Quantcast

Long-suffering Detroit finally turns to bankruptcy

By Ed White

Associated Press

Published: Friday, July 19 2013 7:32 a.m. MDT

The Detroit skyline rises behind the Monument to Joe Louis, also known as "The Fist," Thursday, July 18, 2013. State-appointed emergency manager Kevyn Orr asked a federal judge permission to place Detroit into Chapter 9 bankruptcy protection.

Paul Sancya, Associated Press

Enlarge photo»

DETROIT — At the height of its industrial power, Detroit was an irrepressible engine of the American economy, offering well-paying jobs, a gateway to the middle class for generations of autoworkers and affordable vehicles that put the world on wheels.

But by Thursday, the once-mighty symbol of the nation's manufacturing strength had fallen into financial ruin, becoming the biggest U.S. city ever to file for bankruptcy — the result of a long, slow decline in population and auto manufacturing.

Although the filing had been feared for months, the path that lay ahead was still uncertain. Bankruptcy could mean laying off employees, selling off assets, raising fees and scaling back basic services such as trash collection and snow plowing, which have already been slashed.

Kevin Frederick, an admissions representative for a local career training school, called the step "an embarrassment."

"I guess we have to take a couple of steps backward to move forward," Frederick said.

Now city and state leaders must confront the challenge of rebuilding Detroit's broken budget in as little as a year.

Kevyn Orr, a bankruptcy expert hired by the state in March to stop Detroit's fiscal free-fall, said Detroit would continue to pay its bills and employees.

But, said Michael Sweet, a bankruptcy attorney in Fox-Rothschild's San Francisco office, "they don't have to pay anyone they don't want to. And no one can sue them."

The city's woes have piled up for generations. In the 1950s, its population grew to 1.8 million people, many of whom were lured by plentiful, well-paying auto jobs. Later that decade, Detroit began to decline as developers started building suburbs that lured away workers and businesses.

Then beginning in the late 1960s, auto companies began opening plants in other cities. Property values and tax revenue fell, and police couldn't control crime. In later years, the rise of autos imported from Japan started to cut the size of the U.S. auto industry.

By the time the auto industry melted down in 2009, only a few factories from GM and Chrysler were left. GM is the only one with headquarters in Detroit, though it has huge research and testing centers with thousands of jobs outside the city.

Detroit lost a quarter-million residents between 2000 and 2010. Today, the population struggles to stay above 700,000.

The result is a metropolis where whole neighborhoods are practically deserted and basic services cut off in places. Looming over the crumbling landscape is a budget deficit believed to be more than $380 million and long-term debt that could be as much as $20 billion.

In recent months, the city has relied on state-backed bond money to meet payroll for its 10,000 employees.

Orr made the filing in federal bankruptcy court under Chapter 9, the bankruptcy system for cities and counties.

He was unable to persuade a host of creditors, unions and pension boards to take pennies on the dollar to help with the city's massive financial restructuring. If the bankruptcy filing is approved, city assets could be liquidated to satisfy demands for payment.

Orr said Thursday that he "bent over backward" to work with creditors, rejecting criticism that he was too rigid. "Anybody who takes that position just hasn't been listening."

The bankruptcy could last through summer or fall 2014, which coincides with the end of Orr's 18-month appointment, he said.

Gov. Rick Snyder, who called bankruptcy the "one feasible path," determined earlier this year that Detroit was in a financial emergency and without a plan for improvement. He made it the largest U.S. city to fall under state oversight when a state loan board hired Orr.

Get The Deseret News Everywhere

Subscribe

Mobile

RSS