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Detroit files for bankruptcy, stage set for court fight

Detroit filed the largest municipal bankruptcy in US history on Thursday, setting the stage for a costly court battle with creditors and opening a new chapter in the long struggle to revive the city that was the cradle of the American auto industry.

The bankruptcy, if approved by a federal judge, would force Detroit’s thousands of creditors into negotiations with the city’s Emergency Manager Kevyn Orr to resolve an estimated $18.5 billion in debt that has crippled Michigan’s largest city. Michigan governor Rick Snyder said he saw no other options for Detroit and approved Orr’s request to file for Chapter 9 bankruptcy protection.

‘Detroit simply cannot raise enough revenue to meet its current obligations, and that is a situation that is only projected to get worse absent a bankruptcy filing,’ wrote Snyder, a Republican, in a letter accompanying the filing.
Detroit’s creditors are expected to face huge losses, and the future of retiree pension and health benefits for thousands of city workers hangs in the balance. Anticipating the filing on Thursday, investors drove prices of Detroit bonds and notes lower, sending their yields to record highs on Thursday.
In some respects, Detroit’s legacy as a model for American innovation is at stake as well. Its crippled condition threatens to overwhelm its image as the home of Henry Ford’s pioneering assembly line and Motown’s 1960s soul-music hit machine. More recently, the city has become an incubator for efforts to repopulate and reinvigorate an urban relic of a bygone, industrial age. New York, Cleveland and Philadelphia previously teetered on bankruptcy, but Detroit is the first major US city to go over the edge.

Detroit has lost 25 percent of its population in the last decade, with just 700,000 residents remaining. The ranks of retirees outnumber the city’s active workers by more than a 2-1 ratio. With a quarter of its buildings abandoned in some neighborhoods, no other American city has borne the brunt of deindustrialisation so heavily. In his 16 July letter to the governor making the case for a bankruptcy filing, Orr laid bare the scope of the city’s decline.  ‘After decades of fiscal mismanagement; plummeting population, employment and revenues; decaying City infrastructure... Detroit today is a shell of the thriving metropolis that it once was,’ Orr wrote. 

Snyder named Orr in March to tackle the city’s spiraling long-term debt, which is estimated at $18.5 billion.  A White House spokeswoman said Democratic US President Barack Obama and his senior team were monitoring the situation in Detroit closely. But unlike after the economic collapse of 2008, in which the federal government injected billions in cash into US auto makers General Motors Co and Chrysler as the first step of a quick turn through a managed bankruptcy process, Obama made no promises this time.

‘While leaders on the ground and the city’s creditors understand they must find a solution to Detroit’s challenge, we remain committed to continuing our strong partnership,’ White House spokeswoman Amy Brundage said.

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