Should Detroit Have Filed for Bankruptcy?

The Michigan city has nearly $18 billion in debt.

Detroit may have particularly large fiscal problems to face, but it is not alone.
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After years of financial struggle, the city of Detroit Thursday filed for Chapter 9 federal bankruptcy protection. The city's emergency manager filed thousands of documents after Michigan Gov. Rick Snyder approved the move.

Chapter 9 will protect Detroit from its more than 100,000 creditors until it develops a plan to pay off its nearly $18 billion in debt. Emergency Manager Kevyn Orr, appointed earlier this year to help the city deal with its dismal financial situation, said Detroit could no longer wait to deal with the overwhelming problem of debt.

"This is a problem that has been more than 60 years in the making,"  Orr said Thursday night. "There's $18 billion of debt total. Even if we took $200 million a year out of a $100 billion budget, which we can't do, it would take 68 years to pay off that debt."

[ See a collection of political cartoons on the economy.]

Orr said the city would do everything it could to pay its bills and begin restoring services, which have been greatly reduced due to the distressed budget, to the city's 700,000 citizens. It takes the city's police department an average of 58 minutes to respond to calls, and only 8.7 percent of violent crimes are solved. Thousands of residents who could no longer handle the deterioration of Detroit have moved away, and the city also has nearly 78,000 abandoned buildings.

Snyder said Detroit has been borrowing money to pay its bills for nearly a decade, and bankruptcy was the only feasible option to get the city back on track.

"This decision comes in the wake of 60 years of decline for the city, a period in which reality was often ignored," the governor wrote in his authorization for the Chapter 9 filing. "Without this decision, the City's condition would only worsen. With this decision, we begin to provide a foundation to rebuild and grow Detroit."

[ See a collection of political cartoons on the budget and deficit.]

The list of Detroit's creditors include all active city employees and retirees, who may lose health care coverage and parts of their pensions as the city attempts to get its finances together. Unions representing city workers objected to the bankruptcy filing, with the city's public pension funds and workers filing lawsuits in an attempt to stop the process. Metro Detroit and Michigan State chapters of the AFL-CIO issued a joint statement that the city's attempt to negotiate with workers to solve the budget woes were clearly disingenuous:

Today's action can be taken as confirmation that Kevyn Orr was hired, secretly and ahead of a declared financial emergency, because he is a bankruptcy expert ... Every step of the way, the citizens of Detroit were told that they had to give up their right to democratic representation in order to avoid bankruptcy. Now that this filing has come anyway, it is clear that either state control has failed or that Gov. Snyder and his emergency manager appointee were not honest about their intentions in the first place.

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