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View Diary: War on Pensions: Bankruptcy (30 comments)

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  •  Every bankruptcy "impairs contracts" (2+ / 0-)
    Recommended by:
    Justanothernyer, Sparhawk

    Not just municipal bankruptcies.  Even bankruptcies of privately-held companies "impair" their contracts with creditors -- the creditors get so much on the dollar, and the creditors lose the right to sue the bankruptcy estate for what they are really owed under their contract with the bankrupt entity.  Bankruptcy always does that.  That's why it is more expensive to get a loan when your credit is bad,  because a lender runs a higher risk that you will declare bankruptcy and if he lends you money, and you go bankrupt, he could lose the contractual right I had to recover his money.

    If those are the provisions that Detroit is relying on, the "impairment of contracts" provision, then I agree with those who are saying that bankruptcy law trumps that.  If that provision prevented this bankruptcy, it would prevent all bankruptcies in that state.  

    •  I did not say that only municipal (0+ / 0-)

      bankruptcies impair contracts. You implications that I did is inaccurate.

      •  I think you missed the point (2+ / 0-)
        Recommended by:
        Justanothernyer, coffeetalk

        re-read coffee's second paragraph.

      •  MI Constitution has specific provision protecting (5+ / 0-)

        pensions:

        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.

        Financial benefits arising on account of service rendered in each fiscal year shall be funded during that year and such funding shall not be used for financing unfunded accrued liabilities.

        I've never researched this issue, which may be one of first impression.  It is a scary proposition that bankruptcy law could trump such specific state constitutional provisions.

        Some men see things as they are and ask why. I dream of things that never were and ask why not?

        by RFK Lives on Mon Jul 22, 2013 at 12:22:33 PM PDT

        [ Parent ]

        •  Bankruptcy has been used (1+ / 0-)
          Recommended by:
          kerplunk

          successfully to do some rather nasty things like voiding union contracts. It is plausible that it could prevail in reducing benefits to retired public employees. As you can see from comments to this diary, there are a bunch of people frothing at the mouth in anticipation of that happening.  

        •  Re-read that... (0+ / 0-)

          It's not as iron-clad as you think.

          The first paragraph says nothing about bankruptcy proceedings. It basically seems to say that state law can;t reduce a pension once the pension is accrued, but bankruptcy isn't state law.

          The second requires pension fund contributions to be made. This has not been followed lately, and according to the bean-counters was never really followed because Detroit was assuming it's pension fund would grow at 7-8% a year. They say that was too high, the real growth rate is lower, therefore the City was supposed to make several billion more in contributions.

          In other words the GOP majority on the state Supreme Court (and it's a 5-2 majority) has plenty of reasons to argue that bankruptcy is fine, and that as long as they don;t take money out of the pension fund to pay bonds the State Constitution is being followed.

    •  Well, also, if he's quoting the constitutions... (1+ / 0-)
      Recommended by:
      Justanothernyer
      "A bill of attainder, ex post facto law, or law impairing the obligation of contracts may not be passed."
      All this seems to prohibit is a state law impairing the obligation of contracts. Bankruptcy is federal.

      I'm morbidly curious if some of the people decrying selling off Detroit's city-owned art collection will still be upset if that money goes toward the pensions.

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