Sasha Volokh has a new article on Reason.org today that explores how constitutional pension protections interact with bankruptcy law in the context of Detroit’s ongoing bankruptcy. Here’s an excerpt:
On March 13, 2013, after the release of several reports on Detroit’s finances, the governor of Michigan had announced, consistently with Michigan law, that a “financial emergency” existed in Detroit and appointed an “emergency manager” to run the city. The emergency manager met and negotiated with creditors, but ultimately recommended bankruptcy, which led to the governor’s decision to authorize the city to file for bankruptcy.
Many parties filed objections to the bankruptcy in federal bankruptcy court. On December 5, 2013, bankruptcy judge Steven Rhodes issued an opinion taking up about 95 pages of the Bankruptcy Reporter and discussing over a dozen separate state and federal legal theories, including federal constitutional objections to Chapter 9 on federalism grounds, federal constitutional objections to the use of bankruptcy courts (which are executive tribunals, as opposed to regular courts) on separation-of-powers grounds, a variety of state constitutional claims, and a variety of claims under Michigan law, including challenges to the authority of the emergency manager, as an unelected official, to file for bankruptcy.
Judge Rhodes rejected all the arguments and concluded that the city was eligible to file for Chapter 9 bankruptcy; this post will focus solely on the arguments related to public-employee pensions…