Judge says Detroit bankruptcy filing was unconstitutional, must be withdrawn

[happyslug]

69. Read Stockton, it goes into the history of Chapter 9

I posted Stockton on another thread on Detroit, so I will not re-post it here, but here is where I did post it:

http://www.democraticunderground.com/?com=view_post&forum=1002&pid=3311321

The key is that Cheaper 9 to be constitutional must be a joint State and Federal undertaking. While States can NOT impair contract (The US Constitution forbids it), the Federal Government can (Exclusive jurisdiction over Bankruptcy was given to the Federal Government and in Stockton the Judge pointed out there was NOT a similar ban on the Federal Government impairing or even abolishing contracts and this difference in treatment was intentional).

On the other hand the States have SOLE JURISDICTION OVER THEMSELVES AND THEIR POLITICAL UNITs (such as the City of Detroit). How can you retain COMPLETE control if the Federal Government can FORGIVE some debts that the state can not? The Supreme Court ruled in the 1930s that such exclusive control would FORBID something like Chapter 9, unless the State permits it.

The problem in the case with Detroit is that mere approval by the Governor may NOT be enough, in the case of Michigan the STATE CONSTITUTION forbids restrictions on pensions. It appears the State Judge in the Case being heard by her was about to rule that under that State Constitutional provisions. if it came down to a choice between the pensions and other debts, it will be the pensions that must be paid first. It is quite clear that the Governor does NOT want for all taxes collected going to on going services and pensions NOT to servicing other debts (Mostly bonds issued by Detroit) The Governor wants these debts paid and if he can get the Bankruptcy court to put the pensions below these debts, pensions will be paid AFTER those bonds not before. Remember that is the real fight, not that the pensions will NOT be paid, but when?

Remember in Stockton the Judge ruled he could NOT enter an order continuing pensions payouts till the plan was final and such payouts addressed in the plan. The Judge in Stockton did NOT say the pension were avoided or to be treated as a lesser liability, but that he could NOT enter an order continuing such pension till the plan was made.

In Stockton the Judge also ruled that California permits its municipalities to file bankruptcy due to the fact California did not actually pass a law forbidding such filing and THAT THE LAWS CALIFORNIA DID PASS IMPLIES THAT SUCH PERMISSION WAS NOT NEEDED FOR A MUNICIPALITY TO FILE CHAPTER 9.

This area of the law is a mess, there have been less then 500 municipal bankruptcies since the 1930s for this reason. Down south some counties have no local municipals other then school districts, but outside the south local government is the norm, for example my home County of Allegheny County Pennsylvania has over 100 municipality in it, and that is with the City of Pittsburgh taking over 1/3 of the county. Thus having only 500 municipal bankruptcies sounds large till you realize how much small municipalities exist in this nation. The low number is due to the fact in most situations it is accepted that state law forbids such filings and that is it. Sooner or later this will have to be addressed by the Bankruptcy Judge, but right now he is avoiding the issue till it can be argued, briefed and heard (and then ruled on).

Side note: Counties are NOT viewed as Local Municipalities by state and federal law, but as part of the State Government. Local Government units are cities, boroughs, towns, townships, school districts, water districts, Sewerage districts etc. Thus there are more local governmental units then a lot of people understand to exist.