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NEWS
Detroit bankrupt
Motor City becomes the largest North American city to ever file for bankruptcyDetroit, the home of America’s Big Three car-makers, has become the largest US city ever to file for bankruptcy.
Facing debts of $US15 billion ($A16.35b), the state-appointed emergency manager of the Michigan capital, Kevyn Orr, yesterday asked a federal judge to place the city into bankruptcy protection.
If approved, the bankruptcy filing will allow administrators to liquidate city assets to pay creditors and pension funds, with which Orr has negotiated since last month, when Detroit ceased unsecured-debt payments to keep the city running.
Two pension funds representing retired city workers resisted a proposal presented by Orr last month, in which creditors would be paid 10 cents for every dollar they were owed, and yesterday’s bankruptcy filing comes days ahead of a hearing that would have attempted to stop Detroit from making such a move.
At the time, Orr suggested there was a 50 per cent chance Detroit would need to file for bankruptcy, and that the city's long-term debt could be as high as $US20 billion ($A21.8b).
Announcing the move yesterday, he described bankruptcy as the “first step toward restoring the city”, while Detroit Mayor Dave Bing said residents had to make a new start.
Michigan Governor Rick Snyder approved the Chapter 9 bankruptcy filing, saying: “Only one feasible path offers a way out... 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.
“It is clear that the financial emergency in Detroit cannot be successfully addressed outside of such a filing, and it is the only reasonable alternative that is available.”
Observers say the symbolic announcement yesterday, which follows General Motors’ Chapter 11 corporate bankruptcy filing in 2008, follows years of decline, corruption and mismanagement – just as private sector activity in Detroit picks up.
However, according to the BBC, public services in Detroit are in a state of near collapse, 40 per cent of street lights do not work, only a third of the city’s ambulances are in service, about 78,000 properties remain abandoned and violent crime rates remain the highest of any major US city.
Three Californian cities – Stockton, Mammoth Lakes and San Bernardino – filed for bankruptcy in 2012 after a 2011 attempt by Harrisburg in Pennsylvania was ruled illegal, but yesterday’s Detroit filing is significantly larger than those city bankruptcies.
Although some analysts are concerns that some businesses might relocate their operations from Detroit – where the population has shrunk from a peak of two million in 1950 to just 713,000 today – GM said it did not expect any impact on its operations and hoped it would mark a “clean start” for the city.
“GM is proud to call Detroit home and today's bankruptcy declaration is a day that we and others hoped would not come,” said the company.
Picture courtesy of Wikimedia Commons
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