CHICAGO — Michigan Attorney General Bill Schuette said he will enter Detroit's bankruptcy case to defend retirees' pensions in his role as "the people's attorney."
Schuette announced Saturday that he would file a notice Monday to appear in federal bankruptcy court on behalf of the city's pensioners. The Michigan constitution makes it "crystal clear" that pension obligations may not be diminished or impaired, he said in a statement.
"The city of Detroit's bankruptcy will case even greater hardship for many people in southeast Michigan who are already struggling," he said.
The announcement pits the Republican attorney general against Detroit emergency manager Kevyn Orr and Gov. Rick Snyder, also a Republican, who are seeking to cut worker benefits. State attorney general is an elected office in Michigan. Schuette already represents Snyder and the state in another lawsuit related to the case.
Detroit filed its historic Chapter 9 petition July 18, citing nearly $19 billion of debt. Orr says the city has a $3.5 billion unfunded pension liability, up from the previously projected $640 million. The emergency manager, a corporate bankruptcy attorney, argues that the debt is unsecured, along with a $5.7 billion retiree health care debt. Orr's restructuring plan proposes issuing $2 billion of notes to cover the worker benefits along with a chunk of the city's general obligation debt.
Schuette said he will tell the bankruptcy judge overseeing the historic case that "Michigan residents live under a constitution that protects hard-earned pensions."
The attorney general called Detroit's estimate of more than $18 billion of debt "simply staggering."
But "equally staggering is the financial uncertainty of pension benefits relied upon by Michigan seniors living on fixed incomes and anticipating a safe and secure retirement after a lifetime of work," he said. "Retirees may face a potential financial crisis not of their own making, possibly a result of pension fund mismanagement."
Orr "respects" Schuette's concern, the emergency manager's spokesman Bill Nowling said in a statement.
"This is an important issue that will be decided, appropriately, by a federal bankruptcy judge," Nowling said. "The emergency manager plans to establish the city's eligibility to file for Chapter 9 bankruptcy protection and then move as swiftly as possible to propose a plan of adjustment that will help create a strong and viable Detroit and will enable the city to provide essential services to its 700,000 residents."
A spokesman for Snyder said the governor appreciates Schuette's effort to "get clarity and help determine the best path moving forward that respects and is fair to pensioners and all parties."
Schuette's announcement came two weeks after he successfully asked the Michigan Appeals Court to halt an Ingham County Court judge's order that the city withdraw its bankruptcy filing. The judge ordered the withdrawal as part of a lawsuit filed by the city's retirement systems, which argued the filing is illegal because it would impair constitutionally protected worker benefits.
Schuette, representing Orr and Snyder, asked the appeals court for an expedited hearing for his motion to stay the judge's order. The appeals court granted his requests.
A Schuette spokesman told local reporters that the attorney general would continue to represent Snyder and the state in the bankruptcy case.