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What Led to the Largest Municipal Bankruptcy Filing in U.S. History What Led to the Largest Municipal Bankruptcy Filing in U.S. History

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Politics

What Led to the Largest Municipal Bankruptcy Filing in U.S. History

The governor of Michigan offers some blunt reasons for why Detroit had to file for bankruptcy.

Aerial photo of the city of Detroit, July 17, 2013.(AP Photo/Paul Sancya)

July 18, 2013

The city of Detroit on Thursday became the largest municipality in U.S. history to file for bankruptcy, the latest in a long downward slide for the city. The New York Times provides some historical context:

Founded more than 300 years ago, the city expanded at a stunning rate in the first half of the 20th century with the arrival of the automobile industry, and then shrank away in recent decades at a similarly remarkable pace. A city of 1.8 million in 1950, it is now home to 700,000 people, as well as to tens of thousands of abandoned buildings, vacant lots and unlit streets.

Going forward with such a large bankruptcy was a huge decision—one that Michigan Gov. Rick Snyder (R) had to approve. In his letter authorizing the filing, Snyder acknowledged the historical weight of the decision:

 

"I know many will see this as a low point in the City's history," he wrote. "If so, I think it will also be the foundation of the City's future."

In the letter, part of the bankruptcy filing posted by the Detroit Free Press, Snyder explained that the city is incapable of providing for its citizens, making it impossible to meet its obligations to its creditors. Here are the reasons he gave for why the city can't meet its obligations to its citizens:

  • The unemployment rate has nearly tripled since 2000 and, at 16 percent for the metropolitan area in April, is more than twice the national average.

  • The homicide rate is at a 40-year high, earning Detroit a reputation as one of the nation's most dangerous cities for more than 20 years.

  • The average wait time for a response to a police call is 58 minutes, compared to the national average of 11 minutes.

  • Just 8.7 percent of cases are solved, compared to 30.5 percent nationwide.

  • Detroit's police cars, fire trucks and ambulances are very old.

  • Two out of every five street lights are broken.

  • 78,000 structures in the city are abandoned.

For all those reasons, he wrote, the city can't afford to pay more than $18 billion in obligations. Taxes are at their legal limits and raising them would do little good, he wrote. The population is 28 percent smaller today than it was in 2000. Residents wouldn't be able to afford a further tax hike and it would drive even more away.

"Detroit simply cannot raise enough revenue to meet its current obligations," Snyder wrote.

The surrealness of a city filing for bankruptcy is evident in the paperwork. The bankruptcy filing came on the same form one might use for a health care business going bust. So you get bizarre things like this:

And this:

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