Detroit Retirement Systems Sue Sndyer, Orr to Block Chap. 9

CHICAGO — Detroit's two pension boards sued Michigan Gov. Rick Snyder and Detroit emergency manager Kevyn Orr in state court Wednesday, saying their "imminent" move to put Detroit in Chapter 9 bankruptcy would violate state constitutional protections for the city's pensions.

The General Retirement System and the Police and Fire Retirement System of Detroit, which together represent 32,000 active and retired employees, filed the lawsuit in Ingham County Circuit Court.

A hearing is set for July 22.

"Since his appointment, the emergency manager has made public that he intends to do an end-run around Article IX, section 24 of the Michigan Constitution by asking the governor to authorize an unconditional Chapter 9 proceeding wherein the emergency manager will seek to have the city's pension debts and the accrued financial benefits of the retirement systems impaired," the complaint says. "It appears imminent that the governor will grant the emergency manager the unconditional power to proceed under Chapter 9."

While the state's law for distressed governments, Public Act 436, allows the governor to authorize an emergency manager to file for Chapter 9, nothing under the law allows the governor or an emergency manager to seek to have pension debts impaired under Chapter 9, the lawsuit says.

"There is an actual controversy between the parties as to the constitutionality and validity of PA 436 and the ability of the governor to issue to the emergency manager the unconditioned authority to proceed under Chapter 9 and seek to impair the city's pension debts," the complaint says. "A present adjudication of this controversy is necessary to guide the future conduct of the parties and preserve their legal rights."

Orr is in the midst of negotiations with the city's unions and creditors that will determine whether he will file for bankruptcy.

The new complaint is similar to other recent lawsuits, which were filed by individual retirees.

"The recent statements regarding an imminent bankruptcy filing, as well as the filing approximately one week ago in Ingham County Circuit Court of similar claims, prompted the retirement systems to take more immediate action," Ron King, an attorney with Clark Hill, which represents the systems, said in a statement.

As part of his plan to restructure the city's debts, Orr contends pension systems are underfunded by $3.5 billion, up from the previously estimated $650 million. Orr has proposed treating the pension debt as unsecured and issuing $2 billion of notes to cover all $11.4 billion of unsecured debts.

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