Detroit filed for the largest municipal bankruptcy in U.S. history
Thursday after steep population and tax base declines sent it tumbling
toward insolvency.
The filing by a state-appointed emergency manager means that if the
bankruptcy filing is approved, city assets could be liquidated to
satisfy demands for payment.
Kevin Orr, a bankruptcy expert, was hired by the state in March to
lead Detroit out of a fiscal free-fall, and made the filing Thursday in
federal bankruptcy court.
"Only one feasible path offers a way out," Gov. Rick Snyder said in a
letter to Orr and state Treasurer Andy Dillon approving the bankruptcy.
The letter was attached to the bankruptcy filing.
"The citizens of Detroit need and deserve a clear road out of the
cycle of ever-decreasing services," Snyder wrote. "The city's creditors,
as well as its many dedicated public servants, deserve to know what
promises the city can and will keep. 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."
Snyder had determined earlier this year that Detroit was in a
financial emergency and without a plan to improve things. Snyder hired
Orr in March, and he released a plan to restructure the city's debt and
obligations that would leave many creditors with much less than they are
owed.
Orr was unable to convince a host of creditors, including the city's
union and pension boards, to take pennies on the dollar to help
facilitate the city's massive financial restructuring.
Some creditors were asked to take about 10 cents on the dollar of
what the city owed them. Underfunded pension claims would have received
less than 10 cents on the dollar under that plan.
A team of financial experts put together by Orr said that proposal
was Detroit's one shot to permanently fix its fiscal problems.
The filing leads to a 30 to 90 day period that will determine whether
or not the city of Detroit is eligible for Chapter 9 protection, and
define the number of claimants who may compete for Detroit’s limited
settlement resources. The petition seeks protection from unions and
creditors who are renegotiating $18.5 billion in debt and liabilities,
according to the Detroit Free Press.
“The President and members of the President’s senior team continue to
closely monitor the situation in Detroit,” White House spokeswoman Amy
Brundage said in a statement Thursday.
“While leaders on the ground in Michigan and the city’s creditors
understand that they must find a solution to Detroit’s serious financial
challenge, we remain committed to continuing our strong partnership
with Detroit as it works to recover and revitalize and maintain its
status as one of America's great cities,” the statement read.
Sen. Carl Levin, D-Mich., remained positive about Detroit’s outlook in spite of the major blow that bankruptcy delivered:
“I know firsthand, because I live in Detroit, that our city is on the
rebound in some key ways, and I know deep in my heart that the people
of Detroit will face this latest challenge with the same determination
that we have always shown,” the Senator said in a statement released
Thursday.
In a press conference Thursday evening, Orr stated that bankruptcy is
the "first step toward restoring the city," and promised that "nothing
changes from the ordinary citizen's perspective."
In the same conference, Detroit Mayor Dave Bing said he didn't want
the city to go bankrupt, but now that it's happened, the people of the
city "have to make the best of it."
A number of factors -- most notably steep population and tax base
falls -- have been blamed on Detroit's descent toward insolvency.
Detroit was once synonymous with U.S. manufacturing prowess. Its
automotive giants switched production to planes, tanks and munitions
during World War II, earning the city the nickname “Arsenal of
Democracy.”
Detroit lost a quarter-million residents between 2000 and 2010. A
population that in the 1950s reached 1.8 million is struggling to stay
above 700,000. Much of the middle-class and scores of businesses also
have fled Detroit, taking their tax dollars with them.
Detroit's budget deficit is believed to be more than $380 million.
Orr has said long-term debt was more than $14 billion and could be
between $17 billion and $20 billion.
No comments:
Post a Comment