Detroit files for bankruptcy
It’s official: Detroit has filed for bankruptcy.
Michigan Gov. Rick Snyder authorized Kevyn Orr, Detroit’s emergency financial manager, to file for Chapter 9 municipal bankruptcy Thursday on behalf of the city. It will be the largest municipal bankruptcy case in history.
But first, the city will have to clear several legal hurdles. The city’s police and firefighters have sought a restraining order against the bankruptcy on the grounds that the state constitution prohibits government agencies from defaulting on their pension obligations to public employees.
A ruling in bankruptcy court could supersede the law, however.
James Hohman, a fiscal analyst at the Mackinac Center for Public Policy, expects the courts will eventually do the right thing and let Detroit enter bankruptcy.
“The best thing that can happen to Detroit is to enter federal bankruptcy,” he said in an interview with The Daily Caller News Foundation.
The situation is years in the making, according to Snyder, who cited the city’s massive pension costs as the main cause of bankruptcy.
“From a financial point of view, let me be blunt: Detroit is broke,” he said in a statement. “It’s been spending 38 cents on the dollar toward legacy costs.”
Hohman said the city’s current predicament stems from decades of mismanagement.
“The city has problems with its accounting systems [and] its management policies. Morale at the police department is low. The city is burning down and they are not adequately responding,” he said.
If Detroit’s bankruptcy is approved, the emergency financial manager will be able to implement his recovery plan, which includes steep spending cuts and the slashing of pension funds of city employees. The plan was previously rejected by creditors, some of whom preferred smaller cuts coupled with the sale of city assets, such as the Detroit Institute of Arts and Belle Isle, an island park.
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