City of Detroit files for bankruptcy

Detroit became the largest city in U.S. history to file for bankruptcy, as the state-appointed emergency manager filed for Chapter 9 protection.
Associated Press
Jul 18, 2013

Kevyn 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.

A number of factors — most notably steep population and tax base falls — have been blamed on Detroit's tumble toward insolvency. 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.

In recent months, the city has relied on state-backed bond money to meet payroll for its approximately 10,000 employees. Orr was unable to convince a host of creditors, the city's union and pension boards to take pennies on the dollar to help facilitate the city's massive financial restructuring. If the bankruptcy filing is approved, city assets could be liquidated to satisfy demands for payment. "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.

Snyder determined earlier this year that Detroit was in a financial emergency and without a plan to improve things. He made it the largest U.S. city to fall under state oversight when a state loan board hired Orr in March. His letter was attached to Orr's 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."

A turnaround specialist, Orr represented automaker Chrysler LLC during its successful restructuring. He issued a warning early on in his 18-month tenure in Detroit that bankruptcy was a road Detroit and its creditors did not want to tread. He laid out his plans in June meetings with debt holders, in which his team warned there was a 50-50 chance of a bankruptcy filing.

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 the 10 cents on the dollar under that plan.

Orr's team of financial experts put together said that proposal was Detroit's one shot to permanently fix its fiscal problems. The team said Detroit was defaulting on about $2.5 billion in unsecured debt to "conserve cash" for police, fire and other services.

"Despite Mr. Orr's best efforts, he has been unable to reach a restructuring plan with the city's creditors," the governor wrote. "I therefore agree that the only feasible path to a stable and solid Detroit is to file for bankruptcy protection."
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.
 

Comments

grumpy

They appreciate your donations, will you provide more? Detroit sure backs that claim.

goofus

Source tk????????

CAST THE FIRST STONE

Every major city will be here sooner or later. All about the union pensions. FACT

J Cooper

Please put the seat down, dog breath is drinking the liberal Kool Aid again.

J Cooper

Detroit, ruined by the unions bosses and the great liberal experiment.

pavedparadise

For those of you who think Casinos are the answer for Sandusky and Erie County, Casinos contributed to Detroit's continued demise.

Take a look at all the boarded up storefronts around the downtown Cleveland casino.

www.youtube.com/watch?v=gbLBkThLOnM

princedenny

Those buildings were boarded up BEFORE the casino opened. Business in that area closed when LeBrown left the Cavs and the Indians were horrible. Now that the casino has opened, some of those places have new tenants and don't be surprised to see more businesses open now that both teams are on the upswing.

pavedparadise

Need another example? Head to Atlantic City where Casinos were advertised as the silver bullet for addressing that city's blight.

Don't walk out the casino's back door there--you'll get mugged.

The Hero Zone's picture
The Hero Zone

I would contend that the era of a big city's usefulness is very threatened. With modern transportation and telecommunication there is no need to live three blocks from where you work in an overpriced, undersized, unable to enter a lifestyle of ownership apartment. I am amazed at how many businesses that don't "need" to be where they are still are there.

Rent is too damn high!
http://youtu.be/rHEitsYJnmw

2cents

I drove through Detroit a few weeks ago, boy highway 94N was like a debris field, what a mess : (

YoMamma

Again a single party control whether D or R is bad. To many years of more of the same has destroyed that city. It will never bounce back, another Gary Indiana.

The New World Czar

Give it time, Chicago and Cleveland will be soon to follow. Trying to solve the strangling union pension scenario is like trying to fix a water main break with a tube of Krazy Glue.

Cliff Cannon

Being a native Detroiter. I can not adequately say how sad Detroit's state leaves me. Even though, we moved when the 1967 race riots happened. We have never stopped returning for visits.


Once known as " America's Paris " for its amazing, seemingly never ending beautiful architecture ( most of it, still in place) It seemed,that each visit we made showed more deterioration.


Apart from getting America out of it's job stealing " Nafta " & " Cafta" treaty's I know not the answer for Detroit's misery's. I just know that it is heart breaking to see my hometown fall into such shambles. Godspeed Detroit residents

The Hero Zone's picture
The Hero Zone

Sorry to hear, that kind of loss is very personal when the place you used to live/work in is now what is described here. This is a bit of a warning to other such cities about possible governmental influences in the demise, but also about being careful about having (most) all your eggs in one basket.

We see it currently in the Middle East and Africa, when a country relies solely on the export of oil, gems, etc. for its income. When that resource is finally exhausted and no other kind of business or other infrastructure exists it will only make the tribal feuding, warlording, and such worse.

donutshopguy

Another domino falls in the line of government gone wild. It's picking up steam. I'd be getting out of any bonds with municipalities.

registerer

Surprised that POTUS isn't rushing in with money like he did with GM and Chrysler.

Darwin's choice

He's too busy giving travon martin interviews!

grumpy

Sounds like the biggest single expense is the unfunded pensions. Shows what happens when gov't, this time city gov't, kicks the can down the road for someone else to pay and fund the pensions of those working for the city. The politicians, 90% Democrats in the city gov't , always a Democrat majority for over 60 years, kicked the can. It doesn't take Democrats to do the stupid thing but in Detroit, it was the democrats, might as well call it as it is. Now those same Democrat politicians, or their kids, or their replacements, want the rest of the country to save them and pay. With all the other cities that are in line to fail I don't think that even Obama is foolish enough to make that precedent. Every other city, that hasn't funded their pensions will line up at the same federal gov't hind teat. Search on how many cities have substantially underfunded their pensions, Detroit is just the tip of this iceberg.

The Big Dog's back

poohball, what about all the private companies who have unfunded pensions? Dwarfs the Gov bigtime, but that doesn't go along with your koch brothers sponsored message.

grumpy

Private companies aren't crying for the federal gov't to fund their pensions. The city of Detroit is.
But I will play. How much does your boogie men the Koch Brothers owe the pension funds?

The Big Dog's back

I wouldn't cry either if the Gov took my pension liabilities off my hands. derp.

KURTje

Here in our backyard Huron County has always had the distinction of being in the top 5 counties for unemployment. That started in the late seventies. Maybe earlier, I'd have to check records. There are reasons for that, just as there are valid reasons for Detroit.

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