Here’s the 150-page decision in the Detroit bankruptcy case, which has the distinction of being the first-ever court decision that says promised public-employee pension benefits can be reduced via municipal bankruptcy. Worth noting: States cannot declare bankruptcy.
Also worth noting: Mayor Chuck Reed’s measure, which among other things would change the California constitution to allow prospective public pension reductions, applies to both state and local governments. Conventional legal wisdom has always held that the Tenth Amendment of the U.S. Constitution and California’s constitition (which is remarkably similar to Michigan’s in this area) say that public pensions are contracts that can’t be altered once promised. The Detroit ruling says that bankruptcy law is all about breaking contracts.
“... nothing distinguishes pension debt in a municipal bankruptcy case from any other debt,” wrote Detroit bankruptcy Judge Steven Rhodes. “If the Tenth Amendment prohibits the impairment of pension benefits in this case, then it would also prohibit the adjustment (of) any other debt in this case.”
Here’s the full ruling. The pension discussion picks up on page 73: