Conservatives could learn something from Detroit union’s argument about how municipal bankruptcy violates states’ rights
To most, the idea that Detroit would be considered ineligible for bankruptcy seems ridiculous, but more than 140 creditors have formally objected to the city’s Ch. 9 petition. Some of the objections are junk. Others must be taken seriously by both the city and the court, even if they are likely to fail.
Most of the arguments have focused on the constitutionality-of-pension-cuts issue and whether Detroit negotiated in good faith.
Detroit’s largest union, AFSCME, has taken matters a step further, and contested the very constitutionality of municipal bankruptcy itself:
Chapter 9 of the Bankruptcy Code is an unconstitutional violation of federalism because chapter 9 allows Congress to set rules controlling State fiscal self-management – an area of exclusive state sovereignty – as part of an unholy alliance in which the State receives in exchange powers in excess of those it would otherwise possess under the law.
Members of the public finance community have laughed this off, pointing out that Ch. 9′s constitutionality was upheld by the Supreme Court back in the 1930s.
AFSCME knows that. When read through, AFSCME’s objection, though sophistical and (it goes without saying) grossly opportunistic, is not a hack job. The union makes a couple usefully critical points about municipal bankruptcy which conservatives in particular would do well to heed.
Conservatives have loudly denounced any suggestion of a federal bailout for Detroit, but have voiced no objection to the bankruptcy itself, which will entail a substantial intervention, on the part of an unelected federal judge, into a city’s affairs. There may be a contradiction there.
Are there any true federalists around? Detroit city government is a political subdivision of the state of Michigan. Why should a federal court get involved at all? Dealing with municipal distress is primarily a responsibility of state government. Why should it not be exclusively a state responsibility?
That’s what AFSCME says. AFSCME believes that Ch. 9 amounts to buck-passing on the part of state governments. Instead of setting themselves down to the tough work of dealing with fiscal emergencies on their own, states “outsourc[e]” the task to the federal judiciary in bankruptcy.
This not how federalism is supposed to work, says AFSCME. Federalism is supposed to protect individual liberties and enhance accountability, not enable evasiveness by craven politicians. Ch. 9 casts a “veil of accountability” (who will really be responsible for Detroit’s debt reorganization plan?) over local fiscal affairs, and in a way that clearly can threaten individual liberties. The liberties in question are, of course, those of retirees who will see cuts to their pension and healthcare benefits.
Ultimately, the allocation of state resources as between competing creditors of the City should be determined “by the political process established by the citizens of the State, not by judicial decree mandated by the Federal Government.”
Defenders of the constitutionality of Ch. 9 would say that any objection over fiscal distress’ being a non-federal issue is easily neutralized by the fact that Ch. 9 is voluntary: states must explicitly authorize cities to file for bankruptcy, and, indeed, some states even prohibit it.
As AFSCME sees it, municipal bankruptcy was passed and upheld during the Great Depression, a time in which the nation, under the pressure of fiscal emergency, forgot itself and weakened federalism. Courts have since come to their senses, and produced “a robust vision of federalism” which invalidates Ch. 9′s justification.
AFSCME argues that, in addition to being unconstitutional, Ch. 9 is “unnecessary” because states can adjust debts themselves. Although this would seem to run afoul of the Constitution’s Contract Clause, it should be noted that the law professors Michael McConnell and Randal Picker, in their 1992 article, which is probably the most-highly regarded work ever written on Ch. 9, lend support to AFSCME’s view that “states can pass legislation to adjust municipal debts in a financial emergency.” If there can be such a thing as state bankruptcy law, this would be all the better for the principled federalist view that cities’ fiscal struggles should be the exclusive responsibility of state governments.
The second argument is worth exploring further, but as for AFSCME’s federalism argument, it has two important weaknesses. First, it relies on a concept of federalism that is a pure abstraction, which has nothing to do with how the system actually works. Federalism’s strong suit will never be accountability. It’s messy. The messiness and ambiguity over where states’ responsibilities end and the federal government’s begin actually protects individual liberties by preventing the federal government from assuming too much power. That’s the main reason for federalism.
Second, AFSCME never makes clear why it defines “individual liberties” as those of retirees. Don’t Detroit’s citizens have rights to basic services, rights that are now being infringed upon by the city’s massive retirement obligations? Bankruptcy may necessary, in extreme cases, to ensure those services are being delivered. That’s certainly Detroit’s argument.
And so credit to AFSCME for promoting a salutary wariness towards relying on federal judges to deal with cities’ problems. None of us, especially not conservatives who fancy themselves federalists, should welcome municipal bankruptcy. The best way to respond to pervasive fiscal distress among cities is for state governments to develop improved oversight and takeover mechanisms.