Ouch: Detroit files for biggest municipal bankruptcy in U.S. history

posted at 6:11 pm on July 18, 2013 by Erika Johnsen

It’s happened. The long and defiant march of progressive policies has finally succeeded in fully transforming Detroit from a mid-century bastion of middle-class prosperity to one of the biggest and brokest cities in America. After a review declared the city to be in a state of financial emergency earlier this year and Gov. Rick Synder invoked a rule allowing him to appoint an emergency manager to try and pull Detroit back from the fiscal abyss, they’ve spent months trying to negotiate a way out of it — with creditors to accept fractions of what they’re owed, with unions to cut benefits, and etc — but alas, it was too little, too late for the financially beleaguered city. Via WaPo:

Detroit on Thursday became the largest city in U.S. history to file for bankruptcy, as the state-appointed emergency manager filed for Chapter 9 protection.

Kevyn Orr, a bankruptcy expert, was hired by the state in March to lead Detroit out of a fiscal free-fall and made the filing Thursday in federal bankruptcy court.

A number of factors — most notably steep population and tax base falls — have been blamed on Detroit’s tumble toward insolvency. Detroit lost a quarter-million residents between 2000 and 2010. A population that in the 1950s reached 1.8 million is struggling to stay above 700,000. Much of the middle-class and scores of businesses also have fled Detroit, taking their tax dollars with them.

Orr was unable to convince a host of creditors, the city’s union and pension boards to take pennies on the dollar to help facilitate the city’s massive financial restructuring. If the bankruptcy filing is approved, city assets could be liquidated to satisfy demands for payment.

Orr and company have been warning for months that without major sacrificies from bondholders, pensions, and unions alike in reworking the more than $18 billion the city owes, they would definitely end up needing to declare bankruptcy, cautioning that there would otherwise really be no way to turn this ship around, but nothing doing. Perhaps sensing the inevitable, just yesterday two of Detroit’s pension funds filed suit against Orr and Gov. Snyder, asking that a court find that a potential bankruptcy filing would conflict with the state’s constitutional protection of public retirees’ rights — but it’s probably happening anyway.

Orr already halted payments on about $2 billion in debt last month, saying the city needed to preserve its dwindling supply of cash. His reorganization plan calls for cutting $11.5 billion in unsecured debt — including pensions, health care funds and loans not backed by assets — down to $2 billion. That would mean that investors and retirees would receive an average of just 17% of what they are owed. Specific plans for the cuts are unknown at this time. …

Cutting retiree’s pensions in a municipal bankruptcy has never been done before, said Michael Sweet, a California bankruptcy attorney who is an expert in public sector bankruptcies. …

Sweet said case law on whether pensions can be cut this way is very limited, and it could take years for a court fight over pension cuts to work its way to the U.S. Supreme Court. Given the poor state of funding for many public sector pension funds nationwide, “it’s a big enough question, that (the Supreme Court) is where it likely will have to go,” he said. …

Snyder spokeswoman Sara Wurfel said the decision to file for bankruptcy came after careful deliberation.

“This has been a huge problem for decades and it’s come to a crisis point,” she said. “The emergency manager tried to work with all the creditors, including pensioners.”

And yes, before you ask — saddled with the end result of years of blatantly unsustainable levels of public spending, the city did indeed appeal to the White House for a bailout. The WSJ reports:

Any hope of a federal bailout to avert bankruptcy fizzled last week after Mr. Orr spoke with the White House, including Obama confidante Valerie Jarrett, according to city and White House officials.

Ahem.

Says Walter Russell Mead:

Detroit has been spending on average $100 million more than it has taken in for each of the past five years. The city’s $11 billion in unsecured debt includes $6 billion in health and other retirement benefits and $3 billion in retiree pensions for its 20,000 city pensioners, who are slated to receive less than 10 percent of what they were promised. Between 2007 and 2011, an astounding 36 percent of residents lived below the poverty line….

Progressive politicians, wonks, and activists can only blame big corporations and other liberal bogeymen for so long. The truth is that corrupt machine politics in a one-party system devoted to the blue social model wrecked an entire city and thousands of lives beyond repair.


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Over

Bmore on July 19, 2013 at 9:54 AM

Crazy pics. I think they filmed part of that horrible movie “Alex Cross” there – in the theater that’s now a parking garage.

I think Hollywood should just buy the city and then the constant stream of post-apocalyptic movies they churn out could all be filmed there. It’d up the realism!

Free Indeed on July 19, 2013 at 10:09 AM

Make this the face of the crisis. And this.

Bmore on July 19, 2013 at 10:18 AM

Circulate the links. Make people see it. ; )

Bmore on July 19, 2013 at 10:18 AM

Apparently, it is our job to stay put and keep living in crime and drug-infested neighborhoods, and have our taxes squandered to maintain the lifestyles of corrupt city government officials (and their political supporters).

SubmarineDoc on July 18, 2013 at 8:33 PM

If Obama has his way, we and our children won’t have much choice. Obama blames suburbanites for urbanites’ woes, and he’s getting ready to install draconian measures to fix it.

Under the banner of global warming, federal aid of all kinds will be conditioned on adherence to “smart growth” principles; i.e., population density. High density areas will get federal aid; lesser density areas will not. In the face of deteriorating public services and infrastructure, people will be forced to move to the cities. The country will be Manhattenized.

Obama’s Plans for the Suburbs: And How to Stop Them, by Stanley Kurtz

Also, Kurtz’s recent book: Spreading the Wealth: How Obama is Robbing the Suburbs to Pay for the Cities.

Soon as in Agenda 21, we will all be dutifully walking our energy boards daily and accepting all spousal pairings …

petefrt on July 19, 2013 at 10:22 AM

Who has run Detroit for at least 50 years? Yep that would be the Dems. Why did the auto industry decline there? Yep unions who are also heavily Democrat.

Bankruptcy was inevitable.

California, Illinois, and NY take note.

Another note to NYC, remember Giulani? He cleaned up the crime and was a true leader on 9-11. Now contrast to Nanny Blooomberg. Now realize that your two leading candidates are Spitzer and Weiner. Get where I’m going with this?

Stupid is as stupid does.

neyney on July 19, 2013 at 10:25 AM

The advantage however is that the states can stop federal policy cold – and many will.

Obama is broke.

Zomcon JEM on July 19, 2013 at 11:42 AM

Whoever wrote this article needs to be executed.

Schadenfreude on July 19, 2013 at 11:46 AM

Look for the union label……………….Take a real good lok at all this folks, because with the current administration, we are all headed this way. You can only give away stuff for so long and then you run out of stuff, then you have to figure out how to make or aquire more stuff, like hard work and dedication and earning your own way. The guvment can only give what it takes(steals) from others.

j bo on July 19, 2013 at 12:18 PM

To be perfectly honest, the real culprit in the demise of any municipality are the entities which become creditors. If these entities had done their due diligence and operated with fiduciary responsibility, even the most corrupt city government would not survive the first need for money.

The lesson here is don’t lend money to someone if they can’t pay it back. And if you don’t know if they can, find out or walk away.

It is that simple.

BobMbx on July 19, 2013 at 12:26 PM

Mr. Irony

He’s also just filed for divorce.

Schadenfreude on July 19, 2013 at 1:09 PM

Who has run Detroit for at least 50 years? Yep that would be the Dems. Why did the auto industry decline there? Yep unions who are also heavily Democrat.

Bankruptcy was inevitable.

California, Illinois, and NY take note.

neyney on July 19, 2013 at 10:25 AM

Especially California. Mark Steyn (who’s filling in for Limbaugh today) made that point in the first hour of the show. Once that state really starts to endure hard times, the entertainment and high-tech industries will move elsewhere, and LA will become what Detroit is today.

And Victor Davis Hanson, whose family goes back many generations in the “Golden State”, has been saying the same thing for years.

A half a century ago, much of southern California was comprised of Republicans (see “Orange County”). And back then, Southern California was an ordered and prosperous place.

And then the Democrats got their hands on things…

Del Dolemonte on July 19, 2013 at 1:11 PM

Mr. Irony

He’s also just filed for divorce.

Schadenfreude on July 19, 2013 at 1:09 PM

Wonder if they had a pre-nup? He was a nothing when they married 21 years ago.

He’s right about the rest of America eventually becoming like Detroit. He’s just too stupid to understand that it’s his political party that is doing it.

Del Dolemonte on July 19, 2013 at 1:14 PM

This is Detroit today – after 51 years of ‘Progressive’ and 39 years of ‘black rule.’

The Destruction of Detroit (Photo Essay)

No ‘apartheid’ there, Jesse.

Resist We Much on July 19, 2013 at 12:55 PM

I’m sure Detroit is bad, and many of those photos may be valid – but they’re not all Detroit.
#10 (from the top) background terrain is definitely NOT Detroit – looks more like South Dakota, Wyoming, or someplace like that.
Further down is one with palm tress – not likely Detroit from what I know of trees and where they grow.
I wish when people put stuff like that together, like with viral emails, they should stick with the truth instead of trying to add invalid stuff or photoshop to make it look more sensationalistic.

dentarthurdent on July 19, 2013 at 1:30 PM

There’s no shortage of broken cities in this country, yet the US seems to be investing its efforts in aiding and rebuilding communities in Iraq and Afghanistan.
 
bayam on July 19, 2013 at 1:06 AM

 
+1. Great point, other than where you forgot how annual (and increased) stimulus spending has continued each year since Reid and Obama refuse to pass a budget. Say, I wonder why they’d do that?
 
(Just kidding about the “forgot” part. Here’s a link so you can read about it for the first time.)
 
That’s what, $1.5 trillion in Iraq and Afghanistan vs. $5 trillion (with a “T”) in stimulus spending since Obama took office?
 
But sure, aside from that one teensy little $5,000,000,000,000+ detail your post is well-reasoned and 100% correct.

rogerb on July 19, 2013 at 1:34 PM

If Obama had a city, it would look like Detroit…

Kuffar on July 19, 2013 at 1:36 PM

If Obama had a city, it would look like Detroit…

Kuffar on July 19, 2013 at 1:36 PM

.
Damn ! ………… You stole that from Mark Steyn ….. I was gonna post it.

Still true, anyway.

listens2glenn on July 19, 2013 at 1:41 PM

Del Dolemonte on July 19, 2013 at 1:11 PM

Exactly DD. I’m a proud Texan and have lived here for 50 of my 52 years. I was born in San Diego, CA. I have lots of family there and as a kid we would go to visit every summer. My memories of San Diego were of a vibrant city and a can do attitude. Not so much anymore. In April of this year I went back for a wedding and was shocked at what I found. This town is a shadow of its former self. Lots of liberal thinking going on and my cousin who is a retired SD County cop told me stories of PC gone amok.

I’m seeing the pattern repeating itself here in the DFW area where I live. Freakin Sneakers Davis was elected as a state rep for my Fort Worth? What? Dallas is going navy blue as is Houston and Austin has been a lost cause since the 60s. I blame the liberals flooding my state for jobs. It amazes me that they are fleeing their liberal utopias because they can’t find jobs there but they come here and keep their liberalism when they can see it has failed. Back in the 80s it was amazing how many Michigan license plates were on the freeways. This is where the conservatives and Republicans from Detroit moved to and we welcomed them with open arms. I have load of Michigander friends from that diaspora. The difference between then and now is the Michiganders left the stupid behind, this new batch of invaders are bringing it with them.

To me Texas is a safe harbor in a sea of trouble. I hope and pray that this immigration bill is shot down. If it isn’t then Texas is navy blue overnight. These Dems are trying to turn Texas blue and as Texas goes then so will go the country.

neyney on July 19, 2013 at 1:45 PM

Progressive politicians, wonks, and activists can only blame big corporations and other liberal bogeymen for so long. The truth is that corrupt machine politics in a one-party system devoted to the blue social model wrecked an entire city and thousands of lives beyond repair.

They’ll continue to blame them unrelentingly until they die. And the truth is irrelevant to them.

krome on July 19, 2013 at 2:02 PM

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