Detroit Files for Bankruptcy

The city of Detroit has filed for bankruptcy, the largest American city ever to take such a course.

The filing requires approval from both the emergency manager assigned to oversee the troubled city and from Michigan Gov. Rick Snyder.

Although it is being called “the largest municipal bankruptcy filing in American history in terms of debt,” it is unclear how much Detroit owes. But Kevyn Orr, the emergency manager who was appointed by Gov. Snyder to resolve the city’s financial problems, has said the debt is likely to be $18 billion and perhaps as much as $20 billion.

With growth fueled largely by the automotive industry, Detroit reached a population high of 1.8 million in 1950, fourth-largest in the country. That has shrunk to 700,000. In 2012, Detroit had the highest rate of violent crime in the nation for a city larger than 200,000. About 40 percent of the city’s streetlights do not work. More than half of Detroit’s parks have closed since 2008.

According to The New York Times, only slightly more than 60 cities, towns, villages and counties have filed under Chapter 9 since the mid-1950s. Jefferson County, Ala., had been the nation’s largest municipal bankruptcy, filing in 2011 with about $4 billion in debt. Stockton, Calif., which filed in 2012, had been the most populous city to declare bankruptcy, but Detroit has more than twice as many people as Stockton.

In the 1970s, both New York and Cleveland teetered near the edge of financial ruin, but ultimately found solutions other than federal court.

Detroit’s financial issues include a shrunken tax base with a 139-square-mile city to maintain; overwhelming health care and pension costs; lots of borrowing to manage its mounting debts; annual deficits in the city’s operating budget since 2008; and city services crippled by aged computer systems, poor record-keeping and widespread dysfunction.

Municipal bankruptcies, said The Times, are a form of debt adjustment, as opposed to liquidation or reorganization, limiting the ability of judges to intervene in how the city is run. Residents are likely to see little immediate change. Orr, a bankruptcy lawyer who arrived in March to oversee major decisions, has said that as part of any restructuring he wants to spend about $1.25 billion on improving city infrastructure and services. y.