Detroit files for bankruptcy

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NEW YORK (CNNMoney)
Detroit filed for bankruptcy Thursday afternoon, becoming the nation's largest public sector bankruptcy. The move could slash pension benefits to city workers and retirees, and leave investors holding the city's debt with only pennies on the dollar.
Emergency Manager Kevyn Orr, appointed by Michigan Gov. Rick Snyder to oversee the city's finances, had been holding meetings with various creditors for the last five weeks in an effort to shed debt that the city can no longer afford. But despite the fact that some banks agreed to take reduced payments, Orr sought and received permission from Snyder to file.

Pension funds and retirees who fear deep cuts in promised benefits had filed suits to try to block a filing. Thursday's filing came before a hearing on the suits that was set for Monday.
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.
Related: City of Detroit is financially 'insolvent'
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.
"It's relatively easy to blow off a creditor. It's much harder when it's people who are the fabric of your community who you'll need going forward," he said. "You need a police force, you need a fire department. You're saying [to them] you're not worth what you were previously promised."
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.
Related: Detroit halts debt payments, plans pension cuts
When employees of a bankrupt business lose their promised pensions, the Pension Benefit Guarantee Corp. steps in and provides a minimal level of benefits to the retirees. But that federal agency doesn't back pensions in the pubic sector.
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."
Retirees and city employees say they can't accept cuts in their pension benefits.
"How am I supposed to live without my pension?" said David Sole, 65, after a protest in Detroit last month. Sole retired from the city's water department in January after 22 years.
Investors say the bankruptcy will make it more difficult for cities and towns everywhere to raise the money they need to build bridges, schools and other infrastructure. It will also hurt municipal bonds held by individual investors. There are more than $1 trillion worth of these general obligation bonds issued by local governments that are at risk said Peter Hayes, head of municipal bonds at BlackRock. He said there will be a ripple effect nationwide.
Detroit may sell its art treasures
Orr said that the city needs to cut debt in order to restore services and lower costs, such as taxes and insurance, that he says have chased businesses and residents out of the city.
Detroit's population has fallen 28% since 2000. The unemployment rate, while down from a peak of 27.8% in the summer of 2009 -- when General Motors (GM, Fortune 500) and Chrysler Group were going through their own bankruptcies -- is still at 16.3%, nearly twice Michigan's statewide average.
While the auto industry has enjoyed a resurgence with strong car sales and profits, GM, Ford Motor (F, Fortune 500), Chrysler Group and parts manufacturers have been on a hiring binge, most of the industry's Michigan plants lay outside of city limits.
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Detroit files for bankruptcy - Jul. 18, 2013
 
Not surprised, Detroit went down for decades now.

Back in 1950's, Detroit was 5th largest city in the US but dropped 18th in 2010.

Detroit used to had more population than LA too.

There are some cities filed for bankruptcy, also one county - Jefferson County filed for bankruptcy too.
 
It's an awful situation.

Let's hope that they manage the bankruptcy correctly so they can eventually recover from this.
 
How Detroit got here: 10 reasons

The city was once an American powerhouse. Now it's the largest municipality to file for bankruptcy. Here's why it could not keep going.

Detroit's bankruptcy was just a matter of time. The city's finances were an absolute mess, and residents have suffered for years because of it.

Detroit simply had no way out. But the bankruptcy is going to make everything worse before it gets better. Even more city employees now face layoffs, and valuable assets could get sold. Basic services for residents could be cut even further.

The city has thrown up its hands in what will become the largest city bankruptcy filing in U.S. history. And this case will drag on through the courts and likely end up ugly and painful for city employees and residents.

Detroit wants to wipe the slate clean, and it should. Because living in Detroit is no way to live. Here are 10 ways in which Detroit fell behind the rest of the nation:

1. Stark poverty. It's the poorest large city in the country, with more than a third of people living below the poverty line.

2. Crime is everywhere. The city has the highest crime rate of any large U.S. city. In a recent survey of the 25 most dangerous neighborhoods in America by NeighborhoodScout.co​m, Detroit took the top spot.

3. People are fleeing. Some 250,000 people moved away in the past decade, cutting the population to about 700,000. Many of those leaving were in the upper and middle classes. Back in the 1950s, in Detroit's heyday, the population reached 1.8 million.

4. The city feels abandoned. When you have that many people leaving so quickly, taking valuable tax revenue with them, the impact is obvious. There are about 78,000 abandoned and blighted structures and 40% of the city street lights are dark, Reuters reports. Check out these photographs of Detroit by The Observer that show just how badly the city has deteriorated.

5. The police force is barely there. Detroit police take about 58 minutes, on average, to answer emergency calls.

6. There isn't enough medical help. Only a third of the city's ambulances even work.

7. People aren't paying taxes. Only 53% of homeowners actually paid property taxes in 2011.

8. City officials racked up the debt. Detroit is carrying a crushing $15 billion in debt. It needs to pay $246 million a year on that debt -- a whopping 20% of its general fund budget.

9. No one is lending it any more money. Detroit couldn't get money from anyone to keep going -- at least not at normal interest rates.

10. Trash is piling up on the streets. The city couldn't repair garbage trucks that had mechanical problems. And so the trash sat out uncollected for days, and would sometimes get collected as late as 11 p.m.

How Detroit got here: 10 reasons- MSN Money
 
Required reading for political science students should be the history of modern Greece because the politicians we have today are as dumb as wood and need to be replaced.

Actually, I shouldn't say that because it's an insult to wood.
 
dereksbicycles said:
Hey, I hope not!!!

I bet Chicago will be watching and seeing how Detroit does it so to avoid doing the same.

I feel for Michigan. This is a snag to an already poor Michigan economy.
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Yes, it is just like saying: SF will be next? :lol:
 
VacationGuy234 said:
Required reading for political science students should be the history of modern Greece because the politicians we have today are as dumb as wood and need to be replaced.

Actually, I shouldn't say that because it's an insult to wood.
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Very funny! Like a wood would say "Oh, you hurt my feeling". Come on, wood is not a living creature. :laugh2:
 
dereksbicycles said:
Better SF than Chicago. Don't tell Authentic, ok??
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SF and Chicago will be okay.

Bankruptcy is only last resort option if you want to rid of pension.

The pension is major reason that bankrupted Detroit.
 
Foxrac said:
SF and Chicago will be okay.

Bankruptcy is only last resort option if you want to rid of pension.

The pension is major reason that bankrupted Detroit.
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San Francisco and Chicago will be ok? Please enlighten us with your insight.
 
I don't answer to post with troll behavior. :bye:
 
They lost bigger resources: auto makers companies. Any additional?
 
Wow! :shock:

(Reuters) - Investors dumped Detroit's municipal bonds a day after the city's historic bankruptcy filing even as a ruling in state court raised questions about whether the bankruptcy will stand up to court review.

Attempts by Michigan Governor Rick Snyder and Detroit's Emergency Manager Kevyn Orr to put a positive spin on the filing failed to reassure investors. Prices on some Detroit bonds plunged and there were wider declines in the $3.7 trillion U.S. municipal bond market.

The state court judge in Michigan's capital of Lansing ordered Orr to withdraw the bankruptcy petition because the state law that allowed Snyder to approve the bankruptcy violated the Michigan Constitution. The governor lacks the power to "diminish or impair pension benefits," according to the ruling by Ingham County Circuit Court Judge Rosemarie Aquilina.

Michigan Attorney General Bill Schuette, acting on behalf of Snyder, quickly filed an appeal with the state appeals court. His office said motions seeking emergency consideration were expected to be filed later on Friday.

Ken Klee, a bankruptcy lawyer at Klee, Tuchin, Bogdanoff & Stern LLP, said the Judge Aquilina's orders could be coming too late in the Detroit bankruptcy case.

"The state judge could not order Detroit to dismiss the case or Kevyn Orr to dismiss it, because once it's filed the automatic stay under the bankruptcy code kicks in, to protect the city and its employees from lawsuits," he said.

Neither Snyder nor Orr could necessarily be compelled to withdraw the city's petition at this juncture, he added.

Orr, who was appointed by Snyder in March to try to resolve the city's financial crisis and tackle its $18.5 billion in long-term debt, acknowledged that court battles over the need for a bankruptcy filing could be protracted and difficult.

A first test in a Chapter 9 bankruptcy proceeding is whether the city has explored other reasonable options before filing, and the city will "have an eligibility fight, I suspect" over the decision, Orr said.

In the bankruptcy filing, Orr stated he has set an objective to conclude the bankruptcy process no later than September 2014.

"I've got 15 months left on my tenure," Orr said. "I promised the governor that we were going to try and get this done within the time frame provided by the statute."

On Friday, U.S. Bankruptcy Judge Steven Rhodes of the U.S. District Court for the Eastern District of Michigan was assigned to oversee the Detroit case, which involves thousands of creditors. Bankruptcy experts expect the case could last years and cost tens of millions of dollars.

Under the 2012 Michigan law that created the emergency manager position, Orr's term is limited to 18 months, after which he can be removed by a two-thirds vote of Detroit's city council.

Detroit, a former manufacturing powerhouse and cradle of the U.S. automotive industry, has struggled for decades as companies moved or closed, crime became rampant and its population shriveled by about 25 percent in the past decade to 700,000. The Chapter 9 filing by the home of Motown music is the largest municipal bankruptcy in U.S. history.

Under the state law that created the emergency manager position, Detroit could not file for bankruptcy without the governor's approval. Lawsuits by pension funds and city workers, filed earlier this month, had sought to prevent a filing. But on Thursday, Orr filed the bankruptcy petition, with Snyder's permission, just minutes before Judge Aquilina was set to rule on a petition to stop the process.

In an interview with Reuters on Friday, Snyder side-stepped the constitutional question.

"That's a matter in litigation and we have very good attorneys who I'm sure are on top of that," he said

The governor has sought to paint the bankruptcy filing as a positive move for the city and the state.

"We're the comeback state in Michigan, but to be a great state we need...Detroit on the path to being a great city again," Snyder, a Republican, said at a press conference.

Snyder acknowledged that the bankruptcy would be seen as a new low point for the city, but said, "This is the day to stabilize Detroit."

Orr addressed concerns that art works at the Detroit Institute of Arts or other city assets would be auctioned off to pay off creditors, who have been offered pennies on the dollar.

"Right now, there's nothing for sale," he said.

Vice President Joe Biden told reporters on Friday that White House officials had been briefed on Detroit's situation, but that it was unclear what help the administration could provide.

In the state court proceeding on Friday, Judge Aquilina said she plans to keep the White House informed on matters affecting pensions by sending her rulings in the state cases to President Barack Obama, according to her law clerk, and attorney William Wertheimer, who is representing retirees in a lawsuit.
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Detroit bonds drop, judge seeks to halt bankruptcy filing | Reuters
 
I like to answer but I had hesitate because concern with drive me into politically motivated and troll behavior.

SF and Chicago don't have financial crisis that leading to bankruptcy, similar to Detroit. I'm sure that SF and Chicago have some budget problem, but pretty far from bankruptcy.

None of cities and counties are immune to bankruptcy and there are many reasons may end up in bankruptcy. In 20 years ago, Jefferson County was fine until they got sued over sewage crisis, so this county agreed to install new sewage system. They have bad management with sewer debt and they unable to afford anymore, that leading to bankruptcy. The compare between Detroit and Jefferson County are apple to orange.

The cities and counties need to keep growing. The tax base will normally go up based on inflation and if you decide to cut the tax that cause revenue to dropping, but you need to add more population (whoever ability to pay tax) to make up the number. Detroit lost a lot of population - about lost 1 millions in 60 years and many factories flee away from city, that caused tax base to drop like hard. The pension may be not bad idea if you able to keep tax base so up and have no loss for businesses so revenue will originally go up based on inflation, even same tax rate.
 
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