Detroit’s bankruptcy follows decades of decay
Q&A: How did Detroit get into this mess? Leaning on the auto industry was a big factor. When it moved out, revenues began to fall every year. Then the city had to borrow to pay bills.
The Associated Press
Will the lights go out?
The city’s emergency manager, Kevyn Orr, says the city will be open and bills will be paid. And it can do things like keep police on the streets, firefighters on duty and water running.
The question is whether these services will be cut later.
How long will it take?
Detroit is by far the largest city to file for municipal bankruptcy, and because it is, the time frame for the case isn’t known. It could take years to resolve.
What happens in court?
A bankruptcy judge will be appointed to oversee the case. The city will have to come forward with a list of its creditors and how much it owes them. That wasn’t included in the initial Chapter 9 filing. It will also have to prove that it can’t pay its bills. Orr has said previously that the city wasn’t going to pay some of its debt.
A judge also will likely stay lawsuits against the city. Bankruptcy could change pension and retiree benefits, which are guaranteed under state law.
What will the judge do?
If the bankruptcy filing is approved, city assets could be liquidated to satisfy demands for payment. The city would propose a reorganization plan. The wide-ranging plan could include anything from selling assets, layoffs, changing union contracts and more. Then, the city would need the support of creditors to emerge from bankruptcy.
The Associated Press
Here’s a look at how the city spiraled into financial ruin and why it’s in so much trouble:
For decades, Detroit paid its bills by borrowing money while struggling to provide the most basic of services for its residents. The city, which was about to default on a good chunk of its $14 billion-plus debt, now will get a second chance in a federal bankruptcy court-led restructuring.
Detroit’s budget deficit this year alone is estimated at $380 million, and Kevin Orr, its state-appointed emergency manager, chose bankruptcy over diverting money from police, fire and other services to make debt payments. The move conserves cash so the city can operate, but it will hurt Detroit’s image for years. It also leaves creditors with pennies on the dollar and places in jeopardy the pension benefits of thousands of city retirees.
Why did it happen?
It took decades of decay to bring down the once-mighty industrial giant that put the world on wheels. The city grew to 1.8 million people in the 1950s, luring them with plentiful jobs that paid good wages to stamp out automobiles for sale across the globe.
But like many American cities, Detroit’s fall began late that decade as developers starting building suburbs. Then came the 1967 riots that accelerated the number of white residents who moved to the cities north of Eight Mile Road, considered the region’s racial dividing line.
At the same time, auto companies began opening plants in other cities, and the rise of autos imported from Japan started to cut the size of the U.S. auto industry.
Detroit’s property values fell, tax revenue dropped, police couldn’t control a growing murder rate, and many middle-class blacks fled the city for safer suburbs with better schools. By 2009, the auto industry collapsed along with the economy as a whole, eventually pulling the city down with it. Government corruption under former Mayor Kwame Kilpatrick only made things worse. In the 2000 census, Detroit’s population fell under 1 million as the exodus continued. Today it’s barely above 700,000.
Did auto industry’s fall drag down Detroit?
It’s a big factor. The city is littered with abandoned factories built in the postwar boom years, most of which have multiple stories. As the Japanese auto invasion began cutting into Detroit’s sales, General Motors, Chrysler, Ford and hundreds of auto-parts companies looked outside the city to build one-story plants that could handle modern assembly lines.
With every downturn, more companies abandoned the city, leaving the hulking buildings to squatters. Detroit’s tax base continued to erode. 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.