Detroit Goes Bankrupt

Detroit Goes Under

Detroit has been drowning in a sea of financial woes for a while now, and today the city has officially gone bankrupt. Today a federal judge declared that the “once proud and prosperous city” of Detroit “can’t pay its debts.” A majority of the city’s debt is owed to its public workers and retirees.

The bankruptcy will allow Detroit to reduce public pensions, a move that could cripple the already limping economy of one America’s historic cities. The precedent set has shocked municipal workers all over America, who fear that the same could happen to them if their city were to follow suit.

Federal Judge Stephen Rhodes ruled that bankruptcy may be the only way out for Detroit, a once prosperous and bustling city, to pay off an estimated $18 billion in debt.¬†Observers say that the restructuring of Detroit’s flailing financial system could bring more pain to its residents.

Detroit city residents like David Allen, a former city firefighter of 20 years, will see his disability benefits slashed as a part of the bankruptcy plan. A burning building that collapsed on him during a rescue mission left him disabled, forcing him into physical therapy for the foreseeable future. Allen receives about $3,200 a month from Detroit – an amount that could be significantly reduced if all goes according to the federal judge’s plans.

“I’m getting better with the therapy,” said Allen “…but if they cut my benefits like they’re talking about doing… then I won’t be able to afford it.” A financial consultant for Detroit stated pensioners may suffer an 84 percent cut- 16 cents on the dollar- in benefits. For pensioners like Allen, he will see his $3,200 disability pay whittled down to a mere $400 a month, a wage which is practically unlivable in most areas.

While this dramatic snag on Detroit’s citizen pensions may seem like the worst of it, other city necessities, such as public services, will see huge disruptions to an already distressed system. The response time for the already short-staffed police of Detroit is a staggering 58 minutes on average; the national average is less than 12 minutes. Observers say that the cuts in public services and layoff of essential city workers will only worsen the situation.

According to reports, one third of Detroit’s 36 ambulances are not working, and almost half of the city’s street lamps are broken.¬†Kevin Orr, Detroit’s emergency manager, is tasked with conjuring up a solution to the financial woes and revive the once thriving city.¬†“We’re going to try to do this in a very measured and thoughtful way, but it has to be done,” said Orr.

While prospects for the city are dim, Judge Rhodes took the moment to say Detroit’s managers and citizen now have an opportunity to start anew.

According to the Huffington Post, Detroit officially negotiated in good faith with its creditors before filing for bankruptcy, making its contracts with private entities protected and secure in the long run. No such deal was made with union leaders and other public sector advocates, a reason why public sector employees are bearing the brunt of Detroit going bankrupt.

By John Amaruso

CBS News
Deseret News