‘Detroit’s broke’: Motor city becomes largest US city to go bankrupt

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DETROIT – The moment that many in Detroit feared for years came to fruition at just after 4:00 p.m. on Thursday afternoon. Once the industrial center of the United States, Detroit gained the dubious distinction of becoming the largest U.S. city to ever file for Chapter 9 bankruptcy.

“Let me be blunt: Detroit’s broke,” Michigan Gov. Rick Snyder said after approving the bankruptcy filing. Snyder added that this has been 60 years in the making and that there were no other viable options.

Chapter 9 is municipal bankruptcy, unlike the more commonly known Chapter 11, which is reserved for businesses. The filing begins a 30- to 90-day period to determine whether or not Detroit is eligible for Chapter 9 protection. Other municipalities that have filed for bankruptcy include Harrisburg, Pa., Stockton, Calif., Orange Country, Calif. and Jefferson County, Ala.

“Given the terms of my appointment and the amount of time that I have left that we were going to have to make some very difficult decisions,” Kevyn Orr, Detroit’s Emergency Manager, said during a press conference on Thursday evening. Orr stood alongside Detroit Mayor Dave Bing, each with a solemn look etched on their faces, and tried to calm the fears of the city.

“To the citizens and residents of the city of Detroit, I’d like to reassure them that as far as things are concerned with the provision of city services and the conduct of city business, it is business in the ordinary course,” Orr said. “Services will remain open, paychecks will be made, and bills will be paid. Nothing changes from the ordinary citizen’s perspective.”

The bankruptcy petition would seek protection from creditors and unions who are renegotiating the city’s staggering $18.5 billion in outstanding debt. The filing would also stop the lawsuit that the city’s two pension funds filed in state court last week that claims the city owes them more than $9 billion in retiree health benefits.

“It gives the city a chance to address some of the city’s overbearing debt,” Orr said. “We are planning to get through this as expeditiously as possible. We are targeting late summer or fall of 2014.”

Detroit’s been plagued by years of a plummeting population, dwindling tax base, and skyrocketing deficits. Once the fourth-largest city in the country, Detroit’s population has fallen from a peak of 1.8 million people in 1950 to an estimated 680,000 as of 2012. Since 2003, aided by rampant misspending, corruption, and incompetence, the city’s deficit has risen from $69 million to an estimated $380 million today.

While the city’s Downtown and Midtown sections have shown steady growth and improvement, most of the city’s neighborhoods – which make up a majority of the Detroit’s 140 square miles – suffer from a lack of basic city services including areas not having working street lights, rampant blight, and slow response times from police, fire and EMS.

“They simply deserve better,” Snyder said. “If you look in terms of public safety, Detroit has been on the top 10 list of the most violent cities [in America] in 24 of the last 27 years. Response times are at 58 minutes while the national average is 11 minutes. This is not viable or appropriate for the citizens of the city.”

Detroit, both in terms of population and overall debt, dwarfs previous cities that have filed Chapter 9. When Jefferson County – which previously was the largest municipality to file Chapter 9 – filed in Nov. 2011, it had an overall debt of $4 billion. Detroit’s overall debt is nearly five times that.

Orr’s term as emergency manager is slated to end in fall of 2014, around the time he estimated that the bankruptcy matters would be settled. While the filing is seen as another huge black mark against the city, and has stoke fears that many of the city’s assets or “jewels” will be liquidated in bankruptcy court, Chapter 9 is also seen as the most extreme method of getting Detroit’s finances finally back in order.

“As tough as this is – I really didn’t want to go in this direction – now that we’re here, we must make the best of it,” Detroit Mayor Dave Bing said during the press conference. “I think Kevyn and the team that he has brought together has a history of succeeding. This is very difficult for all of us but if it’s going to make the citizens better off, then this is a new start for us.”

Jay Scott Smith is a contributor to TheGrio. You can follow him on Twitter @JayScottSmith.