Abandoned Packard Automotive Plant in Detroit, Michigan. Photograph by Albert duce
Detroit has become the largest city in US history to file for bankruptcy protection with debts of more than £10 billion.
Detroit was once the centre of American industrial power, when it took the name “motor city”, but has recently become renowned for urban decline and degeneration with soaring crime rates. The population of the city has fallen by more than 50% since its peak in 1950 to 700,000, with tax receipts falling similarly quickly, and the mortgage crisis of 2008 has left the city with 70,000 vacant homes after bank foreclosures.
Unable to manage its debts, the city has filed for Chapter 9 bankruptcy protection against its creditors which include public sector workers and pensions schemes, although Mayor Dave Bing has vowed to keep public services running and to pay the wages of public sector staff.
Michigan Governor Rick Snyder said he approved the request for filing for bankruptcy and said in a letter accompanying the filling:
“Detroit simply cannot raise enough revenue to meet its current obligations, and that is a situation that is only projected to get worse absent a bankruptcy filing.”
Michigan state-appointed emergency manager Kevyn Orr had previously proposed a plan where the city would pay creditors 10 cents on the dollar, but two public sector pension funds resisted the plan, with the city then filling for bankrupcy days before a hearing could be held blocking such a plan. The filing now begins a 30 – 90 day period in which it will be determined whether Detroit is eligible for the bankruptcy protections and how claimants such as labour unions and otehr creditors can compete for the limited settlement resources of the city will be determined.
Chapter 9 bankruptcy protection in the US, is a federal law that allows for municipalities to renegotiate collective bargaining agreements such as pension and other benefit packages and can override state labour protection provisions.
