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Detroit files for bankruptcy

By Corey Williams & Ed White

Associated Press

LAST UPDATED: 05:17 p.m. HST, Jul 18, 2013

DETROIT » Once the very symbol of American industrial might, Detroit became the biggest U.S. city to file for bankruptcy today, its finances ravaged and its neighborhoods hollowed out by a long, slow decline in population and auto manufacturing.

The filing, which had been feared for months, put the city on an uncertain path that could mean laying off municipal employees, selling off assets, raising fees and scaling back basic services such as trash collection and snow plowing, which have already been slashed.

"Only one feasible path offers a way out," Gov. Rick Snyder said in a letter approving the move.

Kevin Orr, a bankruptcy expert hired by the state in March to stop Detroit's fiscal free-fall made the Chapter 9 filing today in federal bankruptcy court.

Detroit lost a quarter-million residents between 2000 and 2010. A population that in the 1950s reached 1.8 million now struggles to stay above 700,000. Much of the middle-class and scores of businesses also have fled Detroit, taking their tax dollars with them.

In recent months, the city has relied on state-backed bond money to meet payroll for its 10,000 employees.

Orr was unable to convince a host of creditors, unions 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.

Snyder determined earlier this year that Detroit was in a financial emergency and without a plan for improvement. He made it the largest U.S. city to fall under state oversight when a state loan board hired Orr. His letter was attached to Orr's bankruptcy filing.

"The citizens of Detroit need and deserve a clear road out of the cycle of ever-decreasing services," Snyder wrote. "The city's creditors, as well as its many dedicated public servants, deserve to know what promises the city can and will keep. The only way to do those things is to radically restructure the city and allow it to reinvent itself without the burden of impossible obligations."

A turnaround specialist, Orr represented automaker Chrysler LLC during its successful restructuring. He issued a warning early on in his 18-month tenure in Detroit that bankruptcy was a road Detroit and its creditors preferred to avoid.

He laid out his plans in June meetings with debt holders, in which his team warned there was a 50-50 chance of a bankruptcy filing. Some creditors were asked to take about 10 cents on the dollar of what the city owed them. Underfunded pension claims would have received less than the 10 cents on the dollar under that plan.

Orr's team of financial experts said that proposal was Detroit's one shot to permanently fix its fiscal problems. The team said Detroit was defaulting on about $2.5 billion in unsecured debt to "conserve cash" for police, fire and other services.

"Despite Mr. Orr's best efforts, he has been unable to reach a restructuring plan with the city's creditors," the governor wrote. "I therefore agree that the only feasible path to a stable and solid Detroit is to file for bankruptcy protection."

Detroit's budget deficit is believed to be more than $380 million. Orr has said long-term debt was more than $14 billion and could be between $17 billion and $20 billion.

Orr's decision to file now may have been influenced by lawsuits filed by some city workers and retirement systems to prevent Snyder from approving a bankruptcy request from the emergency manager, said Detroit-area turnaround specialist James McTevia.

They have argued that bankruptcy could change pension and retiree benefits, which are guaranteed under state law.

Orr has said federal bankruptcy laws trump state law in this matter.

A bankruptcy judge will stay all the litigation, McTevia said.

"One court will adjudicate all these," McTevia said.

Some are concerned that a bankrupt Detroit will cause businesses large and small to reconsider their operations in the city. But General Motors, which filed and emerged from a Chapter 11 bankruptcy, does not anticipate any impact to its daily operations, the automaker said today in a statement.

"GM is proud to call Detroit home and today's bankruptcy declaration is a day that we and others hoped would not come," the statement said. "We believe, however, that today also can mark a clean start for the city.

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Hapa_Haole_Boy wrote:
Sometimes bankruptcy is the best medicine, because it flushes out the toxicity and gets the entity back on track. Had Barry not bailed out the Big 3 Automakers, it begs the question if this necessary transition by Detroit would've happened sooner-- and wouldn't have costed taxpayers billions in ultimately futile bailout money.
on July 18,2013 | 10:38AM
allie wrote:
he saved American auto industry. You must be a Tea Party fanatic. Boy, Tea party folks hate America so much they have reallY HURT an America already in decline
on July 18,2013 | 10:58AM
honopic wrote:
Is there any topic you won't comment on, allie, especially when you have no idea what you're talking about? You are the poster child for America in decline. Sierra Tango Foxtrot Tango.
on July 18,2013 | 10:56PM
lee1957 wrote:
Barry only bailed out two of the big three, Ford didn't need Fed help.
on July 18,2013 | 11:16AM
palani wrote:
And Chrysler is now owned by Fiat, an Italian firm
on July 18,2013 | 02:19PM
mikethenovice wrote:
The Republicans want to bankrupt America so they can break the labor contract, and bust the unions. That's their protocol. That's why the GOP don't want to provide funding. Just let them "starve" attitude.
on July 18,2013 | 11:53AM
Hapa_Haole_Boy wrote:
"provide funding". you realize that's another way of saying "increase taxes", i.e. take from one set of people and give to another, right. Such a novice....
on July 18,2013 | 03:43PM
what wrote:
mikethenovice has no respect for the working man and woman. He thinks that anybody who goes to work and earns a respectable living should have most of their money confiscated by the government and redistributed as he sees fit.
on July 18,2013 | 06:31PM
ippikiokami wrote:
This is big/gigantic news, only released at the end of the stock market trading day. The experts forecast a major stock loss and gold up tomorrow. Detroit is only the first of more big US cities to go BK.
on July 18,2013 | 03:39PM
Hapa_Haole_Boy wrote:
I stand corrected-- it was in fact just 2 of the 3 automakers. Still, my point stands, as evinced by the support others are giving it. As for allie and her "he saved American auto industry". WHY, why was it necessary for Obuma to save these American manufacturers when the VERY REASON they needed "saving" was because they were (and are) less profitable and not able to compete with other manufacturers from Asia, Europe. Why? Because, as other posters point out, the unions have a grip on the automakers and have extracted an exorbitant, unsustainable, amount of expenses (retirement, healthcare, bennies) from the companies. So no don't exalt a move that the govt had no business making in the first place. Where was the bailout for other companies in other industries that have gone under during this past recession? For Circuit City, for Borders, for Aloha Airlines and for Columbia Inn? Why GM, Chrysler and not these companies? The workers work just as hard, they're taxpayers too. In the end, govt has NO BUSINESS MEDDLING IN BUSINESS, that was never its original purpose in this country nor should it ever be, and these bailouts are some of the most invidious of meddling.
on July 18,2013 | 03:54PM
false wrote:
Another great example of a democrat run / union heavy state...
on July 18,2013 | 10:38AM
mikethenovice wrote:
Glad your lies are not under oath.
on July 18,2013 | 11:38AM
SandBar wrote:
How corrupt are you. Detroit has had a Democrat mayor since the 70's. Not integrity at all.
on July 18,2013 | 05:10PM
IAmSane wrote:
Detroit isn't even a state... and the governor of Michigan is a Republican...
on July 18,2013 | 10:50PM
false wrote:
Hawaii without tourism...
on July 18,2013 | 10:41AM
allie wrote:
Detroit suffered from decades of massive corruption. Not sure Hawaii's incompetence and waste was ever that corrupt. Even the corrupt Waihee and his airport scandal were nickels and dimes compared to Detroit.
on July 18,2013 | 11:10AM
palani wrote:
I worked in Detroit for about 12 years. Tough city where my some of my fellow employees and their families directly suffered from robbery, rape, and even murder.

The winters there were cold and snowy, but probably considered temperate compared to your North Dakota, allie.

on July 18,2013 | 02:24PM
honopic wrote:
You know as littel about Detroit as you know about everything else. Zero. Zip. Nada. Squat. Sierra Tango Foxtrot Uniform.
on July 18,2013 | 10:58PM
cojef wrote:
Only 2 Big Automakers, as Ford refused any bailout fund from the Government and reported profit until this past year. Question remains if it can continue to do so. Sales figure for the 3 American automakers looked promising for the past months.
on July 18,2013 | 11:13AM
mikethenovice wrote:
The other two didn't need the help neither, but they just wanted a faster breakout.
on July 18,2013 | 11:39AM
LittleEarl_01 wrote:
Will Hawaii be next with our free spending legislators?
on July 18,2013 | 11:09AM
mikethenovice wrote:
No way. You can outsource building of cars. You can't outsource a sunny vacation.
on July 18,2013 | 11:41AM
false wrote:
"It is truly amazing to know that (1) man alone "saved" the auto industry, yet could not stop the IRS from targeting "certain" americans. crickets
on July 18,2013 | 11:12AM
false wrote:
Please don't let the facts ruin your rant...
on July 18,2013 | 11:13AM
mikethenovice wrote:
The CEOsand upper managment are to blame for Detroit's demise. They built cars on quantity, not quality. So we had to buy from the Asian's top quality control protocol for a trouble free vehicle. The little guy at the bottom suffered the most. So don't go and blame the unions.
on July 18,2013 | 11:37AM
mikethenovice wrote:
Toyota quality built in America is doing just fine.
on July 18,2013 | 11:51AM
HD36 wrote:
Detroit is ground zero for the economic collapse. A microcosm of the Federal Government which is currently the largest debtor nation in the history of the world. When you can't cut your spending and can't convince people to loan you more money, the result is forced austerity. The pizza man will come faster than the police in Detroit. They find people chopped up in dumpsters all over Detroit. The drug gangs are the police but they only protect their customers.
on July 18,2013 | 11:53AM
mikethenovice wrote:
The Republicans are not stupid.
on July 18,2013 | 11:54AM
AhiPoke wrote:
Anyone who thinks that this could never happen here may be in for a big surprise. It's already known that our state's employee retirement sysytem (ERS) is underfunded by more than $12B. In addition, and maybe even larger, is the unfunded retiree health care benefits. The problem is that both of these issues cannot be fixed as the public unions were shrewed enough to inbed these as "right" in our state's consitution. So, it's just a matter of time before we reach the point that there's no more money to pay. If the state tries to dramatically raise taxes, which is what it'll take, you see a mass exodus of those people who have the money, but not the willigness, to pay.
on July 18,2013 | 11:55AM
entrkn wrote:
This scenario is coming to Hawaii soon if government workers continue their clueless canibalistic course...
on July 18,2013 | 12:02PM
atilter wrote:
the relationship twix business and labor WITHOUT HONEST COMMUNICATION will only lead to distrust and ultimate economic ruination. once people begin to talk truth to each other, the nation's healing process will begin. until then, it's every person for themself - looking to the goverment for an entitlement handout. everyone's pointing fingers at each other, instead of looking in the mirror. both the problem and the solution can be found in the mirror.
on July 18,2013 | 01:06PM
loquaciousone wrote:
What happens if a government files bankruptcy under chapter 7 instead of 11? Do they just close city hall and fire everyone?
on July 18,2013 | 02:43PM
serious wrote:
Where is everybody coming from???? Detroit was a Union owned 100% Democratic city that, like so many other D cities, bowed to the Unions in their demands and couldn't meet the payrolls. Barry should not have bailed out the auto companies. Romney was right, they should have reorganized in bankruptcy. Another D move that involved the government in the private business where they don't belong. Just like Chris Dodd and Barney Frank on the mortgage problems.
on July 18,2013 | 02:52PM
SY808 wrote:
You all harp on Abercrombie for asking employees to take a 5% pay cut and for not bending over so the unions can have it their way... But if he didn't this is where Hawaii would be right now. Unfunded liabilities agreed to by previous administrations are decimating the state's pocketbook. At least we are back on the right track...
on July 18,2013 | 03:58PM
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