The city of Detroit, once a thriving icon of industrial America, has filed the largest banruptcy petition in US history.
Detroit-- The city of Detroit filed the largest municipal bankruptcy case in U.S. history Thursday, culminating a decades-long slide that transformed the nation's iconic industrial town into a model of urban decline crippled by population loss, a dwindling tax base and financial problems.
Gov. Rick Snyder justified approving the historic filing by reciting a litany of the city's ills, including more than $18 billion in debt, maxed-out tax rates, the highest murder rate in 40 years, 78,000 abandoned buildings and a half-century of residential flight. He said the city failed to provide basic services to residents or pay creditors.
The filing, which has broad implications for the nation's municipal bond market and sanctity of public pension funds, was met with outrage, disappointment and a vow to fight. Some creditors adopted a war stance, threatening a prolonged battle. Others accused Emergency Manager Kevyn Orr of failing to negotiate in good faith -- an essential requirement for approval of a bankruptcy petition -- during his month-long push to secure concessions from creditors, including deep cuts to pensions.
"It's war," said George Orzech, chairman of the city's Police and Fire pension fund.
The 16-page bankruptcy petition was shrouded in secrecy and filed amid drama. Snyder planned to file the bankruptcy petition today in U.S. District Court but reversed course after learning the city's pension funds planned to ask a judge to block a filing, according to a source. The petition was filed at 4:06 p.m. Thursday and cost the bankrupt city $1,213.
Eighteen minutes later -- too late to make a difference -- Ingham County Circuit Judge Rosemarie Aquilina signed a restraining order.
Snyder authorized Orr to file bankruptcy under a controversial law the Legislature passed in December that replaced the previous emergency manager law voters repealed last November.
"There were no other viable alternatives," Snyder told reporters Thursday. "We have a great city but a city that has been going downhill for 60 years."
Just how bad is it in Detroit? Edward McClelland lays out the nightmare that Detroit has become:
Orr has only to read his own Proposal for Creditors to see that Detroit is no longer a viable municipality. Since 1950, 1.2 million people have left Detroit - enough to constitute the 10th-largest city in the United States. (Detroit itself, with 684,799, is 18th.) Detroit is the poorest city in the United States: Its median household income of $27,862 is half the national average. Despite its population crash, Detroit is the same size it was in the '50s. So the police still need to patrol 140 square miles of streets, the public works department needs to pave those streets, and the water system still needs to maintain the network of pipes underneath. But there's no way a city of 680,000 people who work as short-order cooks, home healthcare aides and daycare providers can support an infrastructure built for 1.8 million who worked as autoworkers, engineers and mechanics. (And that's those who do work - the official unemployment rate is 18.6 percent, according to Orr's report, although some estimates put it at 50 percent.) Property tax revenues have decreased 20 percent over the last five years - even though Detroit has some of the highest tax rates in Michigan: a 2.4 percent income tax rate and a 1.3 percent property tax rate. As Orr notes, "this tax burden is particularly severe because it is imposed on a population that has relatively low levels of per capita income."
So, the city's creditors are going to get stiffed, the public pension funds are going to be slashed, and eventually, Detroit's massive debt will be liquidated or simply forgiven.
But then what?
As McClelland points out, this is a "failed municipality." Demographers believe the city's population will bottom out at around 400,000 people. And who will those people be? They will be the poor, the old - those unable to muster the resources to move.
Oh, and don't forget the criminals. Detroit has 79,000 empty buildings. As you read this, those buildings are being systematically stripped of anything and everything of value. It's hard to see how the city can make any kind of comeback with the enormous blight represented by those empty and abandoned structures.
McClelland suggests merging the suburbs with the city. Some have suggested a federal bailout. Neither idea has much merit. Forcing people who fled the city to support a basket case is unfair and would be fiercely resisted. As for a bailout, expect some sympathy from Democrats in Washington to fund police and firefighter pensions, but not much else. That, too, will probably fail anyway.
Something is going to have to be done to protect those who, through no fault of their own, will be unable to leave the city. They will be prey for the criminal predators who are already roaming the city. This will be a problem for the state of Michigan - not Washington. The temptation will be great to federalize Detroit's situation, but given how many cities are on the cusp of banktruptcy and will probably tip over the edge when the pension bombs go off, it would be madness for Washington to take a hand in these bankruptcies.
The pension funds fighting to prevent this will lose. You can't get blood out of a turnip and Detroit simply doesn't have the money to give them what they want. Along with the rest of Detroit's creditors, they will have to accept whatever crumbs are thrown their way.
Will the last person leaving Detroit...