Detroit, the first domino?

 posted at 6:41 pm on July 22, 2013 by Erika Johnsen
Almost immediately after they learned that Detroit would be officially filing for bankruptcy last week, some of the city’s various pension funds lost no time in filing suit against both the city’s emergency manager Kevin Orr as well as Michigan Gov. Rick Synder. Shortly thereafter, a Michigan judge tried to halt the proceedings, not merely because a municipal bankruptcy would fail to ‘honor the president,’ or something, but because the Synder administration was clearly trying to pull a run-around on the concerned pension funds — since Detroit’s utter brokeness was such a secret, and everything. A federal judge, however, has already set the first hearing in Detroit’s bankruptcy case for this Wednesday, via Reuters:

A federal court judge has set the first hearing in Detroit’s bankruptcy case for Wednesday to take up the city emergency manager’s request to put state lawsuits challenging the bankruptcy filing on hold.
U.S. Bankruptcy Court Judge Steven Rhodes agreed on Monday to the expedited hearing requested by emergency manager Kevyn Orr in response to a Michigan court judge’s order for Orr to withdraw the Chapter 9 bankruptcy filing on state constitutional grounds.
If Orr’s request is granted, top Michigan state officials, Orr and others would also be protected from litigation regarding Thursday’s bankruptcy petition.
Concerned that retirement benefits will be slashed, Detroit retirees, workers and pension funds have been running to state court in Michigan’s capital of Lansing in an effort to derail the biggest Chapter 9 municipal bankruptcy in U.S. history.

The sooner Detroit faces the music, the less remote the city’s chances of actual fiscal recovery, and Orr is reportedly trying to speed things along — but of course, the obligatory voices on the left are calling for the federal government to step in with a bailout and magically wipe their slate clean for them. First of all, I might venture that the federal government is currently running a yearly deficit of more than a trillion dollars, and that American taxpayers don’t have the money to spare for a city that willfully ran itself into the ground for decades. Secondly, as Mayor Dave Bing actually pointed out the other day when professing that, yeah, Detroit would “love” for Washington to bail them out, one of the biggest problems there is the precedent it sets for other cities in urgent need of financial reform. Detroit’s billions of dollars of debt perhaps sound like peanuts compared to the schemes the federal government is running, except that Detroit is hardly the only major city that’s been hovering dangerously close to the fiscal abyss with accumulated deficits and unfunded liabilities, and it could be that other cities are getting ready to follow behind. Says the Detroit Free Press:

From Baltimore to Los Angeles, and many points in between, municipalities are increasingly confronted with how to pay for these massive promises. The Pew Center for the States, in Washington, estimated states’ public pension plans across the U.S. were underfunded by a whopping $1.4 trillion in 2010. …
As examples of the results: Chicago recently saw its credit rating downgraded because of a $19-billion unfunded pension liability that the ratings service Moody’s puts closer to $36 billion. And Los Angeles could be facing a liability of more than $30 billion, by some estimates. …
Early this year, the Pew Center released a survey showing that 61 of the nation’s largest cities — limiting the survey to the largest city in each state and all other cities with more than 500,000 people — had a gap of more than $217 billion in unfunded pension and health care liabilities. While cities had long promised health care, life insurance and other benefits to retirees, “few … started saving to cover the long-term costs,” the report said. …
Last Monday, the bond rating house Moody’s also downgraded Cincinnati’s general obligation bonds, citing “budgetary pressure” from pension contributions. Its downgrade was to Aa2 — still a lot higher than Detroit’s Caa3 for its general obligation bonds — but another part of the trend.

Detroit may have been the biggest city to have filed for municipal bankruptcy, but it certainly wasn’t the first to do so — and it’s unlikely to be the last while major cities refuse to summon the necessary political will to stop piling up unsustainable amounts of debt and accept that it’s time to reform the extravagant pension and benefit systems for which they have no real plans to pay.

The collapse of Detroit

This just shows you the sad condition Detroit is in.The city has many upon many abandoned buildings that no one will tear down.
Michigan now has the highest unemployment rate in the nation - by a long shot.
Michigan is dealing with a 7.7 percent unemployment rate, that's 1.6 percent higher than the next worst state, Mississippi.

It's also much higher than Michigan's surrounding states, including Ohio, Indiana, Illinois and Wisconsin.
Between the high unemployment rate and rising energy costs, many people in Michigan may have to cut back on holiday spending.
Witness the destruction of once Great industrial American cities turning them into ghost towns. Even in downtown Detroit, there are empty skyscrapers.... This video is just a TINY fraction of insane amount of buildings destroyed in Detroit . Historical buildings are falling apart leaving nothing for the next generations to admire. I urge viewers to research the true reasons of why this happened to this city, because if it happened to once great Detroit..... it might happen to Yours...

Detroit files for largest municipal bankruptcy in US history

Detroit filed for the largest municipal bankruptcy in U.S. history Thursday after steep population and tax base declines sent it tumbling toward insolvency.
The filing by a state-appointed emergency manager means that if the bankruptcy filing is approved, city assets could be liquidated to satisfy demands for payment.
Kevin Orr, a bankruptcy expert, was hired by the state in March to lead Detroit out of a fiscal free-fall, and made the filing Thursday in federal bankruptcy court.
"Only one feasible path offers a way out," Gov. Rick Snyder said in a letter to Orr and state Treasurer Andy Dillon approving the bankruptcy. The letter was attached to the bankruptcy filing.

"The citizens of Detroit need and deserve a clear road out of the cycle of ever-decreasing services," Snyder wrote. "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."
 
Snyder had determined earlier this year that Detroit was in a financial emergency and without a plan to improve things. Snyder hired Orr in March, and he released a plan to restructure the city's debt and obligations that would leave many creditors with much less than they are owed.
Orr was unable to convince a host of creditors, including the city's union and pension boards, to take pennies on the dollar to help facilitate the city's massive financial restructuring.
Some creditors were asked to take about 10 cents on the dollar of what the city owed them. Underfunded pension claims would have received less than 10 cents on the dollar under that plan.

A team of financial experts put together by Orr said that proposal was Detroit's one shot to permanently fix its fiscal problems.
The filing leads to a 30 to 90 day period that will determine whether or not the city of Detroit is eligible for Chapter 9 protection, and define the number of claimants who may compete for Detroit’s limited settlement resources. The petition seeks protection from unions and creditors who are renegotiating $18.5 billion in debt and liabilities, according to the Detroit Free Press.
“The President and members of the President’s senior team continue to closely monitor the situation in Detroit,” White House spokeswoman Amy Brundage said in a statement Thursday.
“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 revitalize and maintain its status as one of America's great cities,” the statement read.
Sen. Carl Levin, D-Mich., remained positive about Detroit’s outlook in spite of the major blow that bankruptcy delivered:

“I know firsthand, because I live in Detroit, that our city is on the rebound in some key ways, and I know deep in my heart that the people of Detroit will face this latest challenge with the same determination that we have always shown,” the Senator said in a statement released Thursday.
In a press conference Thursday evening, Orr stated that bankruptcy is the "first step toward restoring the city," and promised that "nothing changes from the ordinary citizen's perspective."
In the same conference, Detroit Mayor Dave Bing said he didn't want the city to go bankrupt, but now that it's happened, the people of the city "have to make the best of it."
A number of factors -- most notably steep population and tax base falls -- have been blamed on Detroit's descent toward insolvency.
Detroit was once synonymous with U.S. manufacturing prowess. Its automotive giants switched production to planes, tanks and munitions during World War II, earning the city the nickname “Arsenal of Democracy.”
Detroit lost a quarter-million residents between 2000 and 2010. A population that in the 1950s reached 1.8 million is struggling to stay above 700,000. Much of the middle-class and scores of businesses also have fled Detroit, taking their tax dollars with them.
Detroit's budget deficit is believed to be more than $380 million. Orr has said long-term debt was more than $14 billion and could be between $17 billion and $20 billion.