Detroit Becomes The Largest American City To File For Bankruptcy

July 19, 2013  |  

News trickled out yesterday afternoon that Detroit, finally succumbing to what we all suspected would have to be done, filed for Chapter 9 municipal bankruptcy. This is the city’s latest effort to get its monster debt under control. It’s suspected that the city owes somewhere around $18 billion and $20 billion.

Detroit is the fourth-most-populous city in the nation, with a population that’s 80 percent black. Citizens are concerned about what the bankruptcy will mean for pensions and public services.

The city grew around a thriving auto industry, with General Motors’ headquarters still visible on the skyline. By 1950, the population of the city had swelled to 1.8 million. Today, it’s 700,000. That loss of population coupled with the ongoing needs of a major city, widespread mismanagement, and constant borrowing over the years has caused the city’s troubles.

In March, the state, which is run by Republicans, sent an emergency manager, Kevyn D. Orr, to try and right the troubled city, which is heavily Democratic. That move has come with what the Times calls “racial implications.” The bankruptcy filing comes after attempts to negotiate with creditors for repayment and unions for cuts in benefits. More than 100,000 creditors are expected to fight to get their money, and to have it repaid at a rate that’s higher than pennies on the dollar. Some debts, including billions in health benefits for retirees are being classified as unsecured debt so that the city can save on payments.

“If enough bondholders decide to duel with Detroit in an effort to squeeze the city for more money, the battle could snarl the Chapter 9 case for months or even years, according to people familiar with the matter,” according to The Wall Street Journal.

Across the city, you can already the signs of the financial trouble that the city is in. The New York Times notes that 40 percent of streetlights don’t work and more than half of the city’s parks have closed. The Journal also notes that it take 58 minutes for police to respond to calls (the national average is 11 minutes) and only one-third of ambulances are in operation.

“The citizens of Detroit need and deserve a clear road out of the cycle of ever-decreasing services,” said Gov. Rick Snyder. “The only way to do those things is to radically restructure the city and allow it to reinvent itself without the burden of impossible obligations.” The White House is monitoring the situation.

Other areas that have filed for bankruptcy include Jefferson County, AL, which previously had the largest amount of debt, $4.2 billion, owing to a botched sewer system and Orange County, CA, which has $2 billion in debt. The first has a population of 659,000; the latter 2.4 million.

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