Michigan attorney general backs pensioners in Detroit bankruptcy

Michigan Attorney General Bill Schuette said on Saturday he would join Detroit's federal bankruptcy case to defend retirees who risk losing public pensions, arguing that the state's constitution protects their benefits.

Schuette said Michigan's constitution is "crystal clear" in stating that pension plans are a contractual obligation that may not be diminished or impaired.

"Retirees may face a potential financial crisis not of their own making, possibly a result of pension fund mismanagement," Schuette said in a statement.

The attorney general said he would file an appearance in federal bankruptcy court on Monday on behalf of the pensioners affected by the biggest municipal bankruptcy filing in U.S. history.

A U.S. bankruptcy court judge on Wednesday dealt a blow to Detroit's public employee unions and pension funds opposed to the bankruptcy filing by suspending legal challenges in Michigan state courts while he reviews the city's petition for protection from creditors.

The city's unions and pension funds had hoped to keep the fight in state court, where they felt Michigan's constitutional protections of retiree benefits would prevail against any efforts by state-appointed Detroit Emergency Manager Kevyn Orr to scale them back.

Judge Steven Rhodes ordered three lawsuits filed by city workers, retirees and pension funds halted and extended that stay to suits against Orr as well as Michigan's governor and treasurer.

In a June 14 proposal to creditors, Orr called for "significant cuts in accrued, vested pension amounts for both active and currently retired persons."

Detroit, a former manufacturing powerhouse and cradle of the U.S. automotive industry, has struggled for decades as companies moved or closed, crime became rampant, and its population shrank. The city's revenue failed to keep pace with spending, leading to years of budget deficits and a dependence on borrowing to stay afloat.

Schuette said he would continue to represent Michigan Gov. Rick Snyder and state agencies in legal proceedings related to the bankruptcy.