DETROIT, the once-mighty symbol of America's manufacturing strength has now become the biggest US city to file for bankruptcy, the result of a long, slow decline in population and auto manufacturing.
Michigan Governor Rick Snyder said yesterday that the bankruptcy process announced on Thursday would allow for improvements to the city, with a greater emphasis on public safety and other city services, which he acknowledged had long been "unacceptable."
He said it also should offer - for better or worse - a more certain path for creditors, who don't know how much or whether they will be paid. The process, he said, would clarify that "this is a debt that can be paid and will be paid."
"Now is our opportunity to stop 60 years of decline," he added.
Although the filing had been feared for months, the path that lies ahead is still uncertain. Bankruptcy could mean laying off employees, selling off assets, raising fees and scaling back basic services such as trash collection and snow plowing, which have already been slashed.
Kevyn Orr, a bankruptcy expert hired by the state in March to stop Detroit's fiscal free-fall, said Detroit would continue to pay its bills and employees.
However, Michael Sweet, a bankruptcy attorney in Fox-Rothschild's San Francisco office, said: "They don't have to pay anyone they don't want to. And no one can sue them."
The city's woes have piled up for generations. In the 1950s, its population grew to 1.8 million people, many of whom were lured by plentiful, well-paying auto jobs. Later that decade, Detroit began to decline as developers started building suburbs that lured away workers and businesses.
Few factories left
Then starting in the late 1960s, auto companies began opening plants in other cities. Property values and tax revenue fell, and police couldn't control crime. 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.
GM is the only one with headquarters in Detroit, though it has huge research and testing centers with thousands of jobs outside the city.
Detroit lost a quarter-million residents between 2000 and 2010. Today, the population struggles to stay above 700,000.
The result is a metropolis where whole neighborhoods are practically deserted and basic services cut off in places. Looming over the crumbling landscape is a budget deficit believed to be more than US$380 million and long-term debt that could be as much as US$20 billion.
Orr was unable to persuade a host of creditors, unions and pension boards to take pennies on the dollar to help with the city's massive financial restructuring. If the bankruptcy filing is approved, city assets could be liquidated to satisfy demands for payment.
Detroit has more than double the population of the Northern California community of Stockton, which was the largest US city to file for bankruptcy in June 2012.
Before Detroit, the largest municipal bankruptcy filing involved Jefferson County, which was more than US$4 billion in debt when it filed in 2011. Last August, San Bernardino filed for bankruptcy after learning it had a US$46 million deficit.
