New Twist In Detroit's Financial Troubles

A county judge in Michigan has ruled that Detroit's bankruptcy filing must be withdrawn because it violates the state constitution. Quinn Klinefelter of member station WDET tells Melissa Block that the state is appealing the order.

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From NPR News this is ALL THINGS CONSIDERED. I'm Audie Cornish.

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And I'm Melissa Block. There's a new twist in the story of Detroit's financial troubles. Yesterday, it became the largest city in U.S. history to file for Chapter 9 bankruptcy. Well, today, a county judge in Michigan ordered that the bankruptcy filing be withdrawn because it violates the states constitution. The state is appealing the order. Quinn Klinefelter of member station WDET is following these developments. And, Quinn, why don't you explain the grounds the judge gave for making her ruling today.

QUINN KLINEFELTER, BYLINE: Well, as you say, she argues that it violates the Michigan constitution because it would lessen the pension benefits that would be given to some retirees from the city of Detroit. This judge from Ingham County, which is by the state capitol in Michigan, was considering three separate lawsuits on behalf of pensioners and retirees that said that they were going to be really hurt by the filing, the bankruptcy filing from Detroit, that it was going to really invade their pensions.

And the judge says that the Michigan constitution prohibits that. It prohibits any action that would lessen the pension benefits of a public employee. And that includes those in the city of Detroit. The judge says that Governor Snyder and the emergency manager for Detroit, Kevyn Orr, violated that constitutional provision and that, therefore, the bankruptcy filing that was so touted yesterday should be withdrawn.

BLOCK: It does sound like a pretty startling turn of events. How typical is this, if it is, in a bankruptcy case?

KLINEFELTER: It is not, according to bankruptcy experts. They say it's basically unheard of. That's part of the reason that somebody actually goes bankrupt. Once the bankruptcy kicks in, it's supposed to stay any litigation. That's the advantage of filing a bankruptcy case. And in this case, in Detroit, it was kind of a race to the courthouse and the emergency manager got there first. They filed the bankruptcy motion before this judge could make a ruling on those pension cases.

The judge's ruling could become an issue in a bankruptcy court, where they determine if a city like Detroit's actually eligible to declare Chapter 9. But instead of waiting for that, the state officials are appealing the ruling to the Michigan Court of Appeals. So there may be some within the state contingent that think maybe they wouldn't win that fight in bankruptcy court.

BLOCK: Well, people in Detroit have had about a day to grapple with this notion that their city's going bankrupt. What's the reaction that you've been hearing?

KLINEFELTER: It's been mixed. I mean, there's some resignation. It wasn't unexpected for a lot of people. There are some that are even questioning - a fair amount I was a little surprised, that I ran into, you know, a very unscientific sampling - that were questioning whether there really is a financial crisis, even in the midst of all the evidence that there is. Some of them thought it was some kind of a game being played by state officials to take control of the city.

Many of the business community in Detroit were welcoming the news. They said it'll provide a firmer financial foundation for the city. And they're not so worried about their bond ratings. That was taking a hit after the bankruptcy was announced but they say that people weren't dying to loan Detroit money anyway at the moment.

There's others that fear what kind of cuts and services would happen. But the next step apparently is to determine if this county court decision's reaffirmed and find out whether Detroit's really in bankruptcy at all.

BLOCK: Okay. Quinn Klinefelter of member station WDET in Detroit. Quinn, thanks so much.

KLINEFELTER: Thank you.

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