Long-Suffering Detroit Finally Turns to Bankruptcy

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In recent months, the city has relied on state-backed bond money to meet payroll for its 10,000 employees.

Orr made the filing in federal bankruptcy court under Chapter 9, the bankruptcy system for cities and counties.

He was unable to persuade a host of creditors, unions and pension boards to take pennies on the dollar to help with the city’s massive financial restructuring. If the bankruptcy filing is approved, city assets could be liquidated to satisfy demands for payment.

Orr said Thursday that he “bent over backward” to work with creditors, rejecting criticism that he was too rigid. “Anybody who takes that position just hasn’t been listening.”

The bankruptcy could last through summer or fall 2014, which coincides with the end of Orr’s 18-month appointment, he said.

Gov. Rick Snyder, who called bankruptcy the “one feasible path,” determined earlier this year that Detroit was in a financial emergency and without a plan for improvement. He made it the largest U.S. city to fall under state oversight when a state loan board hired Orr.

Creditors and public servants “deserve to know what promises the city can and will keep,” Snyder wrote in a letter that was part of the filing. “The only way to do those things is to radically restructure the city and allow it to reinvent itself without the burden of impossible obligations.”

A turnaround specialist, Orr represented automaker Chrysler LLC during its successful restructuring. He issued a warning early on in his tenure in Detroit that bankruptcy was a road he preferred to avoid.

Some city workers and retirement systems filed lawsuits to prevent Snyder from approving Orr’s bankruptcy request, said Detroit-area turnaround specialist James McTevia.

They have argued that bankruptcy could change pension and retiree benefits, which are guaranteed under state law.

Others are concerned that a bankrupt Detroit will cause businesses large and small to reconsider their operations in the city. But General Motors does not anticipate any impact to its daily operations, the automaker said Thursday in a statement.

Detroit has more than double the population of the Northern California community of Stockton, Calif., which until Detroit had been the largest U.S. city ever to file for bankruptcy when it did so in June 2012.

Before Detroit, the largest municipal bankruptcy filing had involved Jefferson County, Ala., which was more than $4 billion in debt when it filed in 2011. Another recent city to have filed for bankruptcy was San Bernardino, Calif., which took that route in August 2012 after learning it had a $46 million deficit.

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