Detroit in bankruptcy: How did it happen? - Crain's Detroit Business. The city of Detroit, which for years paid its bills with borrowed money, is the largest city in U.S. history to file for bankruptcy protection. Here's a look at how the city spiraled into financial ruin and why it's in so much trouble: For decades, Detroit paid its bills by borrowing money while struggling to provide the most basic of services for its residents. The city, which was about to default on a good chunk of its $14 billion-plus debt, now will get a second chance in a federal bankruptcy court-led restructuring. Detroit's budget deficit this year alone is estimated at $380 million, and Kevyn Orr, its state-appointed emergency manager, chose bankruptcy over diverting money from police, fire and other services to make debt payments. The move conserves cash so the city can operate, but it will hurt Detroit's image for years.
It also leaves creditors with pennies on the dollar and places in jeopardy the pension benefits of thousands of city retirees. It's a big factor. Maybe. Detroiters struggle to survive without city water. How do you survive without running water for more than two years? First, get a trash can. Put it under the roof to collect water to flush the toilet. Then, get a bucket and remember what your grandparents taught you in the early 1950s, before indoor plumbing reached all of rural America.
“You use your brain. You scramble. She hasn’t had running water in her Brightmoor house since May 2013. The outcry faded, but the situation hasn’t. Citywide, a third of all residential accounts in Detroit— 68,000 of 200,000 — are at least 60 days past due, city records show. The water issue is coming to light as a special panel studying water affordability is expected to present its plan to the Detroit City Council in January. Help is available, said Gary Brown, director of the Detroit Water and Sewerage Department.
“If you come in and say you are having an issue, we can find ways to help people,” Brown said. That’s expected to raise $4.5 million in its first year. Too poor to pay “This is a nightmare. Detroit aims to cut unemployment. The Duggan administration’s effort to chip away at unemployment in Detroit and revamp worker training will get a big boost this week with a new study outlining gaps in the ways that the city, workforce training providers and industry leaders prepare Detroiters for jobs. The study, to be released this week but provided in advance to the Free Press, outlines some of what’s been known for years about Detroit. For one, the city’s residents lack education and training for the types of jobs moving into the city, ranging from professional services, finance and technology.
But one of the more startling findings of the study by JP Morgan Chase and the Ann Arbor-based Corporation for a Skilled Workforce is just how deeply Detroit lags other cities in the number of jobs available compared to its population. Detroit, with a population around 680,000, has 258,000 jobs within its borders, the study found. Among other findings: “That’s significant, but we’ve still got a lot of work to do,” Duggan said. Detroit: Why Bankruptcy? Why Bankruptcy Now? | Journal of Applied Research in Economic Development. City of Detroit Like it or not, the Detroit bankruptcy filing is a page turner. What insights and lessons might an economic developer glean from it? That is our task in this issue. Since July 18th when the City of Detroit filed for the nation’s largest ever (in terms of debt) municipal bankruptcy, the Curmudgeon has been buried under an avalanche of different ideas explaining how Detroit got into this revolting situation.
There have also been a pile of development-revitalization suggestions, as well as blame-placing. Blame there is–not surprisingly, blame aplenty. The ever-reticent Krugman, for example, blames job sprawl and suburbs, and a ton of media folk blame the decline on the auto industry or they resuscitate age-old deindustrialization woes. What the Curmudgeon proposes is simply to step back a bit and subject some of these “causes of bankruptcy” to a review. Right off the reader might appreciate the Curmudgeon “take” on the bankruptcy filing.
Coleman Young (1981) Motor City Casino. Anatomy of Detroit’s Decline - Interactive Feature. Mayor Coleman A. Young of Detroit at an event in 1980. Richard Sheinwald/Associated Press The financial crisis facing Detroit was decades in the making, caused in part by a trail of missteps, suspected corruption and inaction. Here is a sampling of some city leaders who trimmed too little, too late and, rather than tackling problems head on, hoped that deep-rooted structural problems would turn out to be cyclical downturns. Charles E. Bowles, backed by the Ku Klux Klan, was in office for seven months in 1930 before people demanded his removal. His ascension to the mayor's office was followed by a spike in crime, and he was suspected to be linked to some of Detroit's underworld figures, according to “Detroit: A Biography" by Scott Martelle.
Edward Jeffries, who served as mayor from 1940 to 1948, developed the Detroit Plan, which involved razing 100 blighted acres and preparing the land for redevelopment. Coleman A. Kwame M. Related. Detroit’s pension problems, in one chart. By Brad Plumer By Brad Plumer July 19, 2013 The Detroit Free Press has a long, detailed breakdown of Detroit's pension woes. Here's the key chart: Detroit currently owes $3.5 billion on its pension funds and writes checks to about 21,000 retired city employees and their widows, most of whom get around $1,600 per month. As you can see from the chart above, pensions are far from the only problem with Detroit's finances. That $3.5 billion amounts to about one-sixth of Detroit's total debts, and the city's pensioners have argued that they shouldn't have to bear the brunt of the pain from restructuring. Still, as the Free Press lays out, those pension obligations have become unsustainable, not least since there are now more retirees than workers paying into the system: "The city can’t pay what it owes the funds this year, much less make up its arrearage.
" So how did Detroit reach this point? There wasn’t any one thing that brought Detroit’s pension funds to this low point. Wonkbook newsletter. After bankruptcy, few options for Detroit to grow revenue. Slash costs, fix the balance sheet and take money that was once tied to debts and spend it on police, fire and other city services. That's the premise of Detroit's bankruptcy: short-term pain for long-term benefit, and cuts for Detroit's creditors, but better outcomes for residents. But of the $1.7 billion that Detroit's post-bankruptcy plan is expected to generate, only about $900 million comes from restructuring the city's debts.
About $483 million comes from projected new revenues, $358 million from cost savings. "We don't have $1.7 billion in the bank," said former Detroit emergency manager Kevyn Orr, who led the city through bankruptcy. "We think we've made our estimates reasonable. " Simple enough on paper, but in reality? In short, it's not that easy. "It's very fragile," said Sheila Cockrel, a 16-year veteran of the Detroit City Council who is now the president of Crossroads Consulting.
Why is it different now? Like a lot of Detroit's problems, it sounds simple. Where cash comes from. Detroit To Officially Exit Historic Bankruptcy. DETROIT, Dec 10 (Reuters) - Detroit will officially exit the biggest-ever U.S. municipal bankruptcy later on Wednesday, officials said, allowing Michigan’s largest city to start a new chapter with a lighter debt load. The city, which filed for bankruptcy in July 2013, will shed about $7 billion of its $18 billion of debt and obligations. “We’re going to start fresh tomorrow and do the best we can to deliver the kind of services people deserve,” said Mayor Mike Duggan.
Once a symbol of U.S. industrial might, Detroit fell on hard times after decades of population loss, rampant debt and financial mismanagement left it struggling to provide basic services to residents. Later on Wednesday, payments to city creditors will be triggered under a debt adjustment plan confirmed by a U.S. Bankruptcy Court judge last month. Most of the settlements with major creditors, including Detroit’s pension funds and bondholders, will be paid with a distribution of about $720 million of bonds. Most Detroit Families Can't Afford Their Basic Needs: Report. Two-thirds of Detroiters can’t afford basic needs like housing and health care, even when family members are employed, according to a new report. On Sunday, the United Way released a study that found 40 percent of Michigan households, and 67 percent of Detroit families, are either under the poverty line or what it identifies as “ALICE” — asset-limited, income-constrained, employed.
Yes, Detroit’s poverty rate is 38 percent, but the United Way study looks at the cost of living — factoring in housing, child care, food, transportation and health care — compared to income by county to identify families that are above the federal poverty line but still struggling. “There’s this whole other group of people — could be you or me — (who are) one failed transmission away from going over the cliff to poverty,” Nancy Rosso, executive director of the Livingston County United Way, told the Livingston Daily. Read the full report here. Most Stressful Jobs Of 2014 10. Getty Images. Why isn't everyone buying cheap houses in Detroit as an investment? - Quora.
The Detroit Bankruptcy. The Detroit Bankruptcy The City of Detroit’s bankruptcy was driven by a severe decline in revenues (and, importantly, not an increase in obligations to fund pensions). Depopulation and long-term unemployment caused Detroit’s property and income tax revenues to plummet. The state of Michigan exacerbated the problems by slashing revenue it shared with the city. The city’s overall expenses have declined over the last five years, although its financial expenses have increased. In addition, Wall Street sold risky financial instruments to the city, which now threaten the resolution of this crisis.
To return Detroit to long-term fiscal health, the city must increase revenue and extract itself from the financial transactions that threaten to drain its budget even further. The Shortfall Detroit’s emergency manager, Kevyn Orr, asserts that the city is bankrupt because it has $18 billion in long-term debt. Cash flow crisis. Total outstanding debt. Revenue Tax revenue. State revenue sharing. Expenses. DetroitFactSheet 412909 7. The Rise and Fall of Detroit’s Middle Class. In 1973, Ron and Loretta Martin and their three sons moved into the yellow-brick Colonial across the street from my childhood home, on Detroit’s west side. My father greeted them warmly, despite the fact that most of our neighbors saw them as blockbusters, part of a nefarious conspiracy by civil-rights groups to force integration and break up tight-knit white enclaves.
The Martins were one of the first black families on our block. It took a lot of courage to be pioneers, those black families who crossed the city’s racial frontier. And it also took extra money. Ron and Loretta were pioneers in another way. It was not always this way. But by the time the Martins moved in, those blue-collar jobs were disappearing. Public employment, of course, did not come cheaply. Between 1990 and 2013, Detroit reduced its municipal workforce by nearly half to help make ends meet.
A few decades ago, Detroit barely survived the collapse of the auto industry. Thomas J. Photograph by Bill Pugliano/Getty.