Detroit Files for Bankruptcy

The city has relied on bond money to pay its employees.

Posted: 07/18/2013 04:35 PM EDT

After months of intensified financial challenge and efforts to reduce mountainous debt, the city of Detroit filed for bankruptcy protection in federal court on Thursday, the largest American city ever to do so.

It is a sobering development in this history of a once-proud city that continues to stand as the symbol of American automobile manufacturing might.
 
The decision was made by Kevyn Orr, the emergency financial manager appointed earlier this year by Michigan’s Republican governor Rick Snyder. The governor has estimated that Detroit’s debt stood at $18 billion and perhaps as high as $20 billion.

For the last few months, Orr had met with labor unions and others to seek to find a way to restructure the city’s crippling debt and to look for ways to place Detroit on solid financial footing. But the financial manager said that those efforts ultimately came up short.

“What really pushed us in was the fact that our negotiations met an impasse,” said Bill Nowling, a spokesman for Orr, in an interview with BET.com shortly after the bankruptcy filing.

“We saw lawsuits filed from unions,” Nowling said, “And it became apparent that the likelihood to reach a negotiated settlement was diminishing by the minute, And Detroit has no minutes to give.”

It is a stunning sign of the decline of a onetime powerhouse American city. Detroit’s population has declined dramatically over the last half century, from nearly 2 million residents in 1950 to barely 700,000 today. The city’s finances have become strained to the breaking point as Detroit has struggled to provide services in an municipality ravaged by unemployment and huge pockets of poverty.

The appointment of Orr in March was, to many, a harbinger of troubles that lay ahead. It was also a contentious moment in the city’s racial and political landscape. Snyder, a Republican who is white, decided to appoint an emergency manager with nearly unlimited power over a city that is highly Democratic and nearly 85 percent African-American.

Nonetheless, Orr’s office said that the city will be able to resolve its long-term debt issues far more simply by funneling all financial matters through the single entity of bankruptcy court rather than the piecemeal approach of dealing with a number of unions and creditors.

Nowling said that it is Orr’s hope that the city will emerge from bankruptcy and that much of the city’s roadmap to fiscal health will be established within 10 months.

“In the meantime, it’s important to note than bankruptcy is a tool, it’s not an end in and of itself,” Nowling said. “People need to know that City Hall remains open for business, that workers are still being paid and that the city continues to operate and services continue to be provided.”

In a statement, Detroit Mayor Dave Bing said that, while it had never been his desire that Detroit file for bankruptcy, he understood why Orr found it necessary to take that step.

“I said when I entered office four years ago that our city was in a financial crisis. I also said we cannot simply cut our way out of this situation,” Bing said.
 
“This action will hopefully be the foundation for the fiscal turn-around of our city,” the mayor’s statement said. “Our citizens have suffered long enough and deserve better. I want to say to the people of Detroit that although we are moving into uncharted waters, Detroit has a history of fighting back during tough times. Hopefully, this is the beginning of a better path forward for our city and our people.”

The bankruptcy filing was greeted with criticism from some residents, who said that it will have a detrimental effect on the city’s image and morale.

“Governor Snyder has sold us a bill of goods with the idea that appointing an emergency manager would save Detroit from having to file bankruptcy,” said the Rev. David A. Bullock, the pastor of the Greater St. Matthew Baptist Church and head of Change Agent Consortium, a civil rights organization in Detroit.

“It’s bad for Detroit because of the perception of bankruptcy in general,” Bullock said, speaking with BET.com. “But years ago, Snyder said he was trying to keep Detroit out of bankruptcy. He might as well have done it two years ago and would now be further down the road.”


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(Photo: AP Photo/Carlos Osorio)

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