On Thursday, Detroit became the largest city in American history to file for bankruptcy.
The bankruptcy was filed in the Eastern District of Michigan by Kevyn Orr, a bankruptcy expert. According to CNBC, Orr was hired by the state in March to attempt to resolve the city's financial woes in an out-of-court restructuring. However, these attempts were rejected by bondholders and creditors, leading to today's filing.
The Deseret News reported last fall on how municipalities across the country have faced increased employee benefit and pension costs, and decreasing tax bases. But Detroit's economic picture is by far the bleakest. Detroit's budget deficit is believed to be more than $380 million, and long-term debt may be as high as $17 billion to $20 billion. Detroit's tax base has also been decimated as the city lost a quarter-million residents between 2000 and 2010. In 1950, Detroit's population was near 2 million. Today, it is around 700,000.
"Only one feasible path offers a way out," Republican Gov. Rick Snyder said in a letter to Orr and state Treasurer Andy Dillon. The letter was attached the bankruptcy filing, according to CNBC.
"The citizens of Detroit need and deserve a clear road out of the cycle of ever-decreasing services," Snyder wrote. "The city's creditors, as well as its many dedicated public servants, deserve to know what promises the city can and will keep. The only way to do those things is to radically restructure the city and allow it to reinvent itself without the burden of impossible obligations."
The Wall Street Journal reported that the creditors most at risk under the bankruptcy are those holding $11 billion in unsecured debt. That figure includes "almost $6 billion in health and other benefits for retirees; more than $3 billion for retiree pensions; and about $530 million in general-obligation bonds." The Journal said that while there will likely be large fights in the bankruptcy over who deserves payment, city-worker retirees are set to get less than 10 percent under the bankruptcy plan.