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Detroit on Thursday became the largest city in U.S. history to file for bankruptcy protection after decades of decline and mismanagement rendered the home of the nation\u2019s auto industry insolvent.<\/p>\n
The bankruptcy is expected to make it harder for municipalities in Michigan\u2014and across the country\u2014to borrow money by undermining confidence in what used to be among the most trusted bonds available.<\/p>\n
Michigan Governor Rick Snyder said there was no other option.<\/p>\n
\u201cThe fiscal realities confronting Detroit have been ignored for too long,\u201d Snyder said in a press release. \u201cI\u2019m making this tough decision so the people of Detroit will have the basic services they deserve and so we can start to put Detroit on a solid financial footing that will allow it to grow and prosper in the future.\u201d<\/p>\n
Once the fourth largest U.S. city, Detroit has seen its population shrink by more than half\u2014from 1.8 million in 1950 to 685,000 today\u2014as crime, flight to the suburbs and the hollowing out of the auto industry ate away at its foundations.<\/p>\n
\u201cThe citizens of Detroit need and deserve a clear road out of the cycle of ever-decreasing services,\u201d Snyder said in a letter accompanying the court filing. \u201cThe only feasible path to a stable and solid Detroit is to file for bankruptcy protection.\u201d<\/p>\n
Earlier this year, Snyder appointed an emergency manager with a background in bankruptcy to restructure the Motor City\u2019s finances.<\/p>\n
He said he had \u201cvery much hoped\u201d the move would help Detroit avoid bankruptcy, but that now it is time to \u201cface the fact that the City cannot and is not paying its debts as they become due and is insolvent.\u201d<\/p>\n
Detroit stopped making payments on some of its $18.5 billion of debt and obligations last month as the emergency manager sought relief from creditors.<\/p>\n
But the city\u2019s employee pension plans\u2014which are owed some nine billion dollars\u2014filed a lawsuit to prevent any cuts to retirement benefits.<\/p>\n
The bankruptcy filing places that case on hold and comes days before what could have been a key hearing.<\/p>\n
It will be up to a federal judge to determine if Detroit is allowed to restructure\u2014and even shed\u2014its obligations in a Chapter 9 bankruptcy.<\/p>\n
\u201cYou can expect challenges right out of the box,\u201d said bankruptcy lawyer Douglas Bernstein of Michigan-based Plunkett Cooney.<\/p>\n
It could take years for the case to be resolved, he warned.<\/p>\n
\u201cOne of the biggest challenges is that there haven\u2019t been very many municipal bankruptcies in the history of the bankruptcy code so there\u2019s not a lot of guidance,\u201d Bernstein told AFP.<\/p>\n
Pension funds are protected by the state constitution, but filing for bankruptcy in federal court ought to give Detroit a way out of its pension obligations because federal laws have precedence.<\/p>\n
Snyder listed a host of problems that prove Detroit cannot meet its obligations to its citizens while weighed down by debt.<\/p>\n
The homicide rate is the highest in nearly 40 years and, for more than two decades, Detroit has been on the list of the most dangerous cities in the United States.<\/p>\n
People have to wait an average of 58 minutes for the police to respond to their calls, compared with an average of 11 minutes nationwide.<\/p>\n
There are 78,000 abandoned buildings scattered across the city, and 40% of the streetlights don\u2019t work.<\/p>\n
A lack of funds for maintenance and repairs means only a third of the city\u2019s ambulances work and police cars and fire trucks are also in poor condition.<\/p>\n
The city has been borrowing money to pay its bills for more than a decade, a short-sighted move that raised costs.<\/p>\n
Some 38 cents of every city dollar was going to debt repayment and obligations like pensions, and that was projected to hit 65 cents on the dollar by 2017.<\/p>\n
The city\u2019s tax rate has reached its legal limit and even if it could raise rates, residents can\u2019t afford to pay more, Snyder said. <\/p>\n
Photo: AFP<\/p>\n","protected":false},"excerpt":{"rendered":"
Detroit on Thursday became the largest city in U.S. history to file for bankruptcy protection after decades of decline and mismanagement rendered the home of the nation\u2019s auto industry insolvent. The bankruptcy is expected to make it harder for municipalities in Michigan\u2014and across the country\u2014to borrow money by undermining confidence in what used to be […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":[],"categories":[1],"tags":[],"_links":{"self":[{"href":"http:\/\/ubune.com\/blog\/wp-json\/wp\/v2\/posts\/1073"}],"collection":[{"href":"http:\/\/ubune.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"http:\/\/ubune.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"http:\/\/ubune.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"http:\/\/ubune.com\/blog\/wp-json\/wp\/v2\/comments?post=1073"}],"version-history":[{"count":1,"href":"http:\/\/ubune.com\/blog\/wp-json\/wp\/v2\/posts\/1073\/revisions"}],"predecessor-version":[{"id":1074,"href":"http:\/\/ubune.com\/blog\/wp-json\/wp\/v2\/posts\/1073\/revisions\/1074"}],"wp:attachment":[{"href":"http:\/\/ubune.com\/blog\/wp-json\/wp\/v2\/media?parent=1073"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"http:\/\/ubune.com\/blog\/wp-json\/wp\/v2\/categories?post=1073"},{"taxonomy":"post_tag","embeddable":true,"href":"http:\/\/ubune.com\/blog\/wp-json\/wp\/v2\/tags?post=1073"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}