Sunday, July 21, 2013

On the Bankruptcy of the City of Detroit

City Manager Kevyn Orr & Governor Rick Snyder
Last week, Detroit became the largest U.S. city to file for bankruptcy as it attempts to restructure over $18 billion of debt. Michigan Governor Rick Snyder said “the fiscal realities confronting Detroit have been ignored for too long”, Detroit City Manager Kevyn Orr said "we simply cannot kick the can down the road any further," Lee Saunders, president of the American Federation of State, County and Municipal Employees said “apparently Governor Snyder and Kevyn Orr want Detroit’s public service workers to rely on their children for food and shelter, or have to work until they die.”

Note: as Detroit’s population declined from about 2 million during the 1950 to about 700,000 today, its revenue base significantly declined. As a result, many city services are impaired with about 70% of its ambulances out of service and 60% of its streetlights not working.

Detroit problems are likely worse than many other cities because of a decline in manufacturing, many businesses and residents moving to the suburbs, poor management and some corruption. However, with other U.S. communities confronting significant budget issues, there will be significant attention on how Detroit’s bankruptcy process affects employee pension and health care funds as well as its bondholders.

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