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| 'Detroit is basically broke': cuts, cuts and cuts to follow bankruptcy filing | 'Detroit is basically broke': cuts, cuts and cuts to follow bankruptcy filing |
| (about 2 hours later) | |
| Detroit used to be known as "the Paris of the midwest" – a city of wide streets, imposing buildings, and home to the great US auto industry. In 1960, it had the highest per capita income in the nation. But decades of decline, racial tension and corruption have brought the motor city to its knees. "The city is basically broke," Michigan governor Richard Snyder said Friday. | Detroit used to be known as "the Paris of the midwest" – a city of wide streets, imposing buildings, and home to the great US auto industry. In 1960, it had the highest per capita income in the nation. But decades of decline, racial tension and corruption have brought the motor city to its knees. "The city is basically broke," Michigan governor Richard Snyder said Friday. |
| At a press conference convened a day after the city filed for the largest municipal bankruptcy in US history, Snyder and Kevyn Orr, the city's unelected emergency financial manager, set out their case for taking the most drastic step ever taken by a city of Detroit's size. | At a press conference convened a day after the city filed for the largest municipal bankruptcy in US history, Snyder and Kevyn Orr, the city's unelected emergency financial manager, set out their case for taking the most drastic step ever taken by a city of Detroit's size. |
| A Michigan circuit judge on Friday ruled the bankruptcy filing violates the state's constitution and must be withdrawn. That decision is expected to wind its way through the state court system over the next few days. | |
| With the city saddled with debts of more than $18bn, Orr said there was "no way home from that equation". Detroit had no choice but to go bust and reorganize its debts in the bankruptcy court, he said, after months of fighting with the pension funds and its creditors had led to an impasse. | With the city saddled with debts of more than $18bn, Orr said there was "no way home from that equation". Detroit had no choice but to go bust and reorganize its debts in the bankruptcy court, he said, after months of fighting with the pension funds and its creditors had led to an impasse. |
| The scale of Detroit's decline is dizzying. The city's population has dropped from 2 million in 1950 to 700,000 today, as Detroiters have become fed up with decades of mismanagement and rising crime and poverty. Detroit's murder rate is at a 40-year high, only a third of its ambulances are in working order, and nearly half its streetlights are broken. | The scale of Detroit's decline is dizzying. The city's population has dropped from 2 million in 1950 to 700,000 today, as Detroiters have become fed up with decades of mismanagement and rising crime and poverty. Detroit's murder rate is at a 40-year high, only a third of its ambulances are in working order, and nearly half its streetlights are broken. |
| Citizens wait 58 minutes for the police to respond to calls, compared to a national average of 11 minutes. There are 78,000 abandoned buildings in a sprawling city of 139 sq miles. Detroit's dystopian landscape has attracted tourists and photographers from around the world looking for what the locals disparagingly call "ruin porn". | Citizens wait 58 minutes for the police to respond to calls, compared to a national average of 11 minutes. There are 78,000 abandoned buildings in a sprawling city of 139 sq miles. Detroit's dystopian landscape has attracted tourists and photographers from around the world looking for what the locals disparagingly call "ruin porn". |
| "Does anybody think it's OK to have 40-year-old trees growing through the roofs of dilapidated houses? Does anybody think our children should walk through the streets in the dark in October? Does anybody think they should call the police and they do not come on time because they are already out on calls? No," said Orr. | "Does anybody think it's OK to have 40-year-old trees growing through the roofs of dilapidated houses? Does anybody think our children should walk through the streets in the dark in October? Does anybody think they should call the police and they do not come on time because they are already out on calls? No," said Orr. |
| But bankruptcy comes at a cost. No other major US city has ever filed for a chapter 9 bankruptcy, as these filings are known. New York, Cleveland and Philadelphia all come close, but brokered last-minute deals rather than face the hard cuts and acrimonious legal fights a chapter 9 filing inevitably triggers. The city's pension funds and bondholders are preparing to fight for every dollar Detroit has to offer. | But bankruptcy comes at a cost. No other major US city has ever filed for a chapter 9 bankruptcy, as these filings are known. New York, Cleveland and Philadelphia all come close, but brokered last-minute deals rather than face the hard cuts and acrimonious legal fights a chapter 9 filing inevitably triggers. The city's pension funds and bondholders are preparing to fight for every dollar Detroit has to offer. |
| Detroit has 9,700 city employees who all now face pay cuts and worse, and close to 20,000 retirees whose pensions and health care benefits are under attack. "Detroit should not be rebuilt on the backs of the men and women who played by the rules and worked hard to provide city services," said said Al Garrett, president of Michigan branch of the AFSCME union. | Detroit has 9,700 city employees who all now face pay cuts and worse, and close to 20,000 retirees whose pensions and health care benefits are under attack. "Detroit should not be rebuilt on the backs of the men and women who played by the rules and worked hard to provide city services," said said Al Garrett, president of Michigan branch of the AFSCME union. |
| Orr said the legal fights had in part forced his hand as it became clear he was unlikely to be able to broker a deal. Municipal bonds are traditionally seen as safe investments and the courts have protected investors rights in previous – smaller – cases. This time around those investors may face a tougher battle. | Orr said the legal fights had in part forced his hand as it became clear he was unlikely to be able to broker a deal. Municipal bonds are traditionally seen as safe investments and the courts have protected investors rights in previous – smaller – cases. This time around those investors may face a tougher battle. |
| As he tried to negotiate a compromise earlier this month Orr organized a bus tour – complete with armed guards – to help convince the city's creditors to give Detroit a break. But the bankers pulled out fearing a PR backlash prompted by pictures of the captains of finance visiting some of the most desolate urban landscapes in the US. That backlash is only likely to grow as they fight pensioners for a larger share of the city's dwindling coffers. | As he tried to negotiate a compromise earlier this month Orr organized a bus tour – complete with armed guards – to help convince the city's creditors to give Detroit a break. But the bankers pulled out fearing a PR backlash prompted by pictures of the captains of finance visiting some of the most desolate urban landscapes in the US. That backlash is only likely to grow as they fight pensioners for a larger share of the city's dwindling coffers. |
| Beneath this already tense background comes a political and racial divide that is only likely to intensify the debate. Snyder, a white Republican, is effectively taking over a Democratic city that is 80% black. Detroit has a long, sorry history of racial tension. The appointment of Orr, a prominent African American lawyer, was seen by many as a move to mitigate some of that tension. But this is a fight that will open old wounds and has huge implications for the rest of the US. | Beneath this already tense background comes a political and racial divide that is only likely to intensify the debate. Snyder, a white Republican, is effectively taking over a Democratic city that is 80% black. Detroit has a long, sorry history of racial tension. The appointment of Orr, a prominent African American lawyer, was seen by many as a move to mitigate some of that tension. But this is a fight that will open old wounds and has huge implications for the rest of the US. |
| Randye Soref, an attorney and bankruptcy specialist at law firm Polsinelli, said the bankruptcy would have a major influence other cities in financial trouble and investors. "We've seen in other smaller bankruptcies that these filings have been used as a sword to rewrite pensions and rework collective bargaining agreements," she said. But no other municipal bankruptcy approaches the size of Detroit's and this case will be closely scrutinized, she said. If the bond holders are badly burned, "folks will be very leery of investing in other cities," she warned. | Randye Soref, an attorney and bankruptcy specialist at law firm Polsinelli, said the bankruptcy would have a major influence other cities in financial trouble and investors. "We've seen in other smaller bankruptcies that these filings have been used as a sword to rewrite pensions and rework collective bargaining agreements," she said. But no other municipal bankruptcy approaches the size of Detroit's and this case will be closely scrutinized, she said. If the bond holders are badly burned, "folks will be very leery of investing in other cities," she warned. |
| So far the White House has only said it is watching the situation. But the chances of a federal bailout like the ones that saved Detroit's car firms seem slim. It might be good for the bondholders and pensioners but it would send the wrong message to other cities, said Soref, and "absolutely impossible" given Republican opposition. For now it seems certain that Detroit, its workers and investors will be slugging it out in court. | So far the White House has only said it is watching the situation. But the chances of a federal bailout like the ones that saved Detroit's car firms seem slim. It might be good for the bondholders and pensioners but it would send the wrong message to other cities, said Soref, and "absolutely impossible" given Republican opposition. For now it seems certain that Detroit, its workers and investors will be slugging it out in court. |
| In recent years, though, not all the news from Detroit has been bad. The bailout of the auto industry was a success, and the car firms are back in business. There are glimpses of a new Detroit to be seen in the city's still crumbling center. At the bottom of Woodward Avenue, the city's sweeping downtown artery, new arrivals fight for loft spaces in a pocket of urban renewal that has been overseen by Dan Gilbert, Detroit native and billionaire founder of the Quicken Loans mortgage empire. | In recent years, though, not all the news from Detroit has been bad. The bailout of the auto industry was a success, and the car firms are back in business. There are glimpses of a new Detroit to be seen in the city's still crumbling center. At the bottom of Woodward Avenue, the city's sweeping downtown artery, new arrivals fight for loft spaces in a pocket of urban renewal that has been overseen by Dan Gilbert, Detroit native and billionaire founder of the Quicken Loans mortgage empire. |
| Private enterprise has snapped up iconic Detroit real estate and businesses are moving downtown. With them have come new restaurants and bars, an ice rink and an ambitious plan to rebuild Detroit from its heart. Chrysler has moved offices back into the city, Twitter has taken space, Microsoft's Steve Ballmer recently toured the city. | Private enterprise has snapped up iconic Detroit real estate and businesses are moving downtown. With them have come new restaurants and bars, an ice rink and an ambitious plan to rebuild Detroit from its heart. Chrysler has moved offices back into the city, Twitter has taken space, Microsoft's Steve Ballmer recently toured the city. |
| Gilbert told the Guardian he hoped the bankruptcy would prove "a first step toward a better and brighter tomorrow for our city." | Gilbert told the Guardian he hoped the bankruptcy would prove "a first step toward a better and brighter tomorrow for our city." |
| "The financial condition the city finds itself in is years, if not decades, in the making. Bankruptcy will be painful for many individuals and organizations but together we will get through it and come out stronger on the other side. We simply do not have a choice," he said. | "The financial condition the city finds itself in is years, if not decades, in the making. Bankruptcy will be painful for many individuals and organizations but together we will get through it and come out stronger on the other side. We simply do not have a choice," he said. |
| "It's important that we ignore the noise that this filing will surely bring. Many forecasted the end for GM and Chrysler when they declared bankruptcy just a short few years ago. Today, GM and Chrysler are thriving," said Gilbert. "Detroit's best days are ahead." | "It's important that we ignore the noise that this filing will surely bring. Many forecasted the end for GM and Chrysler when they declared bankruptcy just a short few years ago. Today, GM and Chrysler are thriving," said Gilbert. "Detroit's best days are ahead." |
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