Motown – famed for making cars and music the world over is now the largest American city to file for bankruptcy.
Detroit’s dreadful decline from a global industrial centre to $20 billion in debt has come with tragic human consequences.
A population that peaked at just under 2 million in the motor giant’s heyday of the 1950s and 1960s has plunged to just 700,000.
Whole neighbourhoods stand derelict and deserted.
Those that can have fled Detroit for towns and cities that can give them jobs and provide customers for their businesses. The exodus has also cost the city millions in local taxes, making the financial problems for those left behind even more difficult.
The city’s bankruptcy is not unexpected. For month’s Detroit, Michigan’s largest city that sits across the Great Lakes opposite Cleveland and Toledo, Ohio, has lived off begging from the state’s coffers to meet the salaries of 10,000 public workers.
Fire sale
Insolvency practitioners have argued with unions and pension boards for months about a bail-out, but agreement was never in the offing and bankruptcy is the last resort.
If agreed by the courts, the move could result a fire sale of city assets – of which there are few – to settle the debts.
The administrators running the city have defaulted on debts to try to keep cash aside to pay for vital services like police and fire.
Despite the plunging population, Detroit has been listed as one of the USA’s most crime-ridden cities for the past seven years.
“We remain unable to reach an agreement over a restructuring plan with the city’s creditors,” said state governor Rick Snyder. “I can see no other option than to file for bankruptcy protection.”
Legal challenges
The city expects the climb out of bankruptcy to be long and difficult – anticipating around two years of negotiation with creditors. The insolvency practitioners are expecting legal challenges from public workers, pension funds and bondholders who have lent money that is now at risk.
Detroit is not the only US city or municipality to go bust.
The city joins a roll of dishonour of 36 localities – which include the Californian cities of San Bernardino and Stockton. San Bernadino had a debt mountain of $46 million and Stockton $26 million.
The largest debt of a bankrupt municipality prior to Detroit’s demise was $4 billion owed by Jefferson County, Alabama, which filed for bankruptcy in 2011.
Other municipal bankruptcies include Mammoth Lakes, California; Harrisburg, Pennsylvania and Boise County, Idaho, which were all dismissed.
