Nick Krieger (@nckrieger):
One year ago last week, the city of Detroit officially emerged from the largest municipal bankruptcy in United States history. Gerry Rosen, Kevyn Orr, and Steve Rhodes—who continue to slap each other on the back—are laughing all the way to the bank. But the bankruptcy wasn’t a magic panacea for all of Detroit’s ills. A lot of people were hurt and took financial hits.
When I see Rosen, Orr, and Rhodes publicly celebrating the bankruptcy and smugly referring to themselves as the “architects of prosperity,” I always have to ask one question: Whose prosperity are they talking about? Perhaps their own. Rumor has it that Gerry Rosen—already paid handsomely as a sitting federal judge—is working to secure a bankruptcy-related book deal. And Orr and Rhodes have now become consultants for other municipalities that seek to cut out their pensioners and creditors.
Lest you have any remaining doubts, consider this: Section 109(c)(2) of the United States Bankruptcy Code states that a municipality may only become a Chapter 9 debtor if state law specifically authorizes it to do so. Naturally, therefore, you might be wondering which Michigan state law specifically authorized Detroit to become a Chapter 9 debtor. Would you be surprised to learn that it was the Local Financial Stability and Choice Act of 2012—the very emergency manager law that was hastily enacted by the Legislature following the people’s rejection of its predecessor statute at the 2012 general election? I didn’t think so.
And how, exactly, was the Michigan Legislature empowered to enact such a statute authorizing municipalities to pursue Chapter 9 proceedings in the first instance? It is generally accepted that but for the Bankruptcy Clause of the United States Constitution, the Contracts Clause of the United States Constitution would prohibit Congress from enacting bankruptcy legislation. After all, it is axiomatic that the quintessence of bankruptcy is the impairment of contracts. Shouldn’t this same reasoning apply to the Contracts Clause of the Michigan Constitution? If the essence of bankruptcy is the impairment of contractual obligations, doesn’t the Contracts Clause of the Michigan Constitution prohibit the state legislature from enacting a statute authorizing municipal bankruptcies? I think it does. Judge Rhodes conveniently avoided this issue throughout Detroit’s Chapter 9 proceedings. But ask yourself this: Can Congress authorize a state legislature to enact a statute that the state’s own constitution prohibits? No, it cannot.
I don’t dispute that the Detroit bankruptcy has led to prosperity for the powerful and politically connected. But it has done precious little for the average Detroit resident. Sadly, with a year’s worth of hindsight at our disposal, it is now looking more and more like that’s how it was planned all along.