue, or does it assume that the disposition of that issue has been "constitution not preempted by BK law"?

Beyond that, I have a hard time drawing a non-illusory distinction between [[1) pensions as "a contractual obligation" of the city as one of "the state and its political subdivisions" under Article IX Sec. 24, and [[2) other "contractual obligations," such as bond covenants, vendor contracts, and so on.

To the extent that the pensions are unfunded, I have a hard time seeing how they would enjoy priority over other unsecured creditors.

[[There's also that pesky "thereby" issue, too, though.)

[iheartthed]

You don't delegate responsibility for things. You delegate authority to do things.

Yes, actually that is a better word. The bipolar way in which Michigan has decided to delegate authority to the local level.

[Hermod]

Yes, actually that is a better word. The bipolar way in which Michigan has decided to delegate authority to the local level.

But that is true in most states where I have lived. Counties and municipalities are likmited by the state in what taxes they can levy, how retiree pensions are handled [[Florida has a state pension system), and what traffic can be controlled on which roads.

[iheartthed]

But that is true in most states where I have lived. Counties and municipalities are likmited by the state in what taxes they can levy, how retiree pensions are handled [[Florida has a state pension system), and what traffic can be controlled on which roads.

Do those states have examples of municipalities that have successfully filed bankrupt? California, for instance, has had several instances of cities and counties file bankrupt but I don't think there is any sort of process for state intervention of financially distressed local governments. California also appears to allow more autonomy at the local level for finding sources of revenue than does Michigan.

[Jimaz]

“What’s the point of giving people the power of referendum to reject a statute if the constitution is read to give the Legislature the power to re-enact word-for-word the same statute voters just rejected?” Rhodes asked Assistant Attorney General Margaret Nelson. “What’s the point?”

“That becomes a political issue,” Nelson replied. “Do voters want to keep those legislators in office?”

“Why put the people to that?” Rhodes asked. “The people spoke.”

...

The Republican-controlled Legislature rushed a new emergency manager law to Snyder’s desk during the December lame-duck session over vehement objections from Democrats who said the chambers’ GOP majorities were ignoring the will of the people.

...

“Where is the substance of that right of referendum that the constitution gives the people if the Legislature has the authority to thumb its nose like that?” Rhodes asked Nelson.

“It does beg the question,” Nelson said. “It becomes a matter of political will.”

“The public already expressed its will,” Rhodes replied. “Why do it two, three or an infinite number of times?”

Hell Yeah! That's the exact same question I asked after Arizona voters approved medical marijuana and then the state simply ignored them. Is democracy a thing we just pretend to practice today?

In case anyone's considering tarring and feathering anyone over this, for safety's sake please read up on the process first. We use a different kind of tar today.

Thanks for the link, 313WX.

[BankruptcyGuy]

BKGuy, does your "probably yes [[again, to the extent of vested pension benefits)" consider the federal preemption issue, or does it assume that the disposition of that issue has been "constitution not preempted by BK law"?

Beyond that, I have a hard time drawing a non-illusory distinction between [[1) pensions as "a contractual obligation" of the city as one of "the state and its political subdivisions" under Article IX Sec. 24, and [[2) other "contractual obligations," such as bond covenants, vendor contracts, and so on.

To the extent that the pensions are unfunded, I have a hard time seeing how they would enjoy priority over other unsecured creditors.

[[There's also that pesky "thereby" issue, too, though.)

State sovereignty has always been the limiting factor to the Contracts Clause. The State can, within reason, adjust its own obligations, subject to Michigan's Constitution. The scope of the State's rights would likely be resolved by the state Supreme Court.

If the issue came before the judge [[which, again, I don't think either side really wants to have this fight), I would imagine that Chapter 9 allows for the readjustment of pension obligations, just like any other obligation. In my mind, it's a state law conflict in hiding--one state law [[Sec 24) does not allow for the adjustment of pensions, while another [[permitting the filing of Chp 9) doesn't rule it out. You could reconcile those by saying that, in Michigan, a municipality can file for Chapter 9, but not adjust pensions. That is, in the end, what the pensioners will argue [[if it ever gets there).

I think "thereby" refers to "state and its political subdivisions," but I guess the question is "which one?"

I guess the pensioners will affirmatively name the state in a suit after they get a plan they don't like. Suing the state in state court for a determination of the meaning of the state constitution might yield a result that the pensioners don't want, though.

[professorscott]

Hell Yeah! That's the exact same question I asked after Arizona voters approved medical marijuana and then the state simply ignored them. Is democracy a thing we just pretend to practice today?

Well, in this case what we have is:
1. The State passed an emergency manager law.
2. The voters rejected that law by referendum.
3. The State passed an emergency manager law that was very similar to, but not exactly the same as, the earlier law.
4. The voters have not rejected that new law by referendum.

If the State had simply gone back in step 3 of my algorithm and passed the exact same law the voters had rejected, I would have expected some public-spirited attorney or two to take that matter up with the courts. But the new law is not exactly the same, so where do we draw the line in such a case? The State now has to stay away from the subject entirely?

I think the political process is at work here. If the new EM law is hateful, put another referendum together, or - better yet - do that and throw out the legislators who ignored the will of the people, if that's what you believe happened.

[MikeyinBrooklyn]

Detroit's corrupto-government for the last many decades is not unlike, in several ways, the Bernie Madoff situation. There are victims [[taxpayers, citizens not getting adequate services, bondholders, retirees, etc) and there are messes. The judge should realize that to emerge from the expensive morass of non-governance that we have endured will be difficult, painful, ugly, and imperfect.