Everything You Need To Know About Detroit Filing For Bankruptcy
“It's sad, but you could see the writing on the wall,” Detroit city worker Terence Tyson told the New York Times. “This has been coming for ages.”
There are many words that could be used to describe the way in which news of Detroit's filing for Bankruptcy was generally received yesterday: with disappointment, with remorse, with shame. Few, however, could claim a feeling of utter shock, especially after considering the sheer numbers written on the proverbial wall to which Tyson refers.
Detroit is, after all, the city that appointed an emergency manager, a title that some may not have even heard of until yesterday, to manage its crippling debt. It is the city that provokes thought of desperation after just scratching the statistical surface — city unemployment has tripled since 2000, population has fallen by a quarter at the same time.
And then, once the figures go a bit deeper, arise the thoughts of decimation — 40% of the city's street lights don't work, over 75,000 city structures left to ghost-town like abandonment, an average police response time that more than quintuples the national average (58 minutes in Detroit compared to the national mean of 11 minutes) with a significant murder rate (over 370 in 2012 for an area of nearly 700,000 inhabitants).
“After decades of fiscal mismanagement; plummeting population, employment and revenues; decaying City infrastructure… Detroit today is a shell of the thriving metropolis that it once was,” Kevyn Orr, the city's aforementioned emergency manager is quoted as saying by the Chicago Tribune.
Orr had tried to help Detroit avoid the worst but, needless to say, was unsuccessful. Now the city is faced with the cumbersome task of executing a complex process that could take months, while dusting itself off and recovering from that process could take up to three years. Kenneth Klee, who has experience in such ordeals as the lead attorney for Jefferson County's bankruptcy filing in Alabama, reported these predictions to Detroit Free Press.
Estimates regarding how long it will take for the city to reach the light at the end of the tunnel can be given over and over but, ultimately, are all based on speculation. This much is certain, however: Detroit has filed the biggest municipal bankruptcy claim in U.S. history, declaring their insolvency and thus their inability to pay their debts.
It is the latest of 36 municipal filings since 2010 and the first since Stockton, California, filed in April. Those debts are owed to over 100,000 creditors. The full amount the city owes? NBC News estimates 18 to 20 million dollars, figures that mean for every one citizen Detroit has, the city owes $25,000.
“Let me be blunt: Detroit's broke,” Michigan Gov. Rick Snyder said in an video on the state's official website. “…Without this decision, the city's condition would only worsen.”
It's a straight-to-the-point assessment for a city whose biggest losers, in an all-around unfortunate case, will be those who have the least chance of bouncing back.
Detroit's five biggest chunks of debt are owed to retirement systems and pension trustees, according to the breakdown of the city's unsecured creditors, that say around $9.2 billion is owed in pension and retiree health care benefits. To put things as bluntly as Gov. Snyder would, while the famed auto-industry of Detroit is unlikely to be affected by bankruptcy, old people are set to be the ones hit the hardest as the city tries to provide a better future for the next generation of city employees.
That much was made clear as early as last month when Orr, who was appointed in April, essentially told the tens of thousands of active employees and current retirees of Detroit that the city simply can not afford to pay in full what it owes in pensions.
It's a concept that, though unfortunate, is fairly simple to explain.
If Detroit's filing is successful, the state will receive federal protection from creditors, which then forces those who the city owes to enter negotiations that aim to settle on an amount that will be paid. These agreements are instead of the original amounts due, simply because bankrupt entities are legally declared unable to make full payments. The logic, however, is sure to not comfort those fighting on the side of the elderly.
“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,” Lee Saunders, president of the American Federation of State, County and Municipal Employees, told the New York Times.
“While nobody welcomes the concept of bankruptcy, it is necessary to solve the long-term structural financial challenges of this historic city,” he said, adding that it sets the stage for future growth. “The private sector is thriving and businesses continue to invest in Detroit. Addressing Detroit's financial instability is the final barrier to robust growth.”
If retirees do end up taking the brunt for Detroit's efforts to, basically, start over, their demographic may be the tragic sacrificial lamb in a classic, for-the-greater-good type of situation.
The Motor City is in a drastic predicament, and the only way to get the wheels moving again is to take equally drastic measures now. At least, that's the way officials are spinning it. And if they're speaking the truth, filing for bankruptcy in this way, no matter who gets hurts, has to be done.
As Forbes staff writer Joann Muller pointed out on Thursday, “Nobody wants to undergo surgery. But if you need it, there's no point putting it off. All you want is to get through it quickly and be healthy afterwards.”
The plan that Detroit seems to have now is clear. With no other alternative, the city will cry “poor” to the government. Some will be hurt more than others, mainly the creditors to which the city owes money. In the end, however, hopefully the future of Detroit will be secure and more investors will be able to pump money into a city that will have pushed the reset button on its finances to add to the $10 billion that was invested in Detroit in the past five years.
One generation will be pushed aside to help another. Retirees may feel the burn to facilitate the Gen-Y-ers preparation to enter the workforce in order to gear towards a brighter future. Whether it's right or wrong is up to the next man to decide, but it is, nonetheless, the reality.
“While nobody welcomes the concept of bankruptcy, it is necessary to solve the long-term structural financial challenges of this historic city,” Sandy Baruah, president of the Detroit Regional Chamber of Commerce, told Forbes. “The private sector is thriving and businesses continue to invest in Detroit. Addressing Detroit's financial instability is the final barrier to robust growth.”
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