City of Detroit Files for Bankruptcy

The US city of Detroit has filed for bankruptcy protection, with reports suggesting that its debt load could be as high as US$20bn.

The announcement follows decades of decline. The Michigan city was once the fourth-biggest city in the US, but its population has steadily fallen since 1950, from nearly two million to 701,000 in 2012, according to US census bureau estimates. Detroit’s sharp fall in population has seen many buildings fall derelict and land prices collapse, contributing to a steady reduction in tax revenues.

The city’s unemployment rate stands at 18.6%, against a national average of 7.6%. Detroit’s decline reflects the problems of the US car manufacturing industry, which once employed many local workers and led to its nickname of ‘the motor city’.

The city’s emergency manager, Kevyn Orr, appointed in March by the state’s governor to address Detroit’s financial problems, signed the documents that will begin an application for bankruptcy.

When he took over the post, Orr warned that there was only a 50% chance that the indebted authorities would be able to avoid bankruptcy court.

Michigan governor Rick Snyder authorised Orr to file the 16-page request, saying no other options remained. “This is a situation that’s been 60 years in the making in terms of the decline of Detroit. From a financial point of view, let me be blunt. Detroit’s broke,” he commented.

The governor also outlined the social breakdown which has blighted the area: “More important than the financial situation are the poor services that are being delivered to the citizens of Detroit. They simply deserve better.”

Bankruptcy would allow Detroit to sell its assets, in an attempt to fund its liabilities to bondholders and pensioners. Orr had previously lobbied for haircuts for creditors, as well as sharp reductions in pensions and other retirement obligations.

Revenue for the municipal government has fallen by more than US$200m since the financial crisis, and one in five of its employees have been made redundant in the past two years. Detroit’s average per capita income of US$15,261 is also much lower than most other US cities.

The previous largest US municipal bankruptcy was Jefferson County in Alabama, which in 2011 filed for bankruptcy with debts of US$4bn.


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