DETROIT — For thousands of people who spent their careers working for the City of Detroit, the main issue is their pensions.
Will they be cut? And if so, by how much?
Whatever happens may have implications that stretch far beyond the Motor City. Though clearly in terrible shape, Detroit is far from the only city with severe financial problems.
U.S. Bankruptcy Judge Steven Rhodes sent shock waves statewide in December, when he ruled municipal pensions could be cut.
Before that, many people believed the Michigan Constitution made it impossible to eliminate benefits that retired workers had earned.
The judge ruled otherwise.
“Pension benefits are a contractual obligation of a municipality and not entitled to any heightened protection in bankruptcy,” he said.
The Michigan Constitution says:
“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.”
That seems straightforward. But did the authors of the constitution, which was narrowly adopted by voters in 1963, mean that pensions never could be reduced in a crisis?
Judge Rhodes may not know this, but the man responsible for that clause is alive, well, and insistent that he and his fellow framers of the state constitution never thought it ever would be legitimate to short anyone on his or her pension.
“Absolutely not!” said 77-year-old Jack Faxon. He is headmaster of the International School in suburban Detroit, a multilingual academy that he founded in 1968.
“We argued over a lot of issues, but that wasn’t controversial at all,” said Mr. Faxon, who was the youngest elected delegate to the 1961-62 constitutional convention, or con-con.
“Getting people to agree that pensions should be protected was like getting them to agree that Sunday is Sunday,” he said.
Mr. Faxon was a 25-year-old government teacher in Detroit Public Schools when he was elected a delegate to con-con. Soon afterward, the head of the Detroit teachers’ retirement system came to him and said public service pensions should be protected.
He agreed, drafted language to that effect, and took it to experts.
“The language in the Michigan Constitution was first reviewed by a professor, then Charlie Joiner, who [later] became a federal judge, and finalized by Bill Cudlip, who was then the senior attorney at Dickinson Wright,” a major Detroit law firm, Mr. Faxon said.
“So if they all agreed that it was airtight, then that’s a very strong endorsement of my interpretation.”
Federal law, however, trumps state law when the two conflict. Implicit in Judge Rhodes’ ruling on pensions is the idea that because bankruptcy law is federal, it overrules any state law.
Yet the ruling that pensions could be cut was solely Judge Rhodes’ interpretation. Mr. Faxon, who later served in the Michigan Legislature for 30 years, mostly in the Senate, thinks the ruling should be appealed and overturned.
Meanwhile, Gov. Rick Snyder is trying to put together a deal that would add $350 million in state funding to a similar amount raised by private foundations. The idea is to shore up city pension funds and save the Detroit Institute of Arts from the possibility of having some of its collection sold to satisfy the city’s creditors. Nobody knows whether he can get the Legislature to agree.
Mr. Faxon has an interesting perspective on the arts issue as well: He was the reason the Legislature began to fund the arts back in the early 1970s.
Not surprisingly, Mr. Faxon also thinks the idea of selling even a single painting from the DIA is crazy. “Buying art was never seen as an investment,” like buying a high-tech stock, he said, “but as a permanent asset to enhance the environment of the city.”
Mr. Faxon also thinks the way the bankruptcy judge is looking at the pension-fund crisis is wrong. “What matters is not the total amount, the billions the actuarial tables say we own, but ensuring there is enough cash flow,” to cover current obligations, Mr. Faxon said.
He doesn’t deny Detroit is in trouble. But he notes that for many years in its glory days, Detroit sent far more money to Lansing than it ever got back. Now, he thinks it is the state’s turn to help.
“I know how politics works,” he told me. “But I think it is incredible that with a state surplus [approaching] a billion dollars, the state remains silent, when for decades Detroit supported the rest of the state.”
Jack Lessenberry, a member of the journalism faculty at Wayne State University in Detroit and The Blade’s ombudsman, writes on issues and people in Michigan.
Contact him at: email@example.com
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