Detroit becomes largest US city to file for bankruptcy

19.07.2013 13:02

Detroit has become the largest US
city ever to file for bankruptcy, with
debts of at least $18bn (£12bn).
The city, once a symbol of US industrial
power, is seeking protection from
creditors who include public-sector
workers and their pension funds.
Unions described the bankruptcy filing as
a power grab.
Detroit has faced decades of problems
linked to declining industry. Public
services are nearing collapse and about
70,000 properties lie abandoned.
Mayor Dave Bing has vowed that public
services will keep running and wages for
public workers will be paid.
On Thursday, Michigan state-appointed
emergency manager Kevyn Orr asked a
federal judge to place the city into
bankruptcy protection.
If it is approved, he would be allowed to
liquidate city assets to satisfy creditors
and pensions.
Detroit - known as Motor City for its
once-thriving automobile industry -
stopped unsecured-debt payments last
month to keep the city running as Mr
Orr negotiated with creditors.
He proposed a deal last month in which
creditors would accept 10 cents for
every dollar they were owed.
But two pension funds representing
retired city workers resisted the plan.
Thursday's bankruptcy filing comes days
ahead of a hearing that would have tried
to stop the city from making such a
Mr Orr suggested at the time there was a
50-50 chance of the city needing to file
for bankruptcy. He also said the city's
long-term debt could be between $17bn
and $20bn.
'Only alternative'
At a press briefing on Thursday, Mr Orr
said filing for bankruptcy was the "first
step toward restoring the city".
Alongside him, Detroit Mayor Dave Bing
said that residents had to make a new
"I really didn't want to go in this
direction - but now that we are here, we
have to make the best of it," Mr Bing
The mayor also 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.
But Ed McNeil, the lead negotiator for a
coalition of 33 unions, told Reuters news
agency the move was about "busting the
"I've said all along that this is a power
grab," he was quoted as saying.
"This is not about fixing the city's
finances. It's about the governor and his
own agenda to take over the city of
In a letter accompanying Thursday's
filing, Michigan's Governor Rick Snyder,
a Republican, said he had approved the
request from Mr Orr to file for Chapter 9
"Only one feasible path offers a way
out," Gov Snyder said, adding that
residents needed a clear exit from the
"cycle of ever decreasing services".
"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.
"It is clear that the financial emergency
in Detroit cannot be successfully
addressed outside of such a filing, and it
is the only reasonable alternative that is
Meanwhile, the White House said it was
closely monitoring developments in
"While leaders on the ground in
Michigan and the city's creditors
understand that they must find a
solution to Detroit's serious financial
challenge, we remain committed to
continuing our strong partnership with
Detroit as it works to recover and
revitalise and maintain its status as one
of America's great cities," said White
House spokeswoman Amy Brundage.
Analysts say there are some concerns
that businesses might ditch their
operations in Detroit.
But, in the wake of the filing, US car
company General Motors said it did not
expect any impact on its operations, and
hoped it would mark a "clean start" for
"GM is proud to call Detroit home and
today's bankruptcy declaration is a day
that we and others hoped would not
come," the company said.
The city, once renowned as a
manufacturing powerhouse, has
struggled with its finances for some time,
driven by a number of factors, including
a steep population loss.
The murder rate is at a 40-year high and
only one third of its ambulances were in
service in early 2013.
Declining investment in street lights and
emergency services have made it difficult
to police the city.
And Detroit's government has been hit
by a string of corruption scandals over
the years.
Between 2000-10, the number of
residents declined by 250,000 as
residents moved away.
Detroit is only the latest US city to file for
bankruptcy in recent years.
In 2012, three California cities -
Stockton, Mammoth Lakes and San
Bernardino - took the step.
In 2011, Harrisburg, Pennsylvania tried
to file for bankruptcy but the move was
ruled illegal.
But Thursday's move in Detroit is
significantly larger than any of the earlier