Last month, Ed gave us the rundown on the financial status of the Motor City. The prognosis wasn’t good, what with Detroit having billions more in outstanding bills than it could possibly generate in revenue. If anything, that doom and gloom outlook might have still been a bit on the rosy side, as the city’s emergency manager has essentially just told its creditors to pound sand.

A team led by a state-appointed emergency manager said Friday that Detroit is defaulting on about $2.5 billion in unsecured debt and is asking creditors to take about 10 cents on the dollar of what the city owes them.

Kevyn Orr spent two hours with about 180 bond insurers, pension trustees, union representatives and other creditors in a move to avoid what bankruptcy experts have said would be the largest municipal bankruptcy in U.S. history.

Underfunded pension claims likely would get less than the 10 cents on the dollar.

Those pension fund payments and other union / public worker costs are the elephant in the room. While they always merit some sort of mention, a lot of the media coverage of this story seems to try to roll them up as just one of many outstanding items, poor decisions or just plain “bad luck” which is dragging Detroit under. But it’s a lot more than that.

More than 42 percent of Detroit’s 2013 revenue went to required bond, pension, health care and other payments. If the city continues operating the way it did before Orr arrived, those costs would take up nearly 65 percent of city spending by 2017, Orr’s team said.

Kevyn Orr was given just 18 months to clean this mess up and he’s already burned 90 days of that. Everyone seems to agree that there isn’t any room for long term wringing of hands or dancing with the traditional power figures in the city. The house is already on fire, so it’s a bit late in the game to be talking about how many smoke detectors you should have installed. Orr has reportedly told all of the city’s creditors that Detroit is in “a death spiral” and Moody’s has marked down the Motor City’s bonds to below grade level. The unions and other public sector interests can either come to the table for vastly reduced portion of payments or they can stand in the road and allow the entire thing to collapse.

But, assuming Orr finds a path through this tangled mess and returns Detroit to at least the hope of some form of long term solvency, how will they prevent the same thing from happening all over again? Obviously it would require rethinking the entire public service sector, as well as allowing more public scrutiny of everyone who has their fingers in the food dish. More privatization might be part of the answer, but a harsh dose of reality when constructing public service contracts will be mandatory. Otherwise, all Orr is accomplishing is putting a blanket over the flames in the short term and letting the fire build back up all over again.