# In re City of Detroit

> United States Bankruptcy Court, E.D. Michigan · December 20, 2013 · 504 B.R. 191

URL: https://www.frixlaw.com/law-library/cases/8496677

## Case

- **Full name:** In re CITY OF DETROIT, MICHIGAN, Debtor
- **Court:** United States Bankruptcy Court, E.D. Michigan
- **Decided:** December 20, 2013
- **Citations:** 504 B.R. 191; 58 Bankr. Ct. Dec. (CRR) 269; 2013 Bankr. LEXIS 5380; 2013 WL 6834647
- **Precedential status:** Published
- **Opinion:** Opinion of the court by Rhodes
- **Judges:** Rhodes
- **Cited by:** 9 later opinions in the Frix Law Library

## Citator (automated)

- No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases.
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/8496677

## Opinion text

Memorandum Regarding:
I. Certification Under 28 U.S.C. § 158 (d) (2) (A) (i)
II. Recommendation on Whether Direct Appeals Should Be Authorized
and
III. Parties’ Request to Recommend Expedited Consideration of Appeals
STEVEN RHODES, Bankruptcy Judge.
Summary
Under 28 U.S.C. § 158 (d)(2)(A), a court of appeals has jurisdiction over a direct appeal upon two conditions:
(1) a certification that one of the circumstances identified in subsections (i), (ii) or (iii) of § 158(d)(2)(A) exists; and
(2) an authorization for the direct appeal by the court of appeals.
These conditions raise separate and distinct questions and considerations.
The appeals from the Order for Relief do involve a “matter of public importance” under subsection (i) of § 158(d)(2)(A). Therefore, this Court is required to certify that fact. Part I of this memorandum complies with the requirements of Fed. R. Bankr.P. 8001(f) that apply when a bankruptcy court certifies that an appeal involves a matter of public importance.
Part II addresses the second, separate issue of whether the Court of Appeals should authorize the direct appeals. This Court recommends that even though these appeals do involve a matter of public importance, authorization for direct appeals be denied. The order on appeal- — the Order for Relief — is an interlocutory order, and all of the traditionally accepted reasons for reserving appellate jurisdiction for final orders apply here. Further, there is no good cause to allow these interlocutory appeals.
Finally, in Part III of this memorandum, the Court denies the objecting parties’ request that it recommend expedited consideration of the appeals. Rather, should the Court of Appeals authorize the direct appeals, the Court recommends that it consult "with the mediator in the case, Chief District Judge Gerald Rosen, on whether expediting this interlocutory appeal is in the best interest of the City, its creditors and its residents.
I. Certification for Direct Appeal to the Court of Appeals
In certain narrow circumstances, 28 U.S.C. § 158 (d)(2)(A) authorizes a direct *193 appeal of an order of a bankruptcy court to the court of appeals. It states:
The appropriate court of appeals shall have jurisdiction of appeals described in the first sentence of subsection (a) if the bankruptcy court, the district court, or the bankruptcy appellate panel involved, acting on its own motion or on the request of a party to the judgment, order, or decree described in such first sentence, or all the appellants and appellees (if any) acting jointly, certify that — ■
(i) the judgment, order, or decree involves a question of law as to which there is no controlling decision of the court of appeals for the circuit or of the Supreme Court of the United States, or involves a matter of public importance;
(ii) the judgment, order, or decree involves a question of law requiring resolution of conflicting decisions; or
(iii) an immediate appeal from the judgment, order, or decree may materially advance the progress of the case or proceeding in which the appeal is taken;
and if the court of appeals authorizes the direct appeal of the judgment, order, or decree.
28 U.S.C. § 158 (d)(2)(A).
Fed. R. Bankr.P. 8001(f)(4)(A) states:
A certification of an appeal on the court’s own initiative under 28 U.S.C. § 158 (d)(2) shall be made in a separate document served on the parties in the manner required for service of a notice of appeal under Rule 8004. The certification shall be accompanied by an opinion or memorandum that contains the information required by [Fed. R. Bankr.P. 8001(f)(3)(C)(i)-(iv).]
Fed. R. Bankr.P. 8001(f)(3)(C) states:
A request for certification shall include the following:
(i) the facts necessary to understand the question presented;
(ii) the question itself;
(iii) the relief sought;
(iv) the reasons why the appeal should be allowed and is authorized by statute or rule, including why a circumstance specified in 28 U.S.C. § 158 (d)(2)(A)®-(iii) exists; and
(v) an attached copy of the judgment, order, or decree complained of and any related opinion or memorandum.
This Part I addresses those five disclosure requirements of Fed. R. Bankr.P. 8001(f)(3)(C).
A. The Facts Necessary to Understand the Questions Presented
1. Introduction
As this Court observed in its Opinion Regarding Eligibility:
The City of Detroit was once a hardworking, diverse, vital city, the home of the automobile industry, proud of its nickname — the “Motor City.” It was rightfully known as the birthplace of the American automobile industry. In 1952, at the height of its prosperity and prestige, it had a population of approximately 1,850,000 residents. In 1950, Detroit was building half of the world’s cars.
The evidence before the Court establishes that for decades, however, the City of Detroit has experienced dwindling population, employment, and revenues. This has led to decaying infrastructure, excessive borrowing, mounting crime rates, spreading blight, and a deteriorating quality of life.
The City no longer has the resources to provide its residents with the basic police, fire and emergency medical services that its residents need for their basic health and safety.
*194 Moreover, the City’s governmental operations are wasteful and inefficient. Its equipment, especially its streetlights and its technology, and much of its fire and police equipment, is obsolete.
To reverse this decline in basic services, to attract new residents and businesses, and to revitalize and reinvigorate itself, the City needs help.
In re City of Detroit, Mich, 504 B.R. 97, 112-13 , 2013 WL 6331931, at *4 (Bankr.E.D.Mich.2013).
Regarding' the City’s debt, this Court stated:
The City estimates its debt to be $18,000,000,000. This consists of $11,900,000,000 in unsecured debt and $6,400,000,000 in secured debt. It has more than 100,000 creditors.
According to the City, the unsecured debt includes:
$5,700,000,000 for “OPEB” through June 2011, which is the most recent actuarial data available. “OPEB” is “other post-employment benefits,” and refers to the Health and Life Insurance Benefit Plan and the Supplemental Death Benefit Plan for retirees;
$3,500,000,000 in unfunded pension obligations;
$651,000,000 in general obligation bonds;
$1,430,000,000 for certificates of participation (“COPs”) related to pensions;
$346,600,000 for swap contract liabilities related to the COPs; and
$300,000,000 of other liabilities])]
Id. at 113-14 .
The Court also found, “Detroit’s population declined to just over 1,000,000 as of June 1990. In December 2012, the population was 684,799. This is a 63% decline in population from its peak in 1950.” Id. at 119 .
On March 25, 2013, Kevyn Orr became the emergency manager for the City of Detroit under §§ 2(e) and 31 of the “Local Financial Stability and Choice Act,” Michigan Public Act 436 of 2012. M.C.L. §§ 141.1542(e) and 141.1571.
At Mr. Orr’s request, on July 18, 2013, Governor Richard Snyder authorized the filing of this chapter 9 bankruptcy case under § 18(1) of Public Act 436. M.C.L. § 141.1558(1). On that same day, Mr. Orr filed this chapter 9 bankruptcy case on behalf of the City of Detroit.
Article IX, § 24 of the Michigan Constitution states, “The accrued financial benefits of each pension plan and retirement system of the state and its political subdivisions shall be a contractual obligation thereof which shall not be diminished or impaired thereby.”
Nothing in Public Act 436 prohibits a municipality from seeking to impair pensions in a chapter 9 case. The governor’s authorization to the City of Detroit to file this case did not include a condition prohibiting the City of Detroit from seeking to impair pensions in this case. Mr. Orr has stated that the City’s plan of adjustment will propose to impair pensions because the City is unable to propose a plan that does not impair pensions.
2. The Several Constitutional Challenges to Chapter 9 of the Bankruptcy Code
Several objecting parties assert that as applied in this case, chapter 9 violates the Tenth Amendment of the United States Constitution. This Court held that if the Michigan Supreme Court were faced with the issue, it would hold that the pension clause in the Michigan Constitution gives pension rights the protection of contract rights. This holding is based on: (1) the language of the Michigan pension clause, stating that pension rights are a “contrac *195 tual obligation”; (2) case law from the Michigan Supreme Court on point, Kosa v. Treasurer of State of Mich., 408 Mich. 356, 368-69 , 292 N.W.2d 452, 459 (1980), In re Constitutionality of 2011 Pa. 38 , 490 Mich. 295 , 806 N.W.2d 683 (2011); and (3) the history of the pension clause, as quoted in Kosa . Accordingly, this Court held that United States v. Bekins, 304 U.S. 27 , 58 S.Ct. 811 , 82 L.Ed. 1137 (1938), is directly on point in authorizing the impairment of contract rights in a municipal bankruptcy and that the decision is binding.
This Court also rejected the objectors’ challenges to chapter 9 under the bankruptcy and contract clauses of the United States Constitution.
3.The Several Challenges to Public Act 436 Under the Michigan Constitution
Several objectors also assert that Public Act 436 violates the pension clause of the Michigan Constitution. This Court rejected that challenge, again because under the Michigan Constitution pension rights are afforded only the protections of contract rights.
The Michigan Legislature enacted, and Governor Snyder signed, Public Act 436 shortly after the voters of Michigan rejected a similar law, Public Act 4 of 2011. This Court rejected the argument of several objectors that following the rejection of Public Act 4, the Michigan Constitution prohibited the legislature from enacting Public Act 436.
Public Act 436 is not subject to referendum because under Article 2, § 9 of the Michigan Constitution, the appropriations provisions in Public Act 436 exempt it from referendum. This Court rejected the argument of several objectors that Public Act 436 is unconstitutional because of the legislature’s evasion of the right of referendum.
4.Other Issues
The objecting creditors asserted many other objections, as detailed in Part I.B., below. The facts necessary to fully understand the other questions presented by those objections are extensive and are set forth in detail in this Court’s Opinion Regarding Eligibility.
B. The Questions Presented
Objections to the City’s eligibility were filed by 110 creditors on a variety of grounds. Broadly stated, the questions presented are:
1. Does chapter 9 of the bankruptcy code violate the uniformity requirement of the bankruptcy clause of the United States Constitution?
2. Does chapter 9 violate the contracts clause of the United States Constitution?
3. Does chapter 9 violate the Tenth Amendment of the United States Constitution, as applied in this case?
4. Does the bankruptcy court have the authority to determine the constitutionality of chapter 9 of the bankruptcy code under Stem v. Marshall [— U.S. -], 131 S.Ct. 2594 [ 180 L.Ed.2d 475 ] (2011)?
5. Did the voters’ rejection of Michigan Public Act 4 of 2011 in November 2012 constitutionally prohibit the Michigan Legislature from enacting Michigan Public Act 436 of 2012?
6. Does Public Act 436 violate the Michigan Constitution because it included appropriations provisions for the purpose of evading the right of referendum?
7. Does Public Act 436 violate the home rule provisions of the Michigan Constitution?
*196 8. Does Public Act 436 violate the pension clause of the Michigan Constitution?
9. Does the pension clause of the Michigan Constitution establish protections for pension rights that are greater than contract rights?
10. Does the bankruptcy court have the authority to determine the constitutionality of Public Act 436 under St ern v. Marshall?
11. Did Detroit’s emergency manager have valid authority to file this bankruptcy case even though he is not an elected official?
12. Was the governor’s authorization to file this bankruptcy case valid under the Michigan Constitution even though the authorization did not prohibit the City from impairing pension rights?
13. Does the judgment in Webster v. Michigan, which was entered post-petition, preclude the City from asserting that the governor’s authorization to file this bankruptcy case was valid?
14. Was the City “insolvent” under 11 U.S.C. § 101 (32)(C), as required by 11 U.S.C. § 109 (c)(3)?
15. Does the City desire to effect a plan to adjust its debts, as required by 11 U.S.C. § 109 (c)(4)?
16. Did the City negotiate with its creditors in good faith before filing its bankruptcy petition, as required (in the alternative) by 11 U.S.C. § 109 (c)(5)(B)?
17. Was the City unable to negotiate with creditors because such negotiation was impracticable, as required (in the alternative) by 11 U.S.C. § 109 (c)(5)(C)?
18. Should the case be dismissed under 11 U.S.C. § 921 (c) because the City of Detroit did not file its bankruptcy petition in good faith?
C. The Relief Sought
Several objecting creditors will request that the Court of Appeals vacate the Order for Relief and order the dismissal of this bankruptcy case. Others will request that the Court of Appeals affirm the City’s eligibility but direct that pension rights may not be impaired in this bankruptcy case.
The City will request that the Court of Appeals affirm the Order for Relief.
D. The Reasons Why the Appeal Is Authorized by Statute, Including Why a Circumstance Specified in 28 U.S.C. § 158 (d)(2)(A) Exists
1. Introduction
As quoted above, 28 U.S.C. § 158 (d)(2)(A) provides several alternative grounds for certifying a direct appeal to the court of appeals:
(i) the judgment, order, or decree involves a question of law as to which there is no controlling decision of the court of appeals for the circuit or of the Supreme Court of the United States, or involves a matter of public importance;
(ii) the judgment, order, or decree involves a question of law requiring resolution of conflicting decisions; or
(iii) an immediate appeal from the judgment, order, or decree may materially advance the progress of the case or proceeding in which the appeal is taken[.]
2. The Certifications That Cannot Be Made in This Case
The Court cannot find that its Opinion Regarding Eligibility and Order for Relief involve “question[s] of law as to which there is no controlling decision of the court of appeals for the circuit or of the Supreme Court of the United States.” 28 *197 U.S.C. § 158 (d)(2)(A)(i). As noted above, the Supreme Court has already sustained the federal municipal bankruptcy law against a Tenth Amendment challenge. United States v. Bekins, 304 U.S. 27 , 58 S.Ct. 811 , 82 L.Ed. 1137 (1938).
Likewise, the Court cannot find that its orders involve “question[s] of law requiring resolution of conflicting decisions.” 28 U.S.C. § 158 (d)(2)(A)(ii).
Nor can the Court find that “an immediate appeal from the judgment, order, or decree may materially advance the progress of the case or proceeding in which the appeal is taken.” 28 U.S.C. § 158 (d)(2)(A)(iii). This question is discussed in Part II, below, addressing the Court’s recommendation that the Court of Appeals decline to authorize the appeal.
3. The Order for Relief Involves a “Matter of Public Importance”
The Court must find that this Court’s Opinion Regarding Eligibility and Order for Relief involve a “matter of public importance.” 28 U.S.C. § 158 (d)(2)(A)®.
The issue of whether the City of Detroit is legally permitted to adjust its debts in this chapter 9 bankruptcy case is important to each of its 700,000 residents, to the State of Michigan, and to the nation. The City is “service delivery insolvent” in providing basic city services.
The issue of whether the City of Detroit is legally permitted to adjust its $3,500,000,000 unfunded pension liability is of the highest interest to the City’s 21,000 retirees and 10,000 employees. It is also of great interest to the many other municipalities and municipal pension plans around the country that have unfunded liabilities.
At the same time, the issue of whether Public Act 436 violates the Michigan Constitution is important because that Act allows the governor to authorize a municipality to file bankruptcy.
Finally, the precedent of this case will impact the eligibility issues in future municipal bankruptcy cases. These issues might include: (1) the extent to which a municipality must attempt to negotiate with creditors before filing bankruptcy when the municipality has as many creditors as Detroit has; (2) whether a state court can interfere with the bankruptcy court’s exclusive jurisdiction under 28 U.S.C. § 1334 (a) to determine eligibility issues in a chapter 9 case; and (3) defining good faith for a chapter 9 filing.
E. This Court’s Opinion Regarding Eligibility and Order for Relief
These are attached, as required.
II. The Court Recommends that the Court of Appeals Decline to Authorize the Direct Appeal.
As noted above, the requirement that the Court of Appeals authorize these direct appeals is a second necessary requirement for jurisdiction.
The Court of Appeals has discretion on whether to authorize these direct appeals. In re Lindsey, 726 F.3d 857, 859 (6th Cir.2013) (“Once such a certification occurs, the court of appeals may in its discretion accept the certification — and appeal.”). However, 28 U.S.C. § 158 (d)(2) does not establish any standards to apply in exercising this discretion.
Rule 8001(f)(3)(C)(iv) requires the Court’s memorandum to state “the reasons why the appeal should be allowed.” Because the Court recommends that these direct appeals should not be authorized, this Part will address the reasons for this recommendation.
In the only court of appeals decision on point, the Ninth Circuit has held that an *198 order for relief in a chapter 9 case is not a final order for purposes of appeal.
A court’s denial of such a motion [to dismiss for lack of eligibility] merely allows the municipality to proceed with the bankruptcy. We are not convinced that Congress’s whole municipal bankruptcy statutory scheme is so skewed in favor of the municipality that the commencement of proceedings itself causes irreparable injury. To so hold would essentially say that a creditor’s rights are determined before the bankruptcy process really begins. As discussed above, creditors do have less rights in a chapter 9 than in any other chapter but they still do have rights.
Silver Sage Partners, Ltd. v. City of Desert Hot Springs (In re City of Desert Hot Springs), 339 F.3d 782, 790 (9th Cir.2003).
The court concluded, “The denial of an objection to and a motion to dismiss a chapter 9 bankruptcy does not irreparably injure a party so that later addressing the issue would be futile. We therefore hold that such a denial is not a final decision and cannot be immediately appealed to this court.” Id. at 792 .
The same is true in this case. This Court’s determination that the City is eligible for chapter 9 relief merely allows the City to proceed with its bankruptcy case. At this point, no creditor’s rights have been finally determined. That will only occur upon confirmation of a plan of adjustment.
To the extent that the City proposes a plan that impairs pensions, this Court has already cautioned:
No one should interpret this holding that pension rights are subject to impairment in this bankruptcy case to mean that the Court will necessarily confirm any plan of adjustment that impairs pensions. The Court emphasizes that it will not lightly or casually exercise the power under federal bankruptcy law to impair pensions. Before the Court confirms any plan that the City submits, the Court must find that the plan fully meets the requirements of 11 U.S.C. § 943 (b) and the other applicable provisions of the bankruptcy code. Together, these provisions of law demand this Court’s judicious legal and equitable consideration of the interests of the City and all of its creditors, as well as the laws of the State of Michigan.
In re City of Detroit, 504 B.R. at 154 .
The purpose of the finality requirement for appeals is to prevent piecemeal reviews and obstructing or impeding ongoing judicial proceedings; the requirement also promotes judicial efficiency and hastens the ultimate termination of litigation. United States v. Nixon, 418 U.S. 683, 690-691 , 94 S.Ct. 3090, 3099 , 41 L.Ed.2d 1039 (1974); Eisen v. Carlisle and Jacquelin, 417 U.S. 156, 170 , 94 S.Ct. 2140, 2149 , 40 L.Ed.2d 732 (1974) (“Restricting appellate review to ‘final decisions’ prevents the debilitating effect on judicial administration caused by piecemeal appellate disposition of what is, in practical consequence, but a single controversy.”).
Another purpose is “to combine in one review all stages of the proceeding that effectively may be reviewed and corrected if and when final judgment results.” Cohen v. Beneficial Indus. Loan Corp., 337 U.S. 541, 546 , 69 S.Ct. 1221, 1225 , 93 L.Ed. 1528 (1949).
Most cogently, the Supreme Court stated, “It is the means for achieving a healthy legal system.” Cobbledick v. United States, 309 U.S. 323, 326 , 60 S.Ct. 540, 541 , 84 L.Ed. 783 (1940).
The “single controversy” in this case is whether the City of Detroit can adjust its debts in a way that is consistent with all applicable legal requirements, whether un *199 der the bankruptcy code or elsewhere. That question has not yet been addressed, let alone decided. This Court’s Order for Relief merely opens the door for that discussion. It is time now to begin that discussion, unfettered by piecemeal appellate litigation. The results of that discussion, whether a confirmed plan of adjustment or an order of dismissal, may then be effectively reviewed and corrected as necessary.
For these reasons, the Court recommends that the Court of Appeals decline to authorize these appeals.
III. The Creditors’ Request for Expedited Consideration
Several creditors have requested that this Court recommend to the Court of Appeals that these appeals be given expedited consideration. The City opposes the request.
In this unique municipal bankruptcy case, the Court concludes that it is not in a position to make a recommendation on whether the appeal should be expedited, should the Court of Appeals authorize the direct appeals.
The prudence of expediting the appeals should turn upon whether it is in the best interest of the City, its residents and its creditors. Ordinarily, the bankruptcy judge presiding over a reorganization case is in a good position to assess that question and to determine the appropriate procedural pace based on the best interests of the parties.
In the present case, one fact overshadows everything, including these appeals. The City is insolvent on a cash flow basis. It has no money to pay claims. The City cannot successfully adjust its debt and revitalize itself without help. In re City of Detroit, 504 B.R. at 112-13 .
To that end, this Court appointed a mediator, Chief District Judge Gerald Rosen. Certainly, an important part of the mediation is to facilitate the resolution of the disputes between the City and its creditors. Equally important, however, is the task of marshaling potential sources of help that the City needs to achieve a plan that: (1) has the broadest possible support among creditors; (2) is feasible for the City to implement; and (3) allows the City to refocus on a revitalized and successful future, in whatever way the City defines that future.
This mediation is a serious and substantial charge. Chief Judge Rosen has appointed an extraordinary team of mediators to assist the parties in mediating the wide variety of issues that the case presents — District Judge Victoria Roberts of Detroit; Senior District Judge Wiley Daniel of Colorado; retired District and Bankruptcy Judge David Coar of Chicago; Bankruptcy Judge Elizabeth Perris of Oregon; and Attorney Eugene Driker of Detroit.
The management of the pace of this unique case must be guided by what best facilitates the mediation process. However, a challenge arises here because the mediation process and its progress are virtually unknown to this Court. Of necessity, there is a nearly complete separation of this Court from the mediation process.
During the eligibility phase of the case, that separation did give way to discussions that informed the Court’s determinations regarding the pace of the process. The Court recommends that similarly, the Court of Appeals, either directly or through its own mediation staff, consult with Chief Judge Rosen on whether expediting these appeals will facilitate or impede the mediation, and be guided accordingly.
The Court fully accepts the representations that counsel made on the record at *200 the hearing regarding this matter on December 16, 2013, that they would remain fully committed to the mediation process during the appeals, even if the appeals are expedited. Nevertheless, the Court is convinced that Chief Judge Rosen is in the best position to assist the Court of Appeals in assessing this crucial question.
The Court also recognizes the public importance of the legal issues that these appeals present. It has, as a result, fulfilled its mandate under law to certify that public importance under 28 U.S.C. § 158 (d)(2)(A)(i). Nevertheless, the Court remains convinced that the interests of the City, its residents and its creditors are better served by adjusting the pace of the legal process, including the appeals, to meet the needs of the mediation process.
On this point, it is significant that in a municipal bankruptcy case, the bankruptcy code itself recognizes the unique and urgent necessity to continue the process of resolution even during an appeal of an eligibility determination. The bankruptcy code explicitly prohibits any court from ordering a stay of proceedings pending an appeal of an eligibility decision. 11 U.S.C. § 921 (e) prescribes, “The court may not, on account of an appeal from an order for relief, delay any proceeding under this chapter in the case in which the appeal is being taken; nor shall any court order a .stay of such proceeding pending such appeal.” This is the only instance in the bankruptcy code in which a stay is explicitly prohibited.
As a result of § 921(e), this Court will maintain the established deadline of March 1, 2014, for the City to file a plan of adjustment. It will also manage any litigation that results from the City’s plan with the same efficiency and expedition that it successfully employed during the eligibility phase. This intention will, however, remain subject to guidance from Chief Judge Rosen regarding the needs of mediation.
IY. Conclusion
Under 28 U.S.C. § 158 (d)(2)(A)(i), the Court must certify that these appeals involve a matter of public importance.
Upon that certification, the Court of Appeals has jurisdiction over these appeals “if the court of appeals authorizes the direct appeal of the judgment, order, or decree.” Id. Because there is no good cause to authorize these interlocutory appeals, however, the Court recommends that the Court of Appeals decline to authorize these direct appeals.
Should the Court of Appeals authorize the direct appeals, this Court declines to recommend that the appeals be expedited. Rather, the Court recommends that the Court of Appeals, either directly or through its mediation office, consult with Chief Judge Rosen in his capacity as mediator on whether expediting the appeals will facilitate mediation and therefore the ultimate resolution of this case.
Opinion Regarding Eligibilitg
The Congress shall have Power To ... establish ... uniform Laws on the subject of Bankruptcies throughout the United States....
Article I, Section 8, United States Constitution
No ... law impairing the obligation of contract shall be enacted.
Article I, Section 10, Michigan Constitution
The accrued financial benefits of each pension plan and retirement system of the state and its political subdivisions shall be a contractual obligation thereof which shall not be diminished or impaired thereby.
Article IX, Section 24, Michigan Constitution
*201
Table of Contents
I. Summary of Opinion. CO o
II. Introduction to the Eligibility Objections. CO o
A. The Process. CO o ^
B. Objections Filed by Individuals Without an Attorney. CO o o\
C. Objections That Raise Only Legal Issues. CO o cn
D. Objections That Require the Resolution of Genuine Issues of Material Fact. CD ©
III. Introduction ito the Facts Leading up to the Bankruptcy Filing ©>
A. The City’s Financial Distress. ©>
1. The City’s Debt. ©>
2. Pension Liabilities.
3. OPEB Liabilities.
4. Legacy Expenditures-Pensions and OPEB .
5. The Certificates of Participation. <©
a. The COPs and Swaps Transaction. O
b. The Result. t
c. The Collateral Agreement. t — I
d. The City’s Defaults Under the Collateral Agreement 614 i-l
e. The Forbearance and Optional Termination Agreement... i — I
f. The Resulting Litigation Involving Syneora. rH
g. The COPs Debt.-...:. tH
6. Debt Service. T — d
7. Revenues. t*H
8. Operating Deficits. r — (
9. Payment Deferrals . i — i
B. The Causes and Consequences of the City’s Financial Distress. r — t
1. Population Losses. i — t
2. Employment Losses. i — (
3. Credit Rating. tH
4. The Water and Sewerage Department. tH
5. The Crime Rate. t — I
6. Streetlights. i-t
7. Blight. i-t
8. The Police Department. t — i
9. The Fire Department. tH
10. Parks and Recreation .. .•. t — I
11. Information Technology.. tH
C. The City’s Efforts to Address Its Financial Distress. t — I
D. A Brief History of Michigan’s Emergency Manager Laws. tH
E. The Events Leading to the Appointment of the City’s Emergency Manager. CO l — l 05
1. The State Treasurer’s Report of December 21,2011. CO i_l 05
2. The Financial Review Team’s Report of March 26, 2012 . CO i -3
3. The Consent Agreement. CO l — l -3
4. The State Treasurer’s Report of December 14, 2012. CO H-L OO
6. The Financial Review Team’s Report of February 19, 2013_ CO I_1 OO
6. The Appointment of an Emergency Manager for the City of Detroit. CO M CD
F. The Emergency Manager’s Activities. CO CO O
1. The June 14, 2013 Meeting and Proposal to Creditors . CO M O
2. Subsequent Discussions with Creditor Representatives CO M 1 — 1
G. The Prepetition Litigation. CO CO CO
H. The Bankruptcy Filing. CO to CO
*202 IV. The City Bears the Burden of Proof..222
V. The Objections of the Individuals Who Filed Objections Without an Attorney.223
IV. The City of Detroit Is a “Municipality” Under 11 U.S.C. § 109 (c)(1).223
VII. The Bankruptcy Court Has the Authority to Determine the Constitutionality of Chapter 9 of the Bankruptcy Code and Public Act 436..223
A. The Parties’ Objections to the Court’s Authority Under Stern v. Marshall...........223
B. Stem, Waldman, and Global Technovations.224
C. Applying Stem, Waldman, and Global Technovations in This Case.225
D. Applying Stern in Similar Procedural Contexts.226
E. The Objectors Overstate the Scope of Stem..227
1. Stem Does Not Preclude This Court from Determining Constitutional Issues.227
2. Federalism Issues Are Not Relevant to a Stem Analysis.228
F. Conclusion Regarding the Stem Issue.229
yill. Chapter 9 Does Not Violate the United States Constitution. to CO zo
A. Chapter 9 Does Not Violate the Uniformity Requirement of the Bankruptcy Clause of the United States Constitution. to CO 0
1. The Applicable Law . to CO
2. Discussion. to CO
B. Chapter 9 Does Not Violate the Contracts Clause of the United States Constitution. CO CO
C. Chapter 9 Does Not Violate the Tenth Amendment to the United States Constitution. CO CO CO
1. The Tenth Amendment Challenges to Chapter 9 Are Ripe for Decision and the Objecting Parties Have Standing. CO CO co
a. Standing . CO CO co
b. Ripeness . CO CO
2. The Supreme Court Has Already Determined That Chapter 9 Is Constitutional. CO CO cn
237 3. Changes to Municipal Bankruptcy Law Since 1937 Do Not Undermine the Continuing Validity of Bekins.
a. The Contracts Clause of the United States Constitution Prohibits States from Enacting Municipal Bankruptcy Laws. CO CO 00
b. Asbury Park Is Limited to Its Own Facts. CO CO 00
4. Changes to the Supreme Court’s Tenth Amendment Jurisprudence Do Not Undermine the Continuing Validity of Bekins... CO CO CO
a. New York v. United States.......239
b. Printz v. United States.....240
c. New York and Printz Do Not Undermine Bekins. CO ^ H
d. Explaining Some Puzzling Language in New York . CO ^ to
5. Chapter 9 Is Constitutional As Applied in This Case. CO CO
a. When the State Consents to a Chapter 9 Bankruptcy, the Tenth Amendment Does Not Prohibit the Impairment of Contract Rights That Are Otherwise Protected by the State Constitution. CO eg
b. Under the Michigan Constitution, Pension Rights Are Contractual Rights. CO
IX. Public Act 436 Does Not Violate the Michigan Constitution. 248
*203 The Michigan Case Law on Evaluating the Constitutionality of a State Statute.249 >
The Voters’ Rejection of Public Act 4 Did Not Constitutionally Prohibit the Michigan Legislature from Enacting Public Act 436.250 td
Even If the Michigan Legislature Did Include Appropriations Provisions in Public Act 436 to Evade the Constitutional Right of Referendum, It Is Not Unconstitutional.251 p
Public Act 436 Does Not Violate the Home Rule Provisions of the Michigan Constitution.252
Public Act 436 Does Not Violate the Pension Clause of the Michigan Constitution.254
X. Detroit s Emergency Manager Had Valid Authority to File This Bankruptcy Case Even Though He Is Not an Elected Official.255
XI. The Governor’s Authorization to File This Bankruptcy Case Was Valid Under the Michigan Constitution Even Though the Authorization Did Not Prohibit the City from Impairing Pension Rights.256
XII. The Judgment in Webster v. Michigan Does Not Preclude the City from Asserting That the Governor’s Authorization to File This Bankruptcy Case Was Valid. o LO cq
A. The Circumstances Leading to the Judgment. o hO cq
B. The Judgment Is Void Because It Was Entered After the City Filed Its Petition. oo lo cq
C. The Judgment Is Also Void Because It Violated the Automatic Stay. o o cq
D. Other Issues . H o cq
XIII. The City Was “Insolvent.”.262
A. The Applicable Law.262
B. Discussion .262
1. The City Was “Generally Not Paying Its Debts As They Become Due.”.262
2. The City Is Also “Unable to Pay Its Debts As They Become
The City’s “Lay” Witnesses.264 CO
The City’s Failure to Monetize Assets.264 ^
XIV. The City Desires to Effect a Plan to Adjust Its Debts. to 05 cn
A. The Applicable Law. to 05 ui
B. Discussion . to 05 cn
XV. The City Did Not Negotiate with Its Creditors in Good Faith. .. to 05
A. The Applicable Law. to 05
B. Discussion . to 00
XVI. The City Was Unable to Negotiate with Creditors Because Such Negotiation Was Impracticable. to -3
A. The Applicable Law. to -q
B. Discussion . to -q
XVII. The City Filed Its Bankruptcy Petition in Good Faith. to ~q CO
A. The Applicable Law. to ~q CO
B. Discussion . to -q 4^
1. The Objectors’ Theory of Bad Faith. to -q ^
2. The Court’s Conclusions Regarding the Objectors’ Theory of Bad Faith. cq
3. The City Filed This Bankruptcy Case in Good Faith. o 00 cq
*204 a. The City’s Financial Problems Are of a Type Contemplated for Chapter 9 Relief.. 00 Cvl
b. The City’s Reasons for Filing Are Consistent with the Remedial Purpose of Chapter 9. to 00 h-*
c. The City Made Efforts to Improve the State of Its Finances Prior to Filing, to No Avail. to OO DO
d. The Residents of Detroit Will Be Severely Prejudiced If This Case Is Dismissed. to 00 to
C. Conclusion Regarding the City’s Good Faith. to 00 CO
XVIII. Other Miscellaneous Arguments. to 00 CO
A. Midlantic Does Not Apply in This Case. to 00 CO
B. There Was No Gap in Mr. Orr’s Service as Emergency Manager to 00 CO
XIX. Conclusion: The City is Eligible and the Court Will Enter an Order for Relief.. to 00
I. Summary of Opinion
For the reason stated herein, the Court finds that the City of Detroit has established that it meets the requirements of 11 U.S.C. § 109 (c). Accordingly, the Court finds that the City may be a debtor under chapter 9 of the bankruptcy code. The Court will enter an order for relief under chapter 9.
Specifically, the Court finds that:
• The City of Detroit is a “municipality” as defined in 11 U.S.C. § 101 (40).
• The City was specifically authorized to be a debtor under chapter 9 by a governmental officer empowered by State law to authorize the City to be a debtor under chapter 9.
• The City is “insolvent” as defined in 11 U.S.C. § 101 (32X0.
• The City desires to effect a plan to adjust its debts.
• The City did not negotiate in good faith with creditors but was not required to because such negotiation was impracticable.
The Court further finds that the City filed the petition in good faith and that therefore the petition is not subject to dismissal under 11 U.S.C. § 921 (c).
The Court concludes that it has jurisdiction over this matter under 28 U.S.C. § 1334 (a), and that the matter is a core proceeding under 28 U.S.C. § 157 (b)(2).
II. Introduction to the Eligibility Objections
The matter is before the Court on the parties’ objections to the eligibility of the City of Detroit to be a debtor in this chapter 9 case under 11 U.S.C. § 109 (c).
A. The Process
By order dated August 2, 2013, the Court set a deadline of August 19, 2013 for parties to file objections to eligibility. (Dkt. #280) That order also allowed the Official Committee of Retirees, then in formation, to file eligibility objections 14 days after it retained counsel.
One hundred nine parties filed timely objections to the City’s eligibility to file this bankruptcy case under § 109 of the bankruptcy code. In addition, two individuals, Hassan Aleem and Carl Williams, filed an untimely joint objection, but upon motion, the Court determined that these objections should be considered timely. (Dkt. # 821, ¶ VIII, at 7) Accordingly, the total number of objections to be considered is 110.
In pursuing their eligibility objections, the parties represented by attorneys filed over 50 briefs through several rounds.
*205 Because the constitutionality of chapter 9 was drawn into question, the Court certified the matter to the Attorney General of the United States under 28 U.S.C. § 2403 (a), and permitted the United States to intervene. (Dkt. # 642 at 7) The United States then filed a brief in support of the constitutionality of chapter 9 (Dkt. # 1149) and a supplemental brief (Dkt. # 1560).
Also, because the constitutionality of a state statute was drawn into question, the Court certified the matter to the Michigan Attorney General under 28 U.S.C. § 2403 (b), and permitted the State of Michigan to intervene. The Michigan Attorney General filed a “Statement Regarding The Michigan Constitution And The Bankruptcy Of The City Of Detroit.” (Dkt. # 481) He also filed a brief regarding eligibility (Dkt. # 756) and a supplemental response (Dkt. # 1085).
In an effort to organize and expedite its consideration of these objections, the Court entered an “Order Regarding Eligibility Objections” on August 26, 2013 (Dkt. # 642) and a “First Amended Order Regarding Eligibility Objections” on September 12, 2013 (Dkt. # 821). Those orders divided the objections into two groups— those filed by parties with an attorney, which were, generally, organized groups (group A), and those filed by individuals, mostly without an attorney (group B). Individuals without an attorney (group B) filed 93 objections. The remaining 17 objections were filed by parties with an attorney. The objections filed by attorneys were then further divided between objections raising only legal issues and objections that require the resolution of genuine issues of material fact. 1
The Second Amended Final Pre-Trial Order concisely identifies which parties assert which objections. (Dkt. # 1647 at 4-11) This opinion will not repeat that recitation.
B. Objections Filed by Individuals Without an Attorney
On September 19, 2013, the Court held a hearing at which the individuals who filed timely objections without an attorney had an opportunity to address the Court. At that hearing, 45 individuals addressed the Court. These objections are discussed in Part V, below.
C. Objections That Raise Only Legal Issues
On October 15 and 16, 2013, the Court heard arguments on the objections that raised only legal issues. These objections are addressed in Parts VII-XII, below. Summarily stated, these objections are:
1. Chapter 9 of the bankruptcy code violates the United States Constitution.
2. The bankruptcy court does not have the authority to determine the constitutionality of chapter 9 of the bankruptcy code.
3. Public Act 436 of 2012 violates the Michigan Constitution and therefore the City was not validly authorized to file this bankruptcy case as required for eligibility by 11 U.S.C. § 109 (c)(2).
4. The bankruptcy court does not have the authority to determine the constitutionality of P.A. 436.
5. Detroit’s emergency manager is not an elected official and therefore did not *206 have valid authority to file this bankruptcy case, as required for eligibility by 11 U.S.C. § 109 (c)(2).
6. Because the governor’s authorization to file this bankruptcy case did not prohibit the City from impairing the pension rights of its employees and retirees, the authorization was not valid under the Michigan Constitution, as required for eligibility by 11 U.S.C. § 109 (c)(2).
7. Because of the proceedings and judgment in Webster v. The State of Michigan, Case No. 13-734-CZ (Ingham County Circuit Court), the City is precluded by law from claiming that the governor’s authorization to file this bankruptcy case was valid, as required for eligibility by 11 U.S.C. § 109 (c)(2).
D. Objections That Require the Resolution of Genuine Issues of Material Fact
Beginning on October 23, 2013, the Court conducted a trial on the objections filed by attorneys that require the resolution of genuine issues of material fact. These objections are addressed in Parts XIII-XVII, below. Summarily stated, these objections are:
8. The City was not “insolvent,” as required for eligibility by 11 U.S.C. § 109 (c)(3) and as defined in 11 U.S.C. § 101 (32)(C).
9. The City does not desire “to effect a plan to adjust such debts,” as required for eligibility by 11 U.S.C. § 109 (c)(4).
10. The City did not negotiate in good faith with creditors, as required (in the alternative) for eligibility by 11 U.S.C. § 109 (c)(5)(B).
11. The City was not “unable to negotiate with creditors because such negotiation [was] impracticable,” as required (in the alternative) for eligibility by 11 U.S.C. § 109 (c)(5)(C).
12.The City’s bankruptcy petition should be dismissed under 11 U.S.C. § 921 (c) because it was filed in bad faith.
In addition, in the course of the briefing, parties asserted certain new and untimely objections. These are addressed in Part XVIII, below.
III. Introduction to the Facts Leading up to the Bankruptcy Filing
The City of Detroit was once a hardworking, diverse, vital city, the home of the automobile industry, proud of its nickname-the “Motor City.” It was rightfully known as the birthplace of the American automobile industry. In 1952, at the height of its pi'osperity and prestige, it had a population of approximately 1,850,000 residents. In 1950, Detroit was building half of the world’s cars.
The evidence before the Court establishes that for decades, however, the City of Detroit has experienced dwindling population, employment, and revenues. This has led to decaying infrastructure, excessive borrowing, mounting crime rates, spreading blight, and a deteriorating quality of life.
The City no longer has the resources to provide its residents with the basic police, fire and emergency medical services that its residents need for their basic health and safety.
Moreover, the City’s governmental operations are wasteful and inefficient. Its equipment, especially its streetlights and its technology, and much of its fire and police equipment, is obsolete.
To reverse this decline in basic services, to attract new residents and businesses, and to revitalize and reinvigorate itself, the City needs help.
The following sections of this Part of the opinion detail the basic facts regarding the City’s fiscal decline, and the causes and *207 consequences of it. Section A will address the City’s financial distress. Section B will address the causes and consequences of that distress. Section C will address the City’s efforts to address its financial distress. Part D will address the facts and events that resulted in the appointment of an emergency manager for the City. Finally, Parts E-G will address the facts and events that culminated in this bankruptcy filing.
The evidence supporting these factual findings consists largely of the following admitted exhibits:
Exhibit 6 — the City’s “Comprehensive Annual Financial Report” for the fiscal year ended June 30, 2012.
Exhibit 21 — “Preliminary Review of the City of Detroit,” from Andy Dillon, State Treasurer, to Rick Snyder, Governor, December 21, 2011;
Exhibit 22 — “Report of the Detroit Financial Review Team,” from the Detroit Financial Review Team to Governor Snyder, March 26, 2012;
Exhibit 24 — “Preliminary Review of the City of Detroit,” from Andy Dillon, State Treasurer, to Rick Snyder, Governor, December 14, 2012;
Exhibit 25 — “Report of the Detroit Financial Review Team,” from the Detroit Financial Review Team to Governor Snyder, February 19, 2013;
Exhibit 26 — Letter from Governor Rick Snyder to Mayor Dave Bing and Detroit City Council, March 1, 2013;
Exhibit 28 — Letter from Kevyn D. Orr, Emergency Manager, to Governor Richard Snyder and State Treasurer Andrew Dillon, July 16, 2013;
Exhibit 29 — “Authorization to Commence Chapter 9 Bankruptcy Proceeding,” from Governor Richard Snyder to Emergency Manager Kevyn Orr and State Treasurer Andrew Dillon.
Exhibit 38 — Graph, “FY14 monthly cash forecast absent restructuring”
Exhibit 41 — '“Financial and Operating Plan,” Kevyn D. Orr, Emergency Manager, June 10, 2013;
Exhibit 43 — “Proposal for Creditors,” City of Detroit, June 14, 2013;
Exhibit 44 — “Proposal for Creditors, Executive Summary,” City of Detroit, June 14, 2013;
Exhibit 75 — “Financial and Operating Plan,” Kevyn D. Orr, Emergency Manager, May 12, 2013;
Exhibit 414 — Declaration of Kevyn Orr in Support of Eligibility. (Dkt. #11)
The Court notes that the objecting creditors offered no substantial evidence contradicting the facts found in this Part of the opinion, except as noted below relating to the City’s unfunded pension liability.
A. The City’s Financial Distress
1. The City’s Debt
The City estimates its debt to be $18,000,000,000. This consists of $11,900,000,000 in unsecured debt and $6,400,000,000 in secured debt. It has more than 100,000 creditors.
According to the City, the unsecured debt includes:
$5,700,000,000 for “OPEB” through June 2011, which is the most recent actuarial data available. “OPEB” is “other post-employment benefits,” and refers to the Health and Life Insurance Benefit Plan and the Supplemental Death Benefit Plan for retirees;
$3,500,000,000 in unfunded pension obligations;
$651,000,000 in general obligation bonds;
*208 $1,430,000,000 for certificates of participation (“COPs”) related to pensions;
$346,600,000 for swap contract liabilities related to the COPs; and
$300,000,000 of other liabilities, including $101,200,000 in accrued compensated absences, including unpaid, accumulated vacation and sick leave balances; $86,500,000 in accrued workers’ compensation for which the City is self-insured; $63,900,000 in claims and judgments, including lawsuits and claims other than workers’ compensation claims; and $13,000,000 in capital leases and accrued pollution remediation.
As noted, the objecting parties do not seriously challenge the City’s estimates of its debt, except for its estimates of its unfunded pension liability. The plans and others have suggested a much lower pension underfunding amount, perhaps even below $1,000,000,000. However, they submitted no proof of that. The Court concludes that it is unnecessary to resolve the issue at this time, because the City would be found eligible regardless of any specific finding on the pension liability that would be in the range between the parties’ estimates. Otherwise, the Court is satisfied that the City’s estimates of its other liabilities are accurate enough for purposes of determining eligibility, and so finds.
2. Pension Liabilities
The City’s General Retirement System (“GRS”) administers the pension plan for its non-uniformed personnel. The average annual benefit received by retired pensioners or their beneficiaries is about $18,000. AFSCME Br. at 3 (citing June 30, 2012 General Retirement System of City of Detroit pension valuation report). (Dkt. # 505) Generally these retirees are eligible for Social Security retirement or disability benefits.
The City’s Police and Fire Retirement System (“PFRS”) administers the pension plan for its uniformed personnel. The average annual benefit received by retired pensioners or their beneficiaries is about $30,000. Generally, these retirees are not eligible for Social Security retirement or disability benefits. Retirement Systems Br. at 5 (citing 20 C.F.R. § 404.1206 (a)(8), 20 C.F.R. § 404.1212 ). (Dkt. # 519)
The Pension Benefit Guaranty Corporation does not insure pension benefits under either plan.
For the five years ending with FY 2012, pension payments exceeded contributions and investment income by approximately $1,700,000,000 for the GRS and $1,600,000,000 for the PFRS. This resulted in the liquidation of pension trust principal.
As noted, the two pension plans and the City disagree about the level of underfunding in the plans. Gabriel Roeder Smith & Company is the funds’ actuary. In its reports for the two pension plans as of June 30, 2012, it found an unfunded actuarial accrued liability (“UAAL”) of $829,760,482 for the GRS. Ex. 69 at 3. It found UAAL of $147,216,398 for the PFRS. Ex. 70 at 3.
The City asserts that the actuarial assumptions underlying these estimates are aggressive. Most significantly, the City believes that the two plans project unrealistic annual rates of return on investments net of expenses — 7.9% by GRS and 8.0% by PFRS, and that therefore their estimates are substantially understated. As stated above, the City estimates the underfunding to be $3,500,000,000.
Using current actuarial assumptions, the City’s required pension contributions, as a percentage of eligible payroll expenses, are projected to grow from 25% for GRS and 30% for PFRS in 2012 to 30% for GRS and *209 60% for PFRS by 2017. Changes in actuarial assumptions would result in further increases to the City’s required pension contributions.
3.OPEB Liabilities
The OPEB plans consist of the Health and Life Insurance Benefit Plan and the Supplemental Death Benefit Plan. The City’s OPEB obligations arise under 22 different plans, including 15 different plans alone for medical and prescription drugs. These plans have varying structures and terms. The plan is a defined benefit plan providing hospitalization, dental care, vision care and life insurance to current employees and substantially all retirees. The City generally pays for 80% to 100% of health care coverage for eligible retirees. The Health and Life Insurance Plan is totally unfunded; it is financed entirely on a current basis.
As of June 30, 2011,19,389 retirees were eligible to receive benefits under the City’s OPEB plans. The number of retirees receiving benefits from the City is expected to increase over time.
The Supplemental Death Benefit Plan is a pre-funded single-employer defined benefit plan providing death benefits based upon years of creditable service. It has $34,564,960 in actuarially accrued liabilities as of June 30, 2011 and is 74.3% funded with UAAL of $8,900,000.
Of the City’s $5,700,000,000 OPEB liability, 99.6% is unfunded.
4.Legacy Expenditures— Pensions and OPEB
During 2012, 38.6% of the City’s revenue was consumed servicing legacy liabilities. The forecasts for subsequent years, assuming no restructuring, are 42.5% for 2013, 54.3% for 2014, 59.5% for 2015, 63% for 2016, and 64.5% for 2017.
5.The Certificates of Participation
The transactions described here are complex and confusing. The resulting litigation is as well. Nevertheless, a fairly complete explanation of them is necessary to an understanding of the City’s severe financial distress.
a. The COPs and Swaps Transaction
In 2005 and 2006, the City set out to raise $1.4 billion for its underfunded pension funds, the GRS and PFRS. The City created a non-profit Service Corporation for each of the two pension funds, to act as an intermediary in the financing. The City then entered into Service Contracts with each of the Service Corporations. The City would make payments to the Service Corporations, which had created Funding Trusts and assigned their rights to those Funding Trusts. The Funding Trusts issued debt obligations to investors called “Pension Obligation Certificates of Participation”. (“COPs”). 2 Each COP represented an undivided proportionate interest in the payments that the City would make to the Service Corporations under the Service Contracts.
The City arranged for the purchase of insurance from two monoline insurers to protect against defaults by the funding trusts that would result if the City failed to make payments to the Service Corporations under the Service Contracts. This was intended to make the investments more attractive to potential investors. One insurer was XL Capital Assurance, Inc., now known as Syncora. The other was the Financial Guaranty Insurance Company.
Some of the COPs paid a floating interest rate. To protect the Service Corporations from the risk of increasing interest *210 rates, they entered into hedge arrangements with UBS A.G. and SBS Financial (the “Swap Counterparties”). Under the hedges, also known as “swaps” (bets, really), the Service Corporations and the Swap Counterparties agreed to convert the floating interest rates into a fixed payment. Under the swaps, if the floating interest rates exceeded a certain rate, the Swap Counterparties would make payments to the Service Corporations. But if the floating interest rates sank below a certain rate, the Service Corporations would make payments to the Swap Counterparties. Specifically, there were eight pay-fixed, receive-variable interest rate swap contracts, effective as of June 12, 2006, with a total amount of $800,000,000.
Under the swaps, the City was also at risk if there was an “event of default” or a “termination event.” In such an event, the Swap Counterparties could terminate the swaps and demand a potentially enormous termination payment.
The Swap Counterparties also obtained protection against the risk that the Service Corporations would default on their quarterly swap payments. The parties purchased additional insurance against that risk from Syneora and the Financial Guaranty Insurance Company. Syncora’s liability for swap defaults is capped at $50,000,000, even though the Swap Coun-terparties’ claims may be significantly greater. This insurance is separate from the insurance purchased to protect against a default under the COPs.
b.The Result
In 2008, interest rates dropped dramatically. As a result, the City lost on the swaps bet. Actually, it lost catastrophically on the swaps bet. The bet could cost the City hundreds of millions of dollars. The City estimates that the damage will be approximately $45,000,000 per year for the next ten years.
c. The Collateral Agreement
As the City’s financial condition worsened, the City, the Service Corporations and the Swap Counterparties sought to restructure the swap contracts. In June 2009, they negotiated and entered into a Collateral Agreement that amended the swap agreements. The Collateral Agreement eliminated the “Additional Termination Event” and the potential for an immediate demand for a termination payment. The City agreed to make the swap payments through a “lockbox” arrangement and to pledge certain gaming tax revenues as collateral. The City also agreed to increase the interest rate of the swap agreements by 10 basis points effective July 1, 2010. It also agreed to new termination events, including any downgrading of the credit ratings for the COPs.
Two accounts were set up: 1) a “Hold-back Account” and 2) a “General Receipts Subaccount.” U.S. Bank was appointed custodian of the accounts. The casinos would pay developer payments and gaming tax payments to the General Receipts Sub-account daily. The City would make monthly deposits into the Holdback Account equal to one-third of the quarterly payment that the Service Corporations owed to the Swap Counterparties. When the City made that monthly payment, U.S. Bank would release to the City the accumulated funds in the General Receipts Subaccount. If the City defaulted, the Swap Counterparties could serve notice on U.S. Bank, which would then hold or “trap” the money in the General Receipts Subaccount and not disburse it to the City.
Syneora was not a party to the Collateral Agreement.
d. The City’s Defaults Under the Collateral Agreement
In March, 2012, the COPs were downgraded, which triggered a termination *211 event. The Swap Counterparties did not, however, declare a default.
In March, 2013, the appointment of the emergency manager for the City was another event of default. Again however, the Swap Counterparties did not declare a default.
As of June 28, 2013, the City estimated that if an event of default were declared and the Swap Counterparties chose to exercise their right to terminate, it faced a termination obligation to the Swap Coun-terparties of $296,500,000. This was the approximate negative fair value of the swaps at that time.
On June 14, 2013, the City failed to make a required payment of approximately $40,000,000 on the COPs. This default triggered Syncora’s liability as insurer on the COPs and it has apparently made the required payments. However, the City has made all of its required payments to the Swap Counterparties through the Hold-back Account. The City contends that as a result, Syncora has no liability to the Swap Counterparties on its guaranty to them.
e. The Forbearance and Optional Termination Agreement
Following the City’s defaults on the Collateral Agreement, the parties negotiated. On July 15, 2013 (three days before this bankruptcy filing), the City and the Swap Counterparties entered into a “Forbearance and Optional Termination Agreement.” Under this agreement, the Swap Counterparties would forebear from terminating the swaps and from instructing U.S. Bank to trap the funds in the General Receipts Subaccount. The City may buy out the swaps at an 18-25% discount, depending on when the payment is made. That buy-out would terminate the pledge of the gaming revenues. Syncora was not a party to this agreement.
When the City filed this bankruptcy case, it also filed a motion to assume the “Forbearance and Optional Termination Agreement.” (Dkt. # 17) Syncora and many other parties have filed objections to the City’s motion. However, because there are serious and substantial defenses to the claims made against the City under the COPs, these objections assert that the agreement should not be approved. After several adjournments, it is scheduled for hearing on December 17, 2013.
f. The Resulting Litigation Involving Syncora
Meanwhile, back on June 17, 2013, Syn-cora sent a letter to U.S. Bank declaring an event of default, triggering U.S. Bank’s obligation to trap all of the money in the General Receipts Subaccount. The City responded, taking the position that be-, cause it had not defaulted in its swap payments and because Syncora has no rights under the Collateral Agreement, Syncora had no right to instruct U.S. Bank to trap the funds.
U.S. Bank did trap approximately $15,000,000. This represented a significant percentage of the City’s monthly revenue.
As a result, on July 5, 2013, the City filed a lawsuit against Syncora in the Wayne County Circuit Court. It sought and obtained a temporary restraining order that resulted in U.S. Bank’s release of the trapped funds to the City. On July 11, 2013, Syncora removed the action to the district court in Detroit and filed a motion to dissolve the temporary restraining order. On July 31, 2013, Syncora filed a motion to dismiss the complaint. On August 9, 2013, the district referred the matter to this Court. It is now Adversary Proceeding # 13-04942. On August 28, 2013, this Court ruled that the gaming revenues are property of the City and therefore protected by the automatic stay. *212 Tr. 9:17-21, August 28, 2013. (Dkt.# 692) As a result, on September 10, 2013, the temporary restraining order was dissolved with the City’s stipulation. Syncora’s motion to dismiss the adversary proceeding remains pending. It has been adjourned due to a tolling agreement between the parties.
Adding to this drama, on July 24, 2013, Syncora filed a lawsuit against the Swap Counterparties in a state court in New York, seeking an injunction to prevent the Swap Counterparties from performing their obligations under the Forbearance and Optional Termination Agreement. The Swap Counterparties then removed the action to the United States District Court for the Southern District of New York. That court, at the request of the Swap Counterparties, transferred the case to the federal district court in Detroit, which then referred it to this Court. It is Adversary Proceeding No. 13-05395.
g. The COPs Debt
Returning, finally, to the underlying obligations — the COPS, the City estimates that as of June 30, 2013, the following amounts were outstanding:
$480,300,000 in outstanding principal amount of $640,000,000 Certificates of Participation Series 2005 A maturing June 15, 2013 through 2025; and $948,540,000 in outstanding principal amount of $948,540,000 Certificates of Participation Series 2006 A and B maturing June 15, 2019 through 2035.
6.Debt Service
Debt service from the City’s general fund related to limited tax and unlimited tax GO debt and the COPs was $225,300,000 for 2012, and is projected to exceed $247,000,000 in 2013. 3 The City estimates that 38% of its tax revenue goes to debt service rather than to city services. It further estimates that without changes, this will increase to 65% within 5 years.
7.Revenues
Income tax revenues have decreased by $91,000,000 since 2002 (30%) and by $44,000,000 (15%) since 2008. Municipal income tax revenue was $276,500,000 in 2008 and $233,000,000 in 2012.
Property tax revenues for 2013 were $135,000,000. This is a reduction of $13,000,000 (10%) from 2012.
Revenues from the City’s utility users’ tax have declined from approximately $55,300,000 in 2003 to approximately $39,800,000 in 2012 (28%).
Wagering taxes receipts are about $170-$180,000,000 annually. However, the City projects that these receipts will decrease through 2015 due to the expected loss of gaming revenue to casinos opening in nearby Toledo, Ohio.
State revenue sharing has decreased by $161,000,000 since 2002 (48%) and by $76,000,000 (30.6%) since 2008, due to the City’s declining population and significant reductions in statutory revenue sharing by the State.
8.Operating Deficits
The City has experienced operating deficits for each of the past seven years. Through 2013, it has had an accumulated general fund deficit of $237,000,000. However, this includes the effect of recent debt issuances — $75,000,000 in 2008; $250,000,000 in 2010; and $129,500,000 in 2013. If these debt issuances are excluded, the City’s accumulated general fund *213 deficit would have been $700,000,000 through 2013.
In 2012, the City had a negative cash flow of $115,500,000, excluding the impact of proceeds from short-term borrowings. In March 2012, to avoid running out of cash, the City borrowed $80,000,000 on a secured basis. The City spent $50,000,000 of that borrowing in 2012.
In 2013, the City deferred payments on certain of its obligations, totaling approximately $120,000,000. As set forth in the next section, these deferrals were for current and prior year pension contributions and other payments. With those deferrals, the City projects a positive cash flow of $4,000,000 for 2013.
If the City had not deferred these payments, it would have run out of cash by June 30, 2013.
Absent restructuring, the City projects that it will have negative cash flows of $190,500,000 for 2014; $260,400,000 for 2015; $314,100,000 for 2016; and $346,000,000 for 2017. The City further estimates that by 2017, its accumulated deficit could grow to approximately $1,350,000,000.
9. Payment Deferrals
The City is not making its pension contributions as they come due. It has deferred payment of its year-end Police and Fire Retirement System contributions. As of May 2013, the City had deferred approximately $54,000,000 in pension contributions related to current and prior periods and approximately $50,000,000 on June 30, 2013 for current year PFRS pension contributions. Therefore, the City will have deferred $104,000,000 of pension contributions.
Also, the City did not make the scheduled $39,700,000 payments on its COPs that were due on June 14, 2013.
B. The Causes and Consequences of the City’s Financial Distress
A full discussion of the causes and consequences of the City’s financial distress is well beyond the scope of this opinion. Still, the evidence presented at the eligibility trial did shed some important and relevant light on the issues that are before the Court. These “causes” and “consequences” are addressed together here because it is often difficult to distinguish one from the other.
1.Population Losses
• Detroit’s population declined to just over 1,000,000 as of June 1990. In December 2012, the population was 684,799. This is a 63% decline in population from its peak in 1950.
2.Employment Losses
From 1972 to 2007, the City lost approximately 80% of its manufacturing establishments and 78% of its retail establishments. The number of jobs in Detroit declined from 735,104 in 1970 to 346,545 in 2012.
Detroit’s unemployment rate was 6.3% in June 2000; 23.4% in June 2010; and 18.3% in June 2012. The number of employed Detroit residents fell from approximately 353,000 in 2000 to 279,960 in 2012.
3.Credit Rating
The City’s credit ratings are below investment grade. As of June 17, 2013, S & P and Moody’s had lowered Detroit’s credit ratings to CC and Caa3, respectively. Ex. 75 at 3.
4.The Water and Sewerage Department
The Detroit Water and Sewerage Department (“DWSD”) provides water and wastewater services to the City and many suburban communities in an eight-county area, covering 1,079 square miles. DWSD’s cost of capital is inflated due to *214 its association with the City. This increased cost of capital, coupled with the inability to raise rates and other factors, has resulted in significant under-spending on capital expenditures.
5.The Crime Rate
During calendar year 2011, 136,000 crimes were reported in the City. Of these, 15,245 were violent crimes. In 2012, the City’s violent crime rate was five times the national average and the highest of any city with a population in excess of 200,000.
The City’s case clearance rate for violent crimes is 18.6%. The clearance rate for all crimes is 8.7%. These rates are substantially below those of comparable municipalities nationally and surrounding local municipalities.
6.Streetlights
As of April 2013, about 40% of the approximately 88,000 streetlights operated and maintained by the City’s Public Lighting Department were not working.
7.Blight
There are approximately 78,000 abandoned and blighted structures in the City. Of these, 38,000 are considered dangerous buildings. The City has experienced 11,-000 — 12,000 fires each year for the past decade. Approximately 60% of these occur in blighted or unoccupied buildings.
The average cost to demolish a residential structure is approximately $8,500.
The City also has 66,000 blighted vacant lots.
8.The Police Department
In 2012, the average priority one response time for the police department was 30 minutes. In 2013, it was 58 minutes. The national average is 11 minutes.
The department’s manpower has been reduced by approximately 40% over the last 10 years.
The department has not invested in or maintained its facility infrastructure for many years, and has closed or consolidated many precincts.
The department operates with a fleet of 1,291 vehicles, most of which have reached the replacement age of three years and lack modern information technology.
9.The Fire Department
The average age of the City’s 35 fire stations is 80 years, and maintenance costs often exceed $1,000,000 annually. The fire department’s fleet has many mechanical issues, contains no reserve vehicles and lacks equipment ordinarily considered standard. The department’s apparatus division now has 26 employees, resulting in a mechanic to vehicle ratio of 1 to 39 and an inability to complete preventative maintenance on schedule.
In February 2013, Detroit Fire Commissioner Donald Austin ordered firefighters not to use hydraulic ladders on ladder trucks except in cases involving an “immediate threat to life” because the ladders had not received safety inspections “for years.”
During the first quarter of 2013, frequently only 10 to 14 of the City’s 36 ambulances were in service. Some of the City’s EMS vehicles have been driven 250,-000 to 300,000 miles and break down frequently.
10.Parks and Recreation
The City closed 210 parks during fiscal year 2009, reducing its total from 317 to 107 (66%). It has also announced that 50 of its remaining 107 parks would be closed and that another 38 would be provided with limited maintenance.
11.Information Technology
The City’s information technology infrastructure and software is obsolete and is not integrated between departments, or even within departments. Its information *215 technology needs to be upgraded or replaced in the following areas: payroll; financial; budget development; property information and assessment; income tax; and the police department operating system.
Payroll. The City currently uses multiple, non-integrated payroll systems. A majority of the City’s employees are on an archaic payroll system that has limited reporting capabilities and no way to clearly track, monitor or report expenditures by category. The current cost to process payroll is $62 per check ($19,200,000 per year). This is more than four times the general average of $15 per paycheck. The payroll process involves 149 full-time employees, 51 of which are uniformed officers. This means that high cost personnel are performing clerical duties.
Income Tax. The City’s highly manual income tax collection and data management systems were purchased in the mid-1990s and are outdated, with little to no automation capability. An IRS audit completed in July 2012, characterized these systems as “catastrophic.”
Financial Reporting. The City’s financial reporting system (“DRMS”) was implemented in 1999 and is no longer supported. Its budget development system is 10 years old and requires a manual interface with DRMS. 70% of journal entries are booked manually. The systems also lack reliable fail-over and back-up systems.
C. The City’s Efforts to Address Its Financial Distress
The City has reduced the number of its employees by about 2,700 since 2011. As of May 31, 2013, it had approximately 9,560 employees.
The City’s unionized employees are represented by 47 discrete bargaining units. 4 The collective bargaining agreements covering all of those bargaining units expired before this ease was filed. 5
The City has implemented revised employment terms, called “City Employment Terms” (“CET”), for nonunionized employees and for unionized employees under expired collective bargaining agreements. It has also increased revenues and reduced expenses in other ways. It estimates that these measures have resulted in annual savings of $200,000,000.
The City cannot legally increase its tax revenues. Nor can it reduce its employee expenses without further endangering public health and safety.
D. A Brief History of Michigan’s Emergency Manager Laws
Before reviewing the events leading to the appointment of the City’s emergency manager, a brief review of the winding history of the Michigan statutes on point is necessary.
In 1990, the Michigan Legislature enacted Public Act 72 of 1990, the “Local Government Fiscal Responsibility Act.” (“P.A.72”) This Act empowered the State to intervene with respect to municipalities facing financial crisis through the appointment of an emergency financial manager who would assume many of the powers ordinarily held by local elected officials.
Effective March 16, 2011, P.A. 72 was repealed and replaced with Public Act 4 of *216 2011, the “Local Government and School District Fiscal Accountability Act.” (“P.A.4”)
On November 5, 2012, Michigan voters rejected P.A. 4 by referendum. This rejection revived P.A. 72. See Order, Davis v. Roberts, No. 313297 (Mich.Ct.App. Nov. 16, 2012): 6
Petitioner’s reliance on the anti-revival statute, MCL 8.4, is unavailing. The plain language of MCL 8.4 includes no reference to statutes that have been rejected by referendum. The statutory language refers only to statutes subject to repeal. Judicial construction is not permitted when the language is unambiguous. Driver v. Naini, 490 Mich. 239, 247 , 802 N.W.2d 311 (2011). Accordingly, under the clear terms of the statute, MCL 8.4 does not apply to the voters’ rejection, by referendum, of PA 4.
See also Davis v. Weatherspoon, 2013 WL 2076478 , at *2 (E.D.Mich. May 15, 2013); Mich. Op. Att’y Gen No. 7267 (Aug. 6, 2012), 2012 WL 3544658 .
P.A. 72 remained in effect until March 28, 2013, when the “Local Financial Stability and Choice Act,” Public Act 436 of 2012, became effective. (“P.A. 436”) That Legislature enacted that law on December 13, 2012, and the governor signed it on December 26, 2012.
E. The Events Leading to the Appointment of the City’s Emergency Manager
The following subsections review the events leading to the appointment of the City’s emergency manager.
1. The State Treasurer’s Report of December 21, 2011
On December 6, 2011, the Michigan Department of the Treasury began a preliminary review of the City’s financial condition pursuant to P.A. 4.
On December 21, 2011, Andy Dillon, the state treasurer, reported to the governor that “probable financial stress” existed in Detroit and recommended the appointment of a “financial review team” pursuant to P.A. 4. Ex. 503 at 3. (Dkt. #11-3) In making this finding, Dillon’s report cited:
the inability of the City to avoid fund deficits, recurrent accumulated deficit spending, severe projected cash flow shortages resulting in an improper reliance on inter-fund and external borrowing, the lack of funding of the City’s other post-retirement benefits, and the increasing debt of the City[.]
More specifically, his report found:
(a) The City had violated § 17 of the Uniform Budget and Accounting Act (Public Act 2 of 1968) by failing to amend the City’s general appropriations act when it became apparent that various line items in the City’s budget for fiscal year 2010 exceeded appropriations by an aggregate of nearly $58,000,000, and that unaudited fiscal year 2011 figures indicated that expenditures would exceed appropriations by $97,000,000.
(b) The City did not file an adequate or approved “deficit elimination plan” with the Treasury for fiscal year 2010. The Treasury found that the City’s recent efforts at deficit reduction had been “unrealistic” and that “City officials either are incapable or unwilling to manage its own finances.”
(c) The City had a “mounting debt problem” with debt service requirements exceeding $597,000,000 in 2010 and long term debt exceeding $8,000,000,000 as of June 2011, excluding the City’s then-esti *217 mated $615,000,000 in unfunded actuarial pension liabilities and $4,900,000,000 in OPEB liability. The ratio of the City’s total long term debt to total net assets for 2010 was 32.64 to 1, which was far greater than other identified cites.
(d) The City was at risk of a termination payment, estimated at the time to be in the range of $280,000,000 to $400,000,000, under its swap contracts.
(e) The City’s long term bond rating had fallen below the BBB category and was considered “junk” — speculative or highly speculative.
(f) The City was experiencing significant cash flow shortages. The City projected a cash balance of $96,100,000 as of October 28, 2011. This was nearly $20,000,000 lower than the City’s previous estimates. It would be quickly eroded and the City would experience a cash shortage of $1,600,000 in April 2012 and would end 2012 with a cash shortfall of $44,100,000 absent remedial action.
(g) The City had difficulty making its required payments to its pension plans. In June of 2005, the City issued $1,440,000,000 of new debt in the form of Pension Obligation Certificates (“COPs”) to fund its two retirement systems with a renegotiated repayment schedule of 30 years.
2. The Financial Review Team’s Report of March 26, 2012
Under P.A. 4, upon a finding of “probable financial stress,” the governor was required to appoint a financial review team to undertake a more extensive financial management review of the City. On December 27, 2011, the governor announced the appointment of a ten member Financial Review Team. The Financial Review Team was then required to report its findings to the governor within 60-90 days.
On March 26, 2012, the Financial Review Team submitted its report to the governor. This report found that “the City of Detroit is in a condition of severe financial stress[.]” Ex. 22. This finding of “severe financial stress” was based upon the following considerations:
(a) The City’s cumulative general fund deficit had increased from $91,000,000 for 2010 to $148,000,000 for 2011 and the City had not experienced a positive year-end fund balance since 2004.
(b) Audits for the City’s previous nine fiscal years reflected significant variances between budgeted and actual revenues and expenditures, primarily due to the City’s admitted practice of knowingly overestimating revenues and underestimating expenditures.
(c) The City was continuing to experience significant cash depletion. The City had proposed adjustments to collective bargaining agreements to save $102,000,000 in 2012 and $258,000,000 in 2013, but the tentative collective bargaining agreements negotiated as of the date of the report were projected to yield savings of only $219,000,000 for both years.
(d) The City’s existing debt had suffered significant downgrades. Among the reasons cited by Moody’s Investor Service for the downgrade were the City’s “weakened financial position, as evidenced by its narrow cash position, its reliance upon debt financing, and ongoing negotiations with its labor unions regarding contract concessions.” Ex. 22 at 10.
3. The Consent Agreement
In early 2012, the City and the State of Michigan negotiated a 47 page “Financial Stability Agreement,” more commonly called the “Consent Agreement.” Ex. 23. The Consent Agreement states that its purpose is to achieve financial stability for the City and a stable platform for the *218 City’s future growth. It was executed as of April 5, 2012. Under § 15 of P.A. 4, because a consent agreement within the meaning of P.A. 4 was negotiated and executed, no emergency manager was appointed for the City, despite the finding by the Financial Review Team that the City was in “severe financial stress.”
The Consent Agreement created a “Financial Advisory Board” (“FAB”) of nine members selected by the governor, the treasurer, the mayor and the city council. The Consent Agreement granted the FAB an oversight role and limited powers over certain City reform and budget activities. The FAB has held, and continues to hold, regular public meetings and to exercise its oversight functions set forth in the Consent Agreement.
4. The State Treasurer’s Report of December 14, 2012
On December 11, 2012, the Department of Treasury commenced a preliminary review of the City’s financial condition under P.A. 72. On December 14, 2012, Andy D[llon, State Treasurer sent to Rick Snyder, Governor a memorandum entitled “Preliminary Review of the City of Detroit.” Ex. 24. This was after the voters had rejected P.A. 4 and P.A. 72 was revived.
Treasurer Dillon reported to the governor that, based on his preliminary review, a “serious financial problem” existed within the City. Ex. 24 at 1. This conclusion was based on many of the same findings as his earlier report of December 21, 2011. Ex. 21. In addition he reported that:
(a)City officials had violated the proscriptions in sections 18 and 19 of P.A. 2 of 1968 in applying the City’s money for purposes inconsistent with the City’s appropriations.
(b) The City had projected possibly depleting its cash prior to June 30, 2013. However because of problems in the financial reporting functions of the City, the projections continued to change from month to month. This made it difficult to make informed decisions regarding the City’s fiscal health. The City would not be experiencing significant cash flow challenges if City officials had complied with statutory requirements to monitor and amend adopted budgets as needed. In sum, such compliance requires the ability to produce timely and accurate financial information, which City officials have not been able to produce.
(c) The City incurred overall deficits in various funds including the General Fund. The General Fund’s unrestricted deficit increased by almost $41,000,000 from $155,000,000 on June 30, 2010 to $196,000,000 on June 30, 2011, and is projected to increase even further for 2012. This would not have happened if the City had complied with its budgets.
5. The Financial Review Team’s Report of February 19, 2013
Upon receipt of Treasurer Dillon’s report, the governor appointed another Financial Review Team to review the City’s financial condition on December 18, 2012. This was also done under P.A. 72.
On February 19, 2013, the Financial Review Team submitted its report to the governor, concluding, “in accordance with [P.A. 72], that a local government financial emergency exists within the City of Detroit because no satisfactory plan exists to resolve a serious financial problem.” 7 Ex. 25.
*219 This finding by the Financial Review Team of a “local government financial emergency” was based primarily upon the following considerations:
(a) The City continued to experience a significant depletion of its cash, with a projected $100,000,000 cumulative cash deficit as of June 30, 2013. Cost-cutting measures undertaken by the mayor and city council were too heavily weighted to one-time savings and non-union personnel.
(b) The City’s cumulative general fund deficit had not experienced a positive year-end fund balance since 2004 and stood at $326,600,000 as of 2012. If the City had not issued substantial debt, the accumulated general fund deficit would have been $936,800,000 by 2012.
(c) The City’s long-term liabilities exceeded $14,000,000,000 as of June 30, 2013. Approximately $1,900,000,000 would come due over the next five years. The City had not devised a satisfactory plan to address these liabilities.
(d) The City Charter contains numerous restrictions and structural details that make it extremely difficult to restructure the City’s operations in a meaningful or timely manner.
(e) The management letter accompanying the City’s fiscal year 2012 financial audit report identified numerous material weaknesses and significant deficiencies in the City’s financial and accounting operations.
(f) Audits for the City’s last six fiscal years reflected significant variances between budgeted and actual revenues and expenditures, owing primarily to the City’s admitted practice of knowingly overestimating revenues and underestimating expenditures.
6. The Appointment of an Emergency Manager for the City of Detroit
On March 1, 2013, after receiving the Financial Review Team Report of February 19, 2013, the governor announced his determination under P.A. 72 that a “financial emergency” existed within the City. Ex. 26. By that point, P.A. 436 had been enacted but it was not yet effective.
On March 12, 2013, the governor conducted a public hearing to consider the city council’s appeal of his determination.
On March 14, 2013, the governor confirmed his determination of a “financial emergency” within the City and requested that the Local Emergency Financial Assistance Loan Board (“LEFALB”) appoint an emergency financial manager under P.A. 72.
On March 15, 2013, the LEFALB appointed Kevyn Orr as the emergency financial manager for the City of Detroit. Second Amended Final Pre-Trial Order, ¶ 42 at 11. (Dkt. #1647)
On March 25, 2013, Mr. Orr formally took office. Second Amended Final PreTrial Order, ¶ 43 at 11. (Dkt. # 1647)
On March 28, 2013, the effective date of P.A. 436, P.A. 72 was repealed, and Mr. Orr became the emergency manager of the City under §§ 2(e) and 31 of P.A. 436. M.C.L. §§ 141.1542(e) and 141.1571.
The emergency manager acts “for and in the place and stead of the governing body and the office of chief administrative officer of the local government.” M.C.L. § 141.1549(2). He has “broad powers in receivership to rectify the financial emergency and to assure the fiscal accountability of the local government and the local government’s capacity to provide or cause to be provided necessary governmental services essential to the public health, *220 safety, and welfare.” M.C.L. § 141.1549(2).
F. The Emergency Manager’s Activities
1. The June 14, 2013 Meeting and Proposal to Creditors
On June 14, 2013, Mr. Orr organized a meeting with approximately 150 representatives of the City’s creditors, including representatives of: (a) the City’s debt holders; (b) the insurers of this debt; (c) the City’s unions; (d) certain retiree associations; (e) the Pension Systems; and (f) many individual bondholders. At the meeting, Mr. Orr presented the June 14 Creditor Proposal, Ex. 43, and answered questions. At the conclusion of the meeting, Mr. Orr invited creditor representatives to meet and engage in a dialogue with City representatives regarding the proposal.
This proposal described the economic circumstances that resulted in Detroit’s financial condition. It also offered a thorough overhaul and restructuring of the City’s operations, finances and capital structure, as well as proposed recoveries for each creditor group. More specifically, the June 14, 2013 Creditor Proposal set forth:
(a)The City’s plans to achieve a sustainable restructuring by investing over $1,250,000,000 over ten years to improve basic and essential City services, including: (1) substantial investment in, and the restructuring of, various City departments, including the Police Department; the Fire Department; Emergency Medical Services; the Department of Transportation; the Assessor’s Office and property tax division; the Building, Safety, Engineering & Environment Department; and the 36th District Court; (2) substantial investment in the City’s blight removal efforts; (3) the transition of the City’s electricity transmission business to an alternative provider; (4) the implementation of a population-based streetlight footprint and the outsourcing of lighting operations to the newly-created Public Lighting Authority; (5) substantial investments in upgraded information technology for police, fire, EMS, transportation, payroll, grant management, tax collection, budgeting and accounting and the City’s court system; (6) a comprehensive review of the City’s leases and contracts; and (7) a proposed overhaul of the City’s labor costs and related work rules. Ex. 43 at 61-78.
(b) The City’s intention to expand its income and property tax bases, rationalize and adjust its nominal tax rates, and various initiatives to improve and enhance its tax and fee collection efforts. Ex. 43 at 79-82.
(c) The City’s intention to potentially realize value from the Detroit Water and Sewerage Department (“DWSD”) through the creation of a new metropolitan area water and sewer authority. This authority would conduct the operations under the City’s concession or lease of the DWSD’s assets in exchange for payments in lieu of taxes, lease payments, or some other form of payment. Ex. 43 at 83-86.
Regarding creditor recoveries, the City proposed:
(a) Treatment of secured debt commensurate with the value of the collateral securing such debt, including the repayment or refinancing of its revenue bonds, secured unlimited and limited tax general obligation bonds, secured installment notes and liabilities arising in connection with the swap obligations. Ex. 43 at 101-109.
(b) The pro rata distribution of $2,000,000,000 in principal amount of interest-only, limited recourse participation notes to holders of unsecured claims (i.e., holders of unsecured unlimited and limited *221 tax general obligation bonds); the Service Corporations (on account of the COPs); the pension systems (on account of pension underfunding); retirees (on account of OPEB benefits); and miscellaneous other unsecured claimants. The plan also disclosed the potential for amortization of the principal of such notes in the event that, for example, future City revenues exceeded certain thresholds, certain assets were monetized or certain grants were received. Ex. 43 at 101-109.
(c) A “Dutch Auction” process for the City to purchase the notes. Ex. 43 at 108.
At this meeting, Mr. Orr also announced his decision not to make the scheduled $39,700,000 payments due on the COPs and swaps transactions and to impose a moratorium on principal and interest payments related to unsecured debt.
2. Subsequent Discussions with Creditor Representatives
Following the June 14, 2013 meeting at which the proposal to creditors was presented. Mr. Orr and his staff had several other meetings. 8
On June 20, 2013, Mr. Orr’s advisors met with representatives of the City’s unions and four retiree associations. In the morning they met with representatives of “non-uniformed” employees and retirees. In the afternoon they met with “uniformed” employees and retirees. In these meetings, his advisors discussed retiree health and pension obligations. Approximately 100 union and retiree representatives attended the two-hour morning session. It included time for questions and answers. Approximately 35 union and retiree representatives attended the afternoon session, which lasted approximately 90 minutes.
On June 25, 2013, Mr. Orr’s advisors and his senior advisor staff members held meetings in New York for representatives and advisors with all six of the insurers of the City’s funded bond debt; the pension systems; and U.S. Bank, the trustee or paying agent on all of the City’s bond issuances. Approximately 70 individuals attended this meeting. At this five-hour meeting, the City’s advisors discussed the 10-year financial projections and cash flows presented in the June 14 Creditor Proposal, together with the assumptions and detail underlying those projections and cash flows; the City’s contemplated reinvestment initiatives and related costs; and the retiree benefit and pension information and proposals that had been presented to the City’s unions and pension representatives on June 20, 2013.
Also on June 25, 2013, the City’s advis-ors held a separate meeting with U.S. Bank and its advisors to discuss the City’s intentions with respect to the DWSD, and the special revenue bond debt related thereto; the City’s proposed treatment of its general obligation debt, including the COPs; and various other issues raised by U.S. Bank.
On June 26 and 27, 2013, Mr. Orr’s advisors held individual follow-up meetings with each of several bond insurers. On June 26, 2013, the City team met with business people, lawyers and financial ad-visors from NPFGC in a two-hour meeting and Ambac Assurance Corporation in a 90-minute meeting. Financial Guaranty Insurance Corporation had originally requested a meeting for June 26, 2013 but *222 subsequently cancelled. On June 27, 2013, the City team met with business people, lawyers and financial advisors from Syn-cora in a 90-minute meeting and Assured Guaranty Municipal Corporation in a 90-minute meeting.
On July 10, 2013, the City and certain of its advisors held meetings with representatives and advisors of the GRS, as well as representatives and counsel for certain non-uniformed unions and retiree associations and representatives and advisors of the PFRS, as well as representatives and counsel for certain uniformed unions and retiree associations. Each meeting lasted approximately two hours. The purposes of each meeting were to provide additional information on the City’s pension restructuring proposal and to discuss a process for reaching a consensual agreement on pension underfunding issues and the treatment of any related claims.
On July 11, 2013, the City and its advis-ors held separate follow-up meetings with representatives and advisors for select non-uniform unions and retiree associations, the GRS, certain uniformed unions and retiree associations, and the PFRS to discuss retiree health issues.
G. The Prepetition Litigation
On July 3, 2013, two lawsuits were filed against the governor and the treasurer in the Ingham County Circuit Court. These suits sought a declaratory judgment that P.A. 436 violated the Michigan Constitution to the extent that it purported to authorize chapter 9 proceedings in which vested pension benefits might be impaired. They also sought an injunction preventing the defendants from authorizing any chapter 9 proceeding for the City in which vested pension benefits might be impaired. Flowers v. Snyder, No. 13-729-CZ July 3, 2013; Webster v. Snyder, No. 13-734-CZ July 3, 2013.
On July 17, 2013, the Pension Systems commenced a similar lawsuit. General Retirement System of the City of Detroit v. Orr, No. 13-768-CZ July 17, 2013.
H. The Bankruptcy Filing
On July 16, 2013, Mr. Orr recommended to the governor and the treasurer in writing that the City file for chapter 9 relief. Ex. 28. (Dkt. # 11-10) An emergency manager may recommend a chapter 9 filing if, in his judgment, “no reasonable alternative to rectifying the financial emergency of the local government which is in receivership exists.” M.C.L. § 141.1566(1).
On July 18, 2013, Governor Snyder authorized the City of Detroit to file a chapter 9 bankruptcy case. Ex. 29. (Dkt. # 11-11) M.C.L. § 141.1558(1) permits the governor to “place contingencies on a local government in order to proceed under chapter 9.” However, the governor’s authorization letter stated, “I am choosing not to impose any such contingencies today. Federal law already contains the most important contingency-a requirement that the plan be legally executable, 11 USC 943(b)(4).” Ex. 29. at 4. Accordingly, his authorization did not include a condition prohibiting the City from seeking to impair pensions in a plan.
At 4:06 p.m. on July 18, 2013, the City filed this chapter 9 bankruptcy case. 9 (Voluntary Petition, Dkt. # 1)
IV. The City Bears the Burden of Proof.
Before turning to the filed objections, it is necessary to point out that the City bears the burden to establish by a preponderance of the evidence each of the elements of eligibility under 11 U.S.C. *223 § 109 (c). Int’l Ass’n of Firefighters, Local 1186 v. City of Vallejo (In re City of Vallejo), 408 B.R. 280, 289 (9th Cir. BAP 2009); In re City of Stockton, Cal., 498 B.R. 772, 794 (Bankr.E.D.Cal.2013).
V. The Objections of the Individuals Who Filed Objections Without an Attorney
As the Court commented at the conclusion of the hearing on September 19, 2013, the individuals’ presentations were moving, passionate, thoughtful, compelling and well-articulated. These presentations demonstrated an extraordinary depth of concern for the City of Detroit, for the inadequate level of services that their city government provides and the personal hardships that creates, and, most clearly, for the pensions of City retirees and employees. These individuals expressed another deeply held concern, and even anger, that became a major theme of the hearing — the concern and anger that the State’s appointment of an emergency manager over the City of Detroit violated their fundamental democratic right to self-governance.
The Court’s role here is to evaluate how these concerns might impact the City’s eligibility for bankruptcy. In making that evaluation, the Court can only consider the specific requirements of applicable law — 11 U.S.C. §§ 109 (c) and 921(c). It is not the Court’s role to examine this bankruptcy or these objections to this bankruptcy from any other perspective or on any other basis. For example, neither the popularity of the decision to appoint an emergency manager nor the popularity of the decision to file this bankruptcy case are matters of eligibility under the federal bankruptcy laws.
To the extent that individual objections raised arguments that do raise eligibility concerns, they are addressed through this opinion. It appears to the Court that these individuals’ concerns should mostly be addressed in the context of whether the case was filed in good faith, as 11 U.S.C. § 921 (c) requires. To a lesser extent, they should also be considered in the context of the specific requirement that the City was “insolvent.” 11 U.S.C. § 109 (c)(3). Accordingly, the Court will address these concerns in those Parts of this opinion. See Part XIII (insolvency) and Part XVII (good faith), below.
YI. The City of Detroit Is a “Municipality” Under 11 U.S.C. § 109 (c)(1).
With its petition, the City filed a “Memorandum in Support of Statement of Qualifications Pursuant to Section 109(c) of the Bankruptcy Code,” asserting that the City is a “municipality” as defined in 11 U.S.C. § 101 (40) and as required by 11 U.S.C. § 109 (c)(1). (Dkt. #14 at 8-9) In the “Second Amended Final Pre-Trial Order,” the parties so stipulated. (Dkt. # 1647 at 11) Accordingly, the Court finds that the City has established this element of eligibility and will not discuss it further.
VII. The Bankruptcy Court Has the Authority to Determine the Constitutionality of Chapter 9 of the Bankruptcy Code and Public Act 436.
A. The Parties’ Objections to the Court’s Authority Under Stern v. Marshall
Several objecting parties challenge the constitutionality of chapter 9 of the bankruptcy code under the United States Constitution. Citing the Supreme Court’s decision in Stern v. Marshall, — U.S. -, 131 S.Ct. 2594 , 180 L.Ed.2d 475 (2011), these parties also assert that this Court does not have the authority to determine the constitutionality of chapter 9.
Several objecting parties also challenge the constitutionality of P.A. 436 under the *224 Michigan Constitution. Some of these parties also assert that this Court does not have the authority to determine the constitutionality of P.A. 436.
The Official Committee of Retirees filed a motion to withdraw the reference on the grounds that this Court does not have the authority to determine the constitutionality of chapter 9 or P.A. 436. It also filed a motion for stay of the eligibility proceedings pending the district court’s resolution of that motion. In this Court’s denial of the stay motion, it concluded that the Committee was unlikely to succeed on its arguments regarding this Court’s lack of authority under Stern. In re City of Detroit, Mich, 498 B.R. 776, 781-87 (Bankr.E.D.Mich.2013). The following discussion is taken from that decision.
B. Stern, Waldman, and Global Technovations
In Stern v. Marshall, the Supreme Court held that the “judicial power of the United States” can only be exercised by an Article III court and “that in general, Congress may not withdraw from judicial cognizance any matter which, from its nature, is the subject of a suit at the common law, or in equity, or admiralty.” 131 S.Ct. at 2608-12 . The Supreme Court held that a bankruptcy court therefore lacks the constitutional authority to enter a final judgment on a debtor’s counterclaim that is based on a private right when resolution of the counterclaim is not necessary to fix the creditor’s claim. 131 S.Ct. at 2611-19 . The Court described the issue before it as “narrow.” 10 131 S.Ct. at 2620 .
The Sixth Circuit has adhered to a narrow reading of Stem in the two cases that have addressed the issue: Onkyo Europe Elect. GMBH v. Global Technovations Inc. (In re Global Technovations Inc.), 694 F.3d 705 (6th Cir.2012), and Waldman v. Stone, 698 F.3d 910 (6th Cir.2012).
In Global Technovations, the Sixth Circuit summarized Stem as follows:
Stem’s limited holding stated the following: When a claim is “a state law action independent of the federal bankruptcy law and not necessarily resolvable by a ruling on the creditor’s proof of claim in bankruptcy,” the bankruptcy court cannot enter final judgment. Id. at 2611 . In those cases, the bankruptcy court may only enter proposed findings of fact and conclusions of law. Ibid.
694 F.3d at 722 . Based on this view of Stem , the Global Technovations court held that the bankruptcy court did have the authority to rule on the debtor’s fraudulent transfer counterclaim against a creditor that had filed a proof of claim. Id.
In Waldman , the Sixth Circuit summarized the holding of Stem as follows:
When a debtor pleads an action under federal bankruptcy law and seeks disal-lowance of a creditor’s proof of claim against the estate—as in Katchen [v. Landy, 382 U.S. 323 , 86 S.Ct. 467 , 15 L.Ed.2d 391 (1966)] — the bankruptcy court’s authority is at its constitutional maximum. 131 S.Ct. at 2617-18 . But when a debtor pleads an action arising only under state-law, as in Northern *225 Pipeline [v. Marathon Pipe Line Co., 458 U.S. 50 , 102 S.Ct. 2858 , 73 L.Ed.2d 598 (1982) ]; or when the debtor pleads an action that would augment the bankrupt estate, but not “necessarily be resolved in the claims allowance process[,]” 131 S.Ct. at 2618 ; then the bankruptcy court is constitutionally prohibited from entering final judgment. Id. at 2614 .
698 F.3d at 919 . Based on this view of Stem , the Waldman court held that the bankruptcy court lacked authority to enter a final judgment on the debtor’s prepetition fraud claim against a creditor that was not necessary to resolve in adjudicating the creditor’s claim against the debtor.
These cases recognize the crucial difference to which Stem adhered. A bankruptcy court may determine matters that arise directly under the bankruptcy code, such as fixing a creditor’s claim in the claims allowance process. However, a bankruptcy court may not determine more tangential matters, such as a state law claim for relief asserted by a debtor or the estate that arises outside of the bankruptcy process, unless it is necessary to resolve that claim as part of the claims allowance process. See City of Cent. Falls, R.I. v. Central Falls Teachers’ Union (In re City of Cent. Falls), R.I., 468 B.R. 36, 52 (Bankr.D.R.I.2012) (“[Although the counterclaim at issue in Stem arose under state law, the determinative feature of that counterclaim was that it did not arise under the Bankruptcy Code.”).
C. Applying Stern, Waldman, and Global Technovations in This Case
The issue presently before the Court is the debtor’s eligibility to file this chapter 9 case. A debtor’s eligibility to file bankruptcy stems directly from rights established by the bankruptcy code. As quoted above, Waldman expressly held, “When a debtor pleads an action under federal bankruptcy law,” the bankruptcy court’s authority is constitutional. 698 F.3d at 919 . In this case, the debtor has done precisely that. In seeking relief under chapter 9, it has pled “an action under federal bankruptcy law.”
The parties’ federal and state constitutional challenges are simply legal arguments in support of their objection to the City’s request for bankruptcy relief. Nothing in Stem, Waldman, or Global Technovations suggests any limitation on the authority of a bankruptcy court to consider and decide any and all of the legal arguments that the parties present concerning an issue that is otherwise properly before it.
More specifically, those cases explicitly state that a bankruptcy court can constitutionally determine all of the issues that are raised in the context of resolving an objection to a proof of claim, even those involving state law. 11 For the same reasons, a *226 bankruptcy court can also constitutionally determine all issues that are raised in the context of resolving an objection to eligibility.
D. Applying Stern in Similar Procedural Contexts
No cases address Stem in the context of eligibility for bankruptcy. Nevertheless, several cases do address Stem in the context of similar contested matters — conversion and dismissal of a case. Each case readily concludes that Stem’s limitation on the authority of a bankruptcy court is inapplicable. For example, in In re USA Baby, Inc., 674 F.3d 882, 884 (7th Cir.2012), the Seventh Circuit held that nothing in Stem precludes a bankruptcy court from converting a chapter 11 case to chapter 7, stating, “we cannot fathom what bearing that principle might have on the present case.” 12 In Mahanna v. Bynum, 465 B.R. 436 (W.D.Tex.2011), the court held that Stem does not prohibit the bankruptcy court from dismissing the debtors’ chapter 11 case. The court concluded, “[TJhis appeal is entirely frivolous, and constitutes an unjustifiable waste of judicial resourees[.]” Id. at 442. In In re Thalmann, 469 B.R. 677, 680 (Bankr.S.D.Tex.2012), the court held that Stem does not prohibit a bankruptcy court from determining a motion to dismiss a case on *227 the grounds of bad faith. 13 This line of cases strongly suggests that Stem likewise does not preclude a bankruptcy court from determining eligibility.
E. The Objectors Overstate the Scope of Stern .
Implicitly recognizing how far its objection to this Court’s authority stretches Stem , the objectors argue that two aspects of their objection alter the analysis of Stem and its application here. The first is that their objections raise important issues under both the United States Constitution and the Michigan Constitution. The second is that strong federalism considerations warrant resolution of its objection by an Article III court. Neither consideration, however, is sufficient to justify the expansion of Stem that the objectors argue.
1. Stern Does Not Preclude This Court from Determining Constitutional Issues.
First, since Stem was decided, non-Article III courts have considered constitutional issues, always without objection.
Both bankruptcy courts and bankruptcy appellate panels have done so. 14 More specifically, and perhaps more on point, in two recent chapter 9 cases, bankruptcy courts addressed constitutional issues without objection. Association of Retired Employees v. City of Stockton, Cal. (In re City of Stockton, Cal.), 478 B.R. 8 (Bankr.E.D.Cal.2012) (holding that retirees’ contracts could be impaired in the chapter 9 case without offending the constitution); In re City of Harrisburg, PA, 465 B.R. 744 (Bankr.M.D.Pa.2011) (upholding the constitutionality of a Pennsylvania statute barring financially distressed third class cities from filing bankruptcy).
In addition, the Tax Court, a non-Artiele III court, has also examined constitutional issues, without objection. 15 Likewise, the *228 Court of Federal Claims, also a non-Article III court, has considered constitutional claims, without objection. This was done perhaps most famously in Beer v. United States, 111 Fed. Cl. 592 (Fed.Cl.2013), which is a suit by Article III judges under the Compensation Clause of the United States Constitution.
Stem does not change this status quo, and nothing about the constitutional dimension of the objectors’ eligibility objections warrants the expansion of Stem that they assert. As Stem itself reaffirmed, “We do not think the removal of counterclaims such as [the debtor’s] from core bankruptcy jurisdiction meaningfully changes the division of labor in the current statute[.]” 131 S.Ct. at 2620 . Expanding Stem to the point where it would prohibit bankruptcy courts from considering issues of state or federal constitutional law would certainly significantly change the division of labor between the bankruptcy courts and the district courts. 16
2. Federalism Issues Are Not Relevant to a Stern Analysis.
The objectors’ federalism argument is even more perplexing and troubling. Certainly the objectors are correct that a ruling on whether the City was properly authorized to file this bankruptcy case, as required for eligibility under 11 U.S.C. § 109 (c)(2), will require the interpretation of state law, including the Michigan Constitution.
However, ruling on state law issues is required in addressing many issues in bankruptcy cases. As the Supreme Court has observed, “[Bjankruptcy courts [ ] consult state law in determining the validity of most claims.” Travelers Cas. & Sur. Co. of Am. v. Pacific Gas & Elec. Co., 549 U.S. 443, 444 , 127 S.Ct. 1199, 1201 , 167 L.Ed.2d 178 (2007). Concisely summarizing the reality of the bankruptcy process and the impact of Stem on it, the court in In re *229 Olde Prairie Block Owner, LLC, 457 B.R. 692, 698 (Bankr.N.D.Ill.2011), concluded:
[Stem] certainly did not hold that a Bankruptcy Judge cannot ever decide a state law issue. Indeed, a large portion of the work of a Bankruptcy Judge involves actions in which non-bankruptcy issues must be decided and that ‘stem from the bankruptcy itself or would necessarily be resolved in the claims allowance process,’ [131 S.Ct.] at 2618, for example, claims disputes, actions to bar dischargeability, motions for stay relief, and others. Those issues are likely within the ‘public rights’ exception as defined in Stem .
Other cases also illustrate the point. 17
The distinction is clear. While in some narrow circumstances Stem prohibits a non-Article III court from adjudicating a state law claim for relief, a non-Article III court may consider and apply state law as necessary to resolve claims over which it does have authority under Stem . The mere fact that state law must be applied does not by itself mean that Stem prohibits a non-Article III court from determining the matter.
Moreover, nothing about a chapter 9 case suggests a different result. In City of Cent. Falls, R.I., 468 B.R. at 52 , the court stated, “Nor did [Stem] address concerns of federalism; although the counterclaim at issue in Stem arose under state law, the determinative feature of that counterclaim was that it did not arise under the Bankruptcy Code. The operative dichotomy was not federal versus state, but bankruptcy versus nonbankruptcy.”
The troubling aspect of the objectors’ federalism argument is that it does not attempt to define, even vaguely, what interest of federalism is at stake here.
In Arizona v. United States, — U.S. -, 132 S.Ct. 2492, 2500 , 183 L.Ed.2d 351 (2012), the Supreme Court stated, “Federalism, central to the constitutional design, adopts the principle that both the National and State Governments have elements of sovereignty the other is bound to respect.” Accordingly, federalism is about the federal and state governments respecting each other’s sovereignty. It has nothing to do with the requirements of Article III or, to use the phraseology of Stem with the “division of labor” between the district courts and the bankruptcy courts. 18 131 S.Ct. at 2620 . See also City of Cent. Falls, R.I., 468 B.R. at 52 , quoted above.
F. Conclusion Regarding the Stern Issue
For these reasons, the Court concludes that it does have the authority to determine the constitutionality of chapter 9 under the United States Constitution and the constitutionality of P.A. 436 under the Michigan Constitution.
VIII. Chapter 9 Does Not Violate the United States Constitution.
The objecting parties argue that chapter 9 of the bankruptcy code violates several *230 provisions of the United States Constitution, both on its face and as applied in this case. The Court will first address the arguments that chapter 9 is facially unconstitutional under the Bankruptcy Clause of Article I, Section 8, and the Contracts Clause of Article I, Section 10 of the United States Constitution. The Court will then address the argument that chapter 9, on its face and as applied, violates the Tenth Amendment to the United States Constitution and the principles of federalism embodied therein.
A. Chapter 9 Does Not Violate the Uniformity Requirement of the Bankruptcy Clause of the United States Constitution.
Article I, Section 8 of the United States Constitution provides: “The Congress shall have Power To ... establish ... uniform Laws on the subject of Bankruptcies throughout the United States.”
The objecting parties, principally AFSCME, assert chapter 9 violates the uniformity requirement of the United States Constitution because chapter 9 “ced[es] to each state the ability to define its own qualifications for a municipality to declare bankruptcy, chapter 9 permits the promulgation of non-uniform bankruptcies within states.” AFSCME’s Corrected Objection to Eligibility, ¶ 58 at 25 (citing M.C.L. § 141.1558). (Dkt. #505) AFSCME argues that this is particularly so in Michigan, where P.A. 486 allows the governor to exercise discretion when determining whether to authorize a municipality to seek chapter 9 relief, and also allows the governor to “attach whichever contingencies he wishes.” Id.
1. The Applicable Law
The Supreme Court has addressed the uniformity requirement in several cases. In Hanover Nat’l Bank v. Moyses, 186 U.S. 181 , 22 S.Ct. 857 , 46 L.Ed. 1113 (1902), the Court held that the incorporation into the bankruptcy law of state laws relating to exemptions did not violate the uniformity requirement of the United States Constitution. The Court stated, “The general operation of the law is uniform although it may result in certain particulars differently in different states.” Id. at 190 , 22 S.Ct. 857 .
In Stellwagen v. Clum, 245 U.S. 605 , 38 S.Ct. 215 , 62 L.Ed. 507 (1918), the Court upheld the Bankruptcy Act’s incorporation of varying state fraudulent conveyance statutes, despite the fact that the laws “may lead to different results in different states.” Id. at 613 , 38 S.Ct. 215 .
In Blanchette v. Connecticut General Ins. Corps., 419 U.S. 102, 159 , 95 S.Ct. 335 , 42 L.Ed.2d 320 (1974), the Court held, “The uniformity provision does not deny Congress power to take into account differences that exist between different parts of the country, and to fashion legislation to resolve geographically isolated problems.”
The Supreme Court has struck down a bankruptcy statute as non-uniform only once. In Railway Labor Executives’ Ass’n v. Gibbons, 455 U.S. 457 , 102 S.Ct. 1169 , 71 L.Ed.2d 335 (1982), the Court struck down a private bankruptcy law that affected only the employees of a single company. The Court concluded, “The uniformity requirement, however, prohibits Congress from enacting a bankruptcy law that, by definition, applies only to one regional debtor. To survive scrutiny under the Bankruptcy Clause, a law must at least apply uniformly to a defined class of debtors.” Id. at 473 , 102 S.Ct. 1169 .
More recently, the Sixth Circuit has addressed the uniformity requirement in two cases. In Schultz v. United States, 529 F.3d 343, 351 (6th Cir.2008), the court concluded, “Over the last century, the Supreme Court has wrestled with the notion of geographic uniformity, ultimately con- *231 eluding that it allows different effects in various states due to dissimilarities in state law, so long as the federal law applies uniformly among classes of debtors.” Summarizing the Supreme Court’s decisions in Moyses, Stellwagen, and Blan-chette, the court stated, “Congress does not exceed its constitutional powers in enacting a bankruptcy law that permits variations based on state law or to solve geographically isolated problems.” Id. at 353 .
In Richardson v. Schafer (In re Schafer), 689 F.3d 601 (6th Cir.2012), the court stated, “the Bankruptcy Clause shall act as ‘no limitation upon congress as to the classification of persons who are to be affected by such laws, provided only the laws shall have uniform operation throughout the United States.’ ” Id. at 611 (quoting Leidigh Carriage Co. v. Stengel, 95 F. 637, 646 (6th Cir.1899)). It added, “Schultz clarified that it is not the outcome that determines the uniformity, but the uniform process by which creditors and debtors in a certain place are treated.” Id.
2. Discussion
Chapter 9 does exactly what these cases require to meet the uniformity requirement of the Bankruptcy Clause of the United States Constitution. The “defined class of debtors” to which chapter 9 applies is the class of entities that meet the eligibility requirements of 11 U.S.C. § 109 (c). One such qualification is that the entity is “specifically authorized ... to be a debtor under such chapter by State law, or by a governmental officer or organization empowered by State law to authorize such entity to be a debtor under such chapter[.]” § 109(c)(2). As Moyses and Stellwagen specifically held, it is of no consequence in the uniformity analysis that this requirement of state authorization to file a chapter 9 case may lead to different results in different states.
It appears that AFSCME objects to the lack of uniformity that may arise from the differing circumstances of municipalities that the governor might authorize to file a chapter 9 petition. That it not the test. Rather, the test is whether chapter 9 applies uniformly to all chapter 9 debtors. It does.
Accordingly, the Court concludes that chapter 9 satisfies the uniformity requirement of the Bankruptcy Clause of the United States Constitution.
B. Chapter 9 Does Not Violate the Contracts Clause of the United States Constitution.
The Contracts Clause of the United States Constitution, which is Article I, Section 10, provides, “No State shall ... pass any ... Law impairing the Obligation of Contracts, ...” AFSCME argues that chapter 9 violates the Contracts Clause. This argument is frivolous. Chapter 9 is a federal law. Article I, Section 10 does not prohibit Congress from enacting a “Law impairing the Obligation of Contracts.” Id.
As the court stated in In re Sanitary & Imp. Dist., No. 7, 98 B.R. 970 (Bankr.D.Neb.1989):
The Court further concludes that the Bankruptcy Code adopted pursuant to the United States Constitution Article 1, Section 8 permits the federal courts through confirmation of a Chapter 9 plan to impair contract rights of bondholders and that such impairment is not a violation by the state or the municipality of Article 1, Section 10 of the United States Constitution which prohibits a state from impairing such contract rights.
Id. at 973 .
Or, more succinctly stated, “The Bankruptcy Clause necessarily authorizes Congress to make laws that would impair con *232 tracts. It long has been understood that bankruptcy law entails impairment of contracts.” Stockton, 478 B.R. at 15 (citing Sturges v. Crowninshield, 17 U.S. 122, 191 , 4 Wheat. 122 , 4 L.Ed. 529 (1819)).
C. Chapter 9 Does Not Violate the Tenth Amendment to the United States Constitution.
The Tenth Amendment provides, “The powers not delegated to the United States by the Constitution, nor prohibited by it to the States, are reserved to the States respectively, or to the people.”
This Amendment reflects the concept that the United States Constitution “created a Federal Government of limited powers.” Gregory v. Ashcroft, 501 U.S. 452, 457 , 111 S.Ct. 2395 , 115 L.Ed.2d 410 (1991); see also United States v. Darby, 312 U.S. 100, 124 , 61 S.Ct. 451 , 85 L.Ed. 609 (1941) (The Tenth Amendment “states but a truism that all is retained which has not been surrendered

[Text truncated at 120,000 characters. The full text is on the page linked above.]

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/8496677. Public record. Not legal advice.