Detroit, the once-famous Motor City that fuelled America’s automobile revolution, has filed for bankruptcy after years of decline during which it accumulated billions in debt and saw a steady flight of population to escape its forbidding crime level.
As of latest count, Detroit’s debts are estimated at a colossal $19 billion, leaving the authorities with no option but to file for Chapter 9 bankruptcy protection in what has been billed as the biggest municipal insolvency in US history.
“This is a difficult step, but the only viable option to address a problem that has been six decades in the making,” said Michigan Governor Rick Snyder.
Back in the 1950s, the thriving Detroit used to be America’s fourth most-populous city with nearly two million people. Over the years, it has dropped to about 7,00,000 with residents fleeing it because of the crime rate and deteriorating civic services. Detroit had indeed earned the dubious distinction of being America’s crime capital.
Detroit’s woes began in the late 1960s, when the American auto giants began opening plants in other cities. The exodus of people led to a fall in property values and tax evenue. Over the next five decades or so, the city has been hurtling downhill to financial ruin.
Illustrative of the decline is an official report that about 40 per cent Detroit’s streetlights do not work, while more than half of the city parks have remained closed since 2008. And tens of thousands of buildings remain abandoned.
“The fiscal realities confronting Detroit have been ignored for too long. I’m making this tough decision so the people of Detroit will have the basic services they deserve and so we can start to put Detroit on a solid financial footing that will allow it to grow and prosper in the future,” Governor Snyder said.
The bankruptcy filing has given rise to fears that it would trigger employee layoffs, selling off assets, raising fees and scaling back basic services including trash collection.
The filing begins a 30 to 90-day period that will determine whether the city is eligible for Chapter 9 protection.
The exercise, as the Detroit Free Press reported, would define how many claimants might compete for the limited settlement resources that Detroit has to offer. The bankruptcy petition would seek protection from creditors and unions who are reportedly renegotiating $18.5 billion in debt and other liabilities.
The decision to go to court followed a collapse of negotiations undertaken by Kevyn Orr, who had been appointed Detroit’s manager to steer the city out of the crisis.
last month, Orr had released a plan to restructure the city’s debt and obligations leaving many creditors with much less than what the city owes them. Orr wanted to spend $1.25 billion on improving city infrastructure and services as part of the restructuring.
Without specifying precisely the state of affairs now in store for the residents, Snyder said in a statement: “The citizens of Detroit need and deserve a clear road out of the cycle of ever-decreasing services. 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.”
A White House statement said that President Obama and members of his senior team continue to closely monitor the situation. “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,” the statement said.