The once great city of Detroit, the heart of American manufacturing and automobiles, just can’t get a break. At the same time the big three – General Motors, Chrysler and Ford, begin to view the future more optimistically following the bankruptcy of the first two, Michigan’s Governor Rick Snyder announced today that he approved a request from Detroit Emergency Manager Kevyn Orr to file for Chapter 9 bankruptcy protection.
“Detroit simply cannot raise enough revenue to meet its current obligations, and that is a situation that is only projected to get worse absent a bankruptcy filing,” Snyder explained.
“This was a difficult and painful decision but I believe there are no other viable options,” he said on a video that was posted on Michigan’s official website. “This is a situation that’s been 60 years in the making in terms of the decline of Detroit. From a financial point of view, let me be blunt: Detroit is broke.”
If approved in court, it will be the largest municipal bankruptcy filing in American history at an estimated $18 billion (€13.7 billion), though, some say it could be as high as $20 billion (€15.2 billion), according to the NY Times. That means every resident of Detroit owes at least $25,800.
The downward spiral of Detroit began in the 1960s, with the city having become synonymous with some of the worst trends in the States. Once the fourth biggest city in America, it’s population has plummeted from around 1.8 million people in 1950 to less than 700,000 today.
In his letter, which you can read below, Governor Snyder stated that the city’s murder rate is at its highest in nearly 40 years and is also one of the worst in the country, adding that while citizens of the U.S. wait 11 minutes on average for police to respond to their calls, Detroit residents wait 58 minutes! Furthermore, Snyder said that only 8.7 percent of criminal cases are solved, compared to a statewide average of 30.5 percent.
“The City’s police cars, fire trucks, and ambulances are sol old that breakdowns make it impossible to keep up the fleet or properly carry out their roles,” explained Snyder. “For instance, only a third of the City’s ambulances were in service in the first quarter of 2013. Similarly, only 40 percent of the City’s street lights were not functioning in that quarter and the backlog of complaints is more than 3,300 long,” he said.
Snyder also mentioned that there are 78,000 abandoned structures in the city that pose “public safety problems and reduce the quality of life”.
While unemployment has improved from a peak of 28 percent in 2009 to around 16.3 percent today, it’s more than double the national average of 7.9 percent.
The Wall Street Journal published a statement from General Motors that read: “GM is proud to call Detroit home and today’s bankruptcy declaration is a day that we and others hoped would not come. We believe, however, that today also can mark a clean start for the city.”
One of the biggest problems with Detroit’s bankruptcy has to do with pension funds and health care for active and retired city workers, as benefits could be slashed, but not before a number of unions take the city to court. The city’s bankruptcy will also hit bondholders.
Kim Rueben, a senior fellow at the Urban Institute who focuses in municipal finance, told NBC News that public workers will have to get used to taking less.
“I think there is going to need to be an understanding with public employees that working for 30 years and being able to have a pension for that much time or longer is not sustainable,” Rueben said.
The Obama administration also chipped in with a statement from Amy Brundage, a White House spokeswoman.
“The President and members of the President’s senior team continue to closely monitor the situation in Detroit,” Brundage said. “While leaders on the ground in Michigan and the city’s creditors understand that they must find a solution to Detroit’s serious financial challenge, we remain committed to continuing our strong partnership with Detroit as it works to recover and revitalize and maintain its status as one of America’s great cities.”
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Bankruptcy FILING