Detroit is an economic basket case. More than 75,000 abandoned buildings mean the city’s income from property taxes has fallen by 40 percent in the last 13 years as residents flee to the suburbs.
With no money it can afford to run only a third of its ambulances and 40 percent of the street lights are burnt out.
It has been borrowing to keep going and so owes upwards of 18 billion dollars, perhaps as much as 20 billion
That left emergency manager Kevyn Orr , who was appointed to clear up the mess, with no option but bankruptcy.
He said: “I’d be happy to listen to any other plan someone can come up with, given the restraints we are working under. The reality is with 12 billion dollars in unsecured debt there is precious little we can do.”
That 12 billion dollars in unsecured debts means many investors will only get back a fraction of the money they lent to Detroit.
Last month the emergency manager offered them just 10 cents for every dollar they were owed.
He now has to sell off city assets to raise money for those creditors and pension liabilities, as well as other benefits and health coverage for city workers and ex-employees.
The mess will take a bankruptcy court years to sort out, and has investors worried that this could happen to other big US cities.
Detroit has tens of thousands of creditors and the city already faced a number of lawsuits before filing for bankruptcy and experts expect the court case could last years and cost tens of millions of dollars.
Orr acknowledged that the court battle could be protracted and difficult, saying that straight off the bat the city will “have an eligibility fight, I suspect” over his right to file for bankruptcy.
News of Detroit’s bankruptcy, meanwhile, sent prices tumbling across the $3.7 trillion municipal bond market, which has been on a weak footing for weeks thanks to uncertainty about the future of the US Federal Reserve’s massive stimulus programme.
The interest rate on top-rated, 30-year general obligation bonds rose to near 4.1 percent, their highest in a month, according to Municipal Market Data.