19 Jul 2013

Detroit becomes biggest US city to go bankrupt

Once the symbol of America’s industrial boom, the city of Detroit files for bankruptcy with debts worth $15bn, after a long, slow decline in population and in the auto manufacturing industry.

Video: Michigan governor Rich Snyder explains why the decision was made to file for bankruptcy: “Let me be blunt: Detroit’s broke”

The decision to file for bankruptcy could result in civil servants being made unemployed, selling off assets, raising fees and scaling back basic council services such as rubbish collection and snow ploughing.

Public services had already been drastically slashed, leaving health and education departments in turmoil, and over 70,000 properties have been abandoned as the population decreased.

We tried to work our way through this situation over the last four years. But it has been very, very difficult. Detroit mayor

An estimated 40 per cent of street lights do not work and only a third of ambulances in the city are in service, leading to massive delays in answering emergency calls.

The move had been feared for months, and marks a turning point for city and state leaders, who must now confront the challenge of rebuilding Detroit’s broken budget in as little as a year.

The city’s mayor, Dave Bing, said: “We tried to work our way through this situation over the last four years. But it has been very, very difficult.”

In a letter approving the move, Governor Rick Snyder said: “Only one feasible path offers a way out.”

A 30 to 90-day period now begins, where officials will determine whether the city is eligible for Chapter 9 protection and decide how many claimants will be eligible for the limited settlement resources that Detroit has to offer.

The bankruptcy petition would seek protection from creditors and unions.

City in decline

Detroit lost 250,000 residents between 2000 and 2010, and the population has since struggled to stay over 700,000.

In the 1950s, its population grew to 1.8 million people, many of whom were lured by plentiful, well-paying auto jobs. But Detroit began to decline through the decade, as developers starting 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 failed to control.

In later years, the rise of autos imported from Japan started to cut the size of the US auto industry.

By the time the auto industry melted down in 2009, only a few factories from GM and Chrysler were left.

Peter Henning, Wayne State University law professor, said: “Really, what it is, is it’s a watershed moment because no longer is it just the emergency manager and the various constituencies in the city.

“Now it’s under the power of the federal judge, and so the decision-making is really out of the control of the people who had a say in the process before.”