The municipal authority for the city of Detroit has filed for bankruptcy and protection from creditors under US law. The city faces mounting debts estimated at over USD18bn and has been in long-term financial decline.
A turnaround specialist, Stephen Orr, appointed as an emergency manager for the city, has been in negotiations with major creditors – pension funds for city workers – in recent months. However, his attempts to get creditors to settle for less (10 cents on every dollar owed) and unions to accept benefit cuts, have been unsuccessful, leading to the Chapter 9 bankruptcy filing.
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Detroit’s municipal bankruptcy filing is not the first in the US, but it is by far the biggest.
At a press briefing Orr said filing for bankruptcy was the first step toward restoring the city. Detroit Mayor Dave Bing assured residents that the city would stay open and bills would be paid despite the filing. “Paychecks for our city employees will continue, services will continue,” he said.
The filing starts a 30- to 90-day period that will determine whether the city is eligible for federal Chapter 9 protection and define how many claimants might compete for the city’s settlement resources.
The city of Detroit has been in long-term economic decline. In his July 16 letter to the Michigan State governor making the case for a bankruptcy filing, Orr said: “After decades of fiscal mismanagement; plummeting population, employment and revenues; decaying City infrastructure… Detroit today is a shell of the thriving metropolis that it once was.”
However, some commentators believe that the forced restructuring of the city’s debt could be the start to the city’s long road to recovery. General Motors – with its HQ in the heart of downtown Detroit – voiced support and optimism in a statement.
“GM is proud to call Detroit home and today’s bankruptcy declaration is a day that we and others hoped would not come,” GM said. “We believe, however, that today also can mark a clean start for the city.”
The statement from GM also said it does “not anticipate any impact to our daily operations or business outlook.”
