Is Detroit Headed For Bankruptcy?

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Orr may choose to go before a bankruptcy judge “when he gets his back against the wall and he can’t meet payroll and he has to have court protection,” McTevia told The Associated Press on Monday.

“He can default on payments to pension funds. He will try to sit down and negotiate with the pension funds: ‘We can do this out of court or we can do this in court.’ The same thing with bond holders. It will take years for Detroit to ever pay its bonds, and they need to be negotiated,” McTevia said.

The bulk of the city’s revenue comes from property and business taxes. But Detroit’s population dropped by 250,000 between 2000 and 2010. And outside of downtown and a few other areas, business growth virtually is nil.

“He certainly cannot, nor should he, borrow any money to keep the company afloat,” McTevia said. “My gut feeling is that taxes are going to have to be raised at some time,” possibly a temporary surcharge on businesses to keep the city afloat.

A Chapter 9 bankruptcy filing would also come with even more spending cuts for the city, according to Wayne State Law School professor Peter Henning.

“Services never improve after a bankruptcy,” Henning said. “I read through Orr’s report. The emphasis is really on the cost-cutting and the restructuring. Rarely does that improve services in the short run. In the short run, city services are going to suffer.”

If a decision is made on pursuing bankruptcy, it could come in three to six months, Henning added.

“We’ve identified the problems,” he said. “How do we solve this and is bankruptcy an option. (Orr’s) a bankruptcy lawyer. What do bankruptcy lawyers do?”

(Photo: AP)

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