DETROIT — Lawyers for retiree groups and unions argued before U.S. Bankruptcy Judge Steven Rhodes this week that the U.S. Constitution and the Michigan Constitution should block the filing of Detroit’s Bankruptcy.

One of the most problematic issues with the bankruptcy comes down to creditors arguing that the State has no right to interfere with, or impair the value of City pensions.  Emergency Manager Kevyn Orr and City attorneys had previously announced that they were aiming to cut pensions for retirees.

During the two court hearings, held on Oct. 15 and Oct. 16, state officials, city officials and creditors argued back and forth over the issue. Judge Rhodes had announced prior to the hearings that he will not make a ruling on eligibility of the bankruptcy this week, but is listening to the arguments in preparation for the larger eligibility trial that begins Oct. 23.

During the first day, creditors, including Detroit’s two pension funds and Michigan Council 25 of the American Federation of State, City and Municipal Employees, challenged Detroit’s eligibility for bankruptcy. They argued that Gov. Rick Snyder should have forced Orr to save public pensions during the bankruptcy, because the Michigan Constitution protects public pensions from being reduced by the State.

On the second day, the State also weighed in on the issue. Assistant Attorney General Margaret Nelson argued Wednesday that the emergency manager law is constitutional and U.S. Bankruptcy Judge Steven Rhodes should allow Detroit’s bankruptcy to proceed, regardless of the pension debate, because pensions have not been reduced yet. 

The hearing intensified when some creditors argued that the Judge should consider terminating Orr’s position completely, because many consider Michigan’s emergency manager law to be unconstitutional, claiming it infringes on voter rights and because Michigan voters had rejected the Michigan Public Act 4 proposal last November.  Gov. Rick Snyder went on to enact a new emergency manager law in December, regardless of the earlier rejected proposal. 

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

Judge Rhodes was quick to make it clear, however, that he would not consider taking that route, because the bankruptcy filing would then have to fall back into the hands of local officials, who would be responsible for reinitiating the process, or picking up the pieces from Orr, which would make the case even more complicated. 

Rhodes adjourned the hearing on Wednesday afternoon and said that he would hold just one more meeting on Monday, October 21, to hear another round of arguments, before the trial begins on October 23.