DETROIT PENSION SYSTEMS FILE FEDERAL SUIT vs. PA 4; BROAD COALITION ALSO EXPECTS TO TAKE LEGAL ACTION

AFSCME and other unions and community groups rally in Lansing April 13 against takeovers; coalition is now planning legal action against PA 4

By Diane Bukowski

DETROIT – Detroit’s two pension systems filed a motion for “declaratory and injunctive” relief against Public Act 4, better known as the Dictator Act, on April 18 in federal district court.  The motion says there are sufficient grounds to believe that the city of Detroit will soon be subject to action under PA4.

A coalition of unions and community organizations, which initiated the historic “We are the People” rally in Lansing April 13,  also expects to file suit against the Act, according to its representatives.

Detroit City Councilwoman JoAnn Watson on capitol steps April 13

“We are about education, litigation and agitation,” said Detroit City Councilwoman JoAnn Watson, who co-chaired a special meeting of the coalition April 20, with AFSCME International Representative Herbert Sanders. Watson compared their contemplated lawsuit to Brown v. the Board of Education, which was supported by the massive civil rights movement prior to the U.S. Supreme Court’s historic decision to desegregate public schools.

Sanders said the coalition’s attorneys have been meeting “for a couple of months” to devise appropriate strategies for the court action.

The pension systems’ lawsuit, filed by three attorneys from Clark Hill, PLLC, asks the federal court to declare PA 4 unconstitutional and bar its implementation. It says the Act “impermissibly” overrides the City Charter and collective bargaining agreements, and disenfranchises citizens and members of the city’s General and Police and Fire Retirement systems. It also says it violates Internal Revenue Service provisions. (Click on Pension lawsuit v Act 4 Michiganemergencyofficerchallenge to read entire lawsuit.)

Detroit police, firefighters and other city workers demonstrate May 6, 2010 against $6 B pension heist

It specifically asks the court to declare one section of PA 4 that relates to pension funds and retirement systems unconstitutional.

It says, “Section19(1)(m) of the Act – the gravamen of this action – provides that an emergency manager may, under certain circumstances: (a) remove any serving trustee of a local pension board for any reason or no reason at all; (b) arguably replace the serving trustees and assume and exercise the authority and fiduciary responsibilities of a local pension board as sole trustee of the pension fund for any reason or no reason at all; and (c) arguably require the municipal government to participate in, and transfer the assets of the local retirement system to, some other retirement system for any reason or no reason at all. MCL § 141.1519(1)(m).”

Michigan Gov. Rick Snyder (r) appoints former Democratic House Speaker Andy Dillon as State Treasurer

Defendants in the suit are Michigan Governor Rick Snyder and State Treasurer Andy Dillon, who has been training individuals to possibly take over as Emergency Managers in more than 45 Michigan municipalities and school districts.

The suit raises claims that Detroit Mayor Dave Bing and Michigan Governor Rick Snyder have been meeting secretly to target the retirement systems.

Bing presents proposed budget to City Council last month

In this year’s budget address, says the suit, “. . . the Mayor used the Act and the potential appointment of an emergency manager for the City of Detroit as justification to demand significant concessions from Plaintiffs, and indicated that Governor Snyder and his administration knew of and supported the Mayor’s proposals and plan.”

Bing has submitted a proposed budget for this year which defaults on the city’s obligations to pay into the systems, and cuts retiree pay-outs and benefits unilaterally.

Benton Harbor rally against EM Joe Harris, Snyder et al. April 27

Benton Harbor’s EM, Joe Harris, also told Fox 2 News April 25 that Snyder and Bing were meeting secretly “to work out some type of agreement where there is a Memorandum of Understanding where the mayor will get support by the state to help him accomplish his goals.”  (http://voiceofdetroit.net/?p=6939)

Bing earlier campaigned for the pension systems, worth $6 billion, to be turned over to the Lansing-based Michigan Employees Retirement System while Jennifer Granholm was still Governor.

Gary Brown on WJR with Frank Beckmann

The suit also says the City Council is considering the approval of a “consent agreement” with Dillon that could also abrogate provisions of union contracts, the charter, and affect the pension systems.

It notes, “On April 18, 2011, Detroit City Council President Pro Tem Gary Brown appeared on WJR radio and indicated his support for a consent agreement between the City of Detroit and the State Treasurer, intimating that discussions or negotiations of such an agreement by the City of Detroit and the Governor and/or State Treasurer already have occurred.”

Former School Board Pres. Carla Scott also signed a "Consent Agreement" before state/Bobb takeover

The Detroit Board of Education reached a “consent agreement” with the state in 2008, but that did not stave off Granholm’s appointment of Robert Bobb as emergency financial manager. Detroit School Board member Marie Thornton was the sole no vote on the consent agreement.

Chris White of The Coalition to Restore Hope to DPS said at the time that “[Board President Carla]Scott continues to push an agenda that includes a state takeover of the school district. This is a spiritual battle we’re in against outside interests. The education of our children and those yet to be born is something we can’t negotiate on.”

PA 4 “arbitrarily” sets an 80 percent funding level as a trigger for a pension system takeover, according to the suit. Detroit’s two systems have consistently been funded at or close to 100 percent over the past decades.

Former Detroit CFO Sean Werdlow with Standard and Poor's rep Stephen Murphy at Council in 2005

A portion of PA 4 directly targets Detroit, says the suit, since it says the “net value of pension bonds or evidence of indebtedness” shall not be used in determining funding levels.

In 2005, the City of Detroit, under former Mayor Kwame Kilpatrick, issued $1.44 billion in “pension obligation certificates,” or bonds, which it later used in part to meet its employer contribution requirements to the pension system.

The retirement systems hotly contested the risky borrowing at the time. The City Council narrowly voted to approve it after Wall Street executives from Standard and Poors and Fitch came to the table. They said they would lower the city’s bond ratings unless it either agreed to borrow the money or laid off thousands of workers. (Go to Pension bond stories MC   to read stories by this reporter and former Michigan Citizen reporter Bankole Thompson on the deal.)

Agnes Hitchcock of Call 'em Out in Feb. 2010

In a comment that accurately portended the future, Agnes Hitchcock of the Call ‘em Out Coalition said, “The state took over the schools to control a $1.5 billion construction bond proposal. Now it looks like we’re telling them that the city is a good thing to take over as well.”

Later that year, despite the Council’s vote to approve the bonds and Kilpatrick’s lay-offs of 1400 city workers, S & P downgraded the city’s bond ratings to BBB-, one step above junk level, anyway.

In 2008, the City narrowly avoided defaulting on the bonds and subsequent state receivership by agreeing to have proceeds from casino taxes go directly to a bank trustee so he could chop off the portion owed on the bonds before handing over the rest to the city. (Read VOD article “How the Banks Destroyed Detroit: at http://voiceofdetroit.net/?p=6196 .)

According to the U.S. federal courts website, a judge has not yet been assigned to hear the lawsuit. Actions so far have involved service of the lawsuit by the plaintiffs on the defendants, and the appointment of an attorney to represent the defendants.

The labor/community coalition against PA 4 meets every Wednesday at 5:30 p.m. at AFSCME Council 25, 600 W. Lafayette at Third. The meetings are open to the concerned public.