The $3.4 billion Detroit Police and Fire Retirement System Monday lost a bid to delay the city's $18 billion bankruptcy when a federal judge ruled he has authority over the filing and will hold a hearing to determine how much protection the city gets as the case moves forward.
U.S. Bankruptcy Judge Steven W. Rhodes in Detroit set the hearing for Wednesday, granting the city's request for a quick court date to confirm protections granted when a municipality files under Chapter 9 of the U.S. Bankruptcy Code. Under the code, the city and its officials are entitled to halt most court proceedings against them during the bankruptcy case.
Mr. Rhodes agreed to consider the city's request to extend the protection to unspecified “state entities.” Pension officials are trying to use state court cases to force Gov. Rick Snyder to withdraw his authorization for the bankruptcy filing, claiming he violated Michigan's constitution.
Pension officials cited the July 19 ruling of Circuit Court Judge Rosemarie E. Aquilina in Lansing, who criticized Mr. Snyder for “overreaching” when he authorized Detroit's emergency manager to rush the city into bankruptcy court. The July 18 Chapter 9 filing came minutes before Ms. Aquilina could rule on a bid by city workers and their pension funds to block the federal case.
Pension plan officials argue that Mr. Orr's bankruptcy plan will cut pensions that are protected by Michigan's constitution. Should Mr. Orr push for such a reduction, Mr. Rhodes would need to decide whether Chapter 9 of the U.S. Bankruptcy code trumps state law, a state constitutional provision, both, or neither.
A hearing scheduled for Monday in Lansing on a related challenge was postponed until next week.