Michigan Gov. Rick Snyder (R) and Detroit’s state-appointed emergency manager, Kevyn Orr, on Friday defended their decision to have Detroit file for bankruptcy, saying it offers the only way to maintain basic services and reverse the city’s long descent.
Flanked by posters of the city’s skyline with the words “Reinventing Detroit,” Synder said, “Now is our opportunity to stop 60 years of decline.”
Graphic
The decline of Detroit.
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Orr said that during the bankruptcy, employees would be paid and the city would pay its bills — and perhaps, for the first time in awhile, pay those bills on time. He said there will be a hotline city vendors can call if they do not get paid.
Orr also said he would appoint a committee to represent retirees in negotiations over underfunded pension plans.
But, he said, there was little choice other than bankruptcy, given Detroit’s towering debt and limited tax revenues. Comparing the city’s spending needs and debt payments, he said, “There’s no way home from that equation.” He added: “I’d be happy to listen to any other plan someone can come up with given the restraints we’re working under. The reality is . . .with $12 billion in unsecured debt, there’s precious little we can do.”
Detroit’s filing Thursday was the largest municipal bankruptcy in the nation’s history, marking a low in a long decline that has left the U.S. automaking capital bleeding residents and revenue while rendering city services a mess.
The city, which was the nation’s fourth-largest in the 1950s, with nearly 2 million residents, has seen its population dwindle to 700,00, as people fled rising crime and deteriorating services, taking their tax dollars with them.
In March, as Detroit faced an estimated debt of $19 billion, Michigan named Orr an emergency manager, vested with extraordinary powers to rewrite contracts and liquidate some of the city’s most valuable assets. That led to once-unthinkable proposals, such as forcing public employees to cut their retirement benefits or demanding that investors in municipal bonds — long considered among the safest investments — take pennies on the dollars they lent to Detroit. In recent days, both of those groups objected, propelling the city to file for bankruptcy.
On Friday, the credit agency Moody’s Investors Service said the bankruptcy filing, and the disputes over who would be asked to make sacrifices, augured a period of uncertainty for bondholders.
“While not unexpected, the filing opens the door to what will likely be an unprecedented litigation scenario,” the agency said. “Before issues like bondholder recovery levels and what level of services city residents will experience become clear, the bankruptcy is likely to be a complicated and protracted process.”
In a sign of Detroit’s dire fiscal situation, few officials and lawmakers in Michigan or Washington vigorously protested the decision — a far cry from the 1970s, when then-President Gerald R. Ford intervened with federal loans to prevent New York City from falling into bankruptcy. That there is far less stigma now could encourage other distressed cities and towns to follow Detroit’s lead, some analysts worry.
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