detroit declares bankruptcy

[stewie]

http://www.nytimes.com/2013/07/19/us...nted=1&_r=0&hp

DETROIT — Detroit, the cradle of America’s automobile industry and once the nation’s fourth-most-populous city, has filed for bankruptcy, an official said Thursday afternoon, the largest American city ever to take such a course.

The decision to turn to the federal courts, which required approval from both the emergency manager assigned to oversee the troubled city and from Gov. Rick Snyder, is also the largest municipal bankruptcy filing in American history in terms of debt.

Not everyone agrees how much Detroit owes, but Kevyn D. Orr, the emergency manager who was appointed by Mr. Snyder to resolve the city’s financial problems, has said the debt is likely to be $18 billion and perhaps as much as $20 billion.

For Detroit, the filing comes as a painful reminder of a city’s rise and fall.

Founded more than 300 years ago, the city expanded at a stunning rate in the first half of the 20th century with the arrival of the automobile industry, and then shrank away in recent decades at a similarly remarkable pace. A city of 1.8 million in 1950, it is now home to 700,000 people, as well as to tens of thousands of abandoned buildings, vacant lots and unlit streets.

From here, there is no road map for Detroit’s recovery, not least of all because municipal bankruptcies are rare. Some bankruptcy experts and city leaders bemoaned the likely fallout from the filing, including the stigma it would carry. They anticipate further benefit cuts for city workers and retirees, more reductions in services for residents, and a detrimental effect on future borrowing.

But others, including some Detroit business leaders who have seen a rise in private investment downtown despite the city’s larger struggles, said bankruptcy seemed the only choice left — and one that might finally lead to a desperately needed overhaul of city services and a plan to pay off some reduced version of the overwhelming debts. In short, a new start.

The decision to go to court signaled a breakdown after weeks of tense negotiations, in which Mr. Orr had been trying to persuade creditors to accept pennies on the dollar and unions to accept cuts in benefits.

All along, the state’s involvement — including Mr. Snyder’s decision to send in an emergency manager — has carried racial implications, setting off a wave of concerns for some in Detroit that the mostly-white, Republican-led state government was trying to seize control of Detroit, a Democratic-held city where more than 80 percent of residents are black.

The nature of Detroit’s situation ensures that it will be watched intensely by the municipal bond market, by public sector unions, and by leaders of other financially challenged cities around the country. Only slightly more than 60 cities, towns, villages and counties have filed under Chapter 9, the court proceeding used by municipalities, since the mid-1950s.

The debt in Detroit dwarfs that of Jefferson County, Ala., which had been the nation’s largest municipal bankruptcy, having filed in 2011 with about $4 billion in debt. The population of Detroit, the largest city in Michigan, is more than twice that of Stockton, Calif., which filed for bankruptcy in 2012 and had been the nation’s most populous city to do so.

Other major cities, including New York and Cleveland in the 1970s and Philadelphia two decades later, have teetered near the edge of financial ruin, but ultimately found solutions other than federal court. Detroit’s struggle, experts say, is particularly dire because it is not limited to a single event or one failed financial deal, like the troubled sewer system largely responsible for Jefferson County’s downfall.

Instead, numerous factors over many years have brought Detroit to this point, including a shrunken tax base but still a huge, 139-square-mile city to maintain; overwhelming health care and pension costs; repeated efforts to manage mounting debts with still more borrowing; annual deficits in the city’s operating budget since 2008; and city services crippled by aged computer systems, poor record-keeping and widespread dysfunction.

All of that makes bankruptcy — a process that could take months, if not years, and is itself expected to be costly — particularly complex.

“It’s not enough to say, let’s reduce debt,” said James E. Spiotto, an expert in municipal bankruptcy at the law firm of Chapman and Cutler in Chicago. “At the end of the day, you need a real recovery plan. Otherwise you’re just going to repeat the whole thing over again.”


The municipal bond market will be paying particular attention to Detroit because of what it may mean for investing in general obligation bonds. In recent weeks, as Detroit officials have proposed paying off small fractions of what the city owes, they have indicated they intend to treat investors holding general obligation bonds as equal, in essence, to city workers — a notion that conflicts with the conventions of the market, where general obligation bonds have been seen as among the safest investments.

Leaders of public sector unions and municipal retirees around the nation will be focused on whether Detroit is permitted to slash pension benefits, despite a provision in the State Constitution that union leaders say bars such cuts.

Officials in other financially troubled cities may feel encouraged to follow Detroit’s path, some experts say. A rush of municipal bankruptcies appears unlikely, though, and leaders of other cities will want to see how this case turns out, particularly when it comes to pension and retiree health care costs, said Karol K. Denniston, a bankruptcy lawyer with Schiff Hardin who is advising a taxpayer group that came together in Stockton after its bankruptcy.

“If you end up with precedent that allows the restructuring of retirement benefits in bankruptcy court, that will make it an attractive option for cities,” Ms. Denniston said. “Detroit is going to be a huge test kitchen.”

Around this city, there was widespread uncertainty about what bankruptcy might really mean, now and in the long term, though leaders of other cities who have been through court cautioned of lingering effects.

“The label sticks with us, unfortunately,” said Daniel E. Keen, the city manager of Vallejo, Calif., which filed for bankruptcy in 2008.

For some Detroiters, recent memories of bankruptcies by Chrysler and General Motors — and the re-emergence of those companies — appeared to have calmed nerves. But experts say corporate bankruptcy procedures are significantly different from municipal bankruptcies.

In municipal bankruptcies, for instance, the ability of judges to intervene in how a city is run is sharply limited. And municipal bankruptcies are a form of debt adjustment, as opposed to liquidation or reorganization.

Here, residents are likely to see little immediate change from the way the city has been run since March, when Mr. Orr arrived to oversee major decisions. A bankruptcy lawyer, he is widely expected to continue to run Detroit during a legal process. Mayor Dave Bing and Detroit’s elected City Council are still paid to hold office and are permitted to make decisions about day-to-day operations, though Mr. Orr could remove those powers at any point.

Mr. Orr has said that as part of any restructuring he wants to spend about $1.25 billion on improving city infrastructure and services. But a major concern for Detroit residents remains the possibility that services, already severely lacking, might be further diminished in bankruptcy.

In 2012, Detroit had the highest rate of violent crime in the nation for a city larger than 200,000, a report from Mr. Orr’s office showed. About 40 percent of the city’s streetlights do not work. More than half of Detroit’s parks have closed since 2008

damn...sucks for Detroit

[noclue]

Ultimately it's a good thing. The bankruptcy will let them chop through all the BS red tape, uncooperative unions and debt. Feel bad for the public employees as it is most likely their pension is going to get chopped.

Maybe one day Detroit will be a strong city like it should be with the reemergence of the American auto industry.

[pastarocket]

-hoping for a revival of the Motor City one day.

[murd0c]

Motor City will never be the same if the unions don't stop from bleeding the city dry.

[Sid Vicious]

pretty soon crime will skyrocket, the police will be privatized and in an effort to reduce violence they'll have to turn to a messianic, cybernetic cop...more machine than man but with the qualities of both

[yray]

fallout detroit

[Mr.HappySilp]

Wonder what would happen if Vancouver went bankrupt as well........

On a bright note the Red Wings should move thier team to Vancouver! Than we have 2 teams!

[punkwax]

Originally Posted by Sid Vicious

pretty soon crime will skyrocket, the police will be privatized and in an effort to reduce violence they'll have to turn to a messianic, cybernetic cop...more machine than man but with the qualities of both

Crime is already really bad in Detroit... and the rest of your post... ?

Ah. Robocop

[Traum]

How does a city even survive when it only has < 40% population of what the city has capacity for? The entire city's infrastructure still has to be maintained and supported, meaning that for things to run, each resident would really have to support more than 2 person's worth of municipal tax burden.

If Detroit doesn't address this population / capacity mismatch, I really don't see how the math could work out, even if the bankrupty and debt restructuring go through.

[Soundy]

Originally Posted by Sid Vicious

pretty soon crime will skyrocket, the police will be privatized and in an effort to reduce violence they'll have to turn to a messianic, cybernetic cop...more machine than man but with the qualities of both

Originally Posted by Nodnarb

Crime is already really bad in Detroit... and the rest of your post... ?

Duh.

[GLOW]

[twitchyzero]

Originally Posted by yray

fallout detroit

DAT OCP

[dink]

detroit police?

[EmperorIS]

[Mike Oxbig]

DETROIT ROCK CITY!!!!

[bballguy]

Originally Posted by Mr.HappySilp

Wonder what would happen if Vancouver went bankrupt as well........

On a bright note the Red Wings should move thier team to Vancouver! Than we have 2 teams!

wtf...

[mr_chin]

Originally Posted by Mr.HappySilp

Wonder what would happen if Vancouver went bankrupt as well........

On a bright note the Red Wings should move thier team to Vancouver! Than we have 2 teams!

vancouver canucks

surrey jacks

[Graeme S]

Originally Posted by yray

fallout detroit

Beat me to it.

[bloodline129]

gotta love life :P i feel bad for the people trying to make a living there.

[Gridlock]

Originally Posted by murd0c

Motor City will never be the same if the unions don't stop from bleeding the city dry.

Ha yeah.

Just read in the local rag that 100 striking employees here in NW are now gainfully unemployed as their employer closed the plant.

My guess is, when the negotiator said, "you should really take this offer, wink, I think its really good wink wink its the best you are going to get, WINK WINK" that they should have.

Union philosophy: if I can't have it good for myself, then no one else gets it either. I'll show management! They'll never have twinkies again!!!!

this just in. Apparently twinkies are back and better than ever. Fuck.

[quasi]

Originally Posted by Gridlock

Ha yeah.

Just read in the local rag that 100 striking employees here in NW are now gainfully unemployed as their employer closed the plant.

My guess is, when the negotiator said, "you should really take this offer, wink, I think its really good wink wink its the best you are going to get, WINK WINK" that they should have.

Union philosophy: if I can't have it good for myself, then no one else gets it either. I'll show management! They'll never have twinkies again!!!!

this just in. Apparently twinkies are back and better than ever. Fuck.

Reminds me of the projectionists when there job became obsolete.

[hotshot1]

I was in Detroit this year and it was creepy as hell. First of all, the city is giant but there's no one walking around at all. Even beside Comerica Park and Ford Field (where the Tigers and Lions play), there's barely anyone there. There are also a ton of beautiful giant buildings just abandoned, with graffiti all over them. I can imagine how nice it must have been back in the day but now it really does feel like a Fallout game.

[jasonturbo]

Not newsworthy IMO, city has been in deep financial doo doo for a while.. shit if the OC can go bankrupt anything is possible!

[iEatClams]

Originally Posted by Traum

How does a city even survive when it only has < 40% population of what the city has capacity for? The entire city's infrastructure still has to be maintained and supported, meaning that for things to run, each resident would really have to support more than 2 person's worth of municipal tax burden.

If Detroit doesn't address this population / capacity mismatch, I really don't see how the math could work out, even if the bankrupty and debt restructuring go through.

Although everyone wants to blame the unions, the main issue is the tax base, too many services and not enough revenue collected. Bankruptcy will alleviate the union issue which will reduce costs, but the city has been cutting taxes as well and is reducing revenue. You need a solid tax base and the city currently doesnt have that.

[Gridlock]

Eroding tax base coupled with increasing costs.

The best thing they've done is start shrinking the city by closing out streets and such, but there is no way to keep up with the infrastructure costs of removing infrastructure.

It really goes to show you that growth is the only stability.

There were times I'm sure that if you told people that this was Detroit's future, they'd laugh at you as being crazy---just the same as I'm sure they would today about some other cities.