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1 Mar, 2013 20:03

Detroit plunges into financial emergency

Detroit plunges into financial emergency

The governor of Michigan signaled the beginning of the end for the city of Detroit on Friday, setting up the groundwork for what could become the largest municipal bankruptcy in the history of the United States.

Gov. Rick Snyder, a Republican, told reporters Friday morning that "There's probably no city that's more financially challenged in the entire United States” than Detroit. The governor declared the crisis a financial emergency and started to pave the way for an emergency manager to intervene and take control of the city’s ledger.

“Detroit can no longer afford to wait for a new way forward,” read a brochure handed out to audience members during Friday’s announcement. “An Emergency Financial Manager can more quickly and efficiently reform the finances in the city and stop the cycle of overspending and one-time fixes.”

Even with a bankruptcy filing a longtime looming, the city of Detroit has tried relentlessly in recent years to pick itself up out of the red and find a way to reverse a downward spiral that has seemed to only intensify amid growing cases of other local economies crumbling across the United States. Such attempts have been futile, though, with seemingly no solution existing for the city’s woes: an earlier study determined the city faces a $327 million budget deficit and more than $14 billion in long-term debt and persistent cash flow problems. Then on Friday, the governor said, "I believe it's appropriate to declare the city of Detroit in financial emergency.”

Gov. Snyder made his remarks today only two weeks after a state-appointed review team conducted a study that concluded with the determination that "no satisfactory plan exists to resolve a serious financial problem." Now the city’s mayor, David Bing, has 10 days to respond. From there, reports the Associated Press, Snyder could either revoke his decision or appoint an emergency manager.

Doug Bernstein, a managing partner of the Banking, Bankruptcy and Creditors' Rights Practice Group for Michigan’s Plunkett Cooney law firm, tells the AP that filing for bankruptcy would be the next likely, but not necessarily guaranteed, step.

"Is it imminent? Well not tomorrow," he said. "You need to give a financial manager the opportunity to formulate a plan and let the plan have a chance to succeed or fail. It may not avoid a bankruptcy, but you don't need to do a bankruptcy today."

On his part, Mayor Bing issued a statement seeming to suggest he was open to doing whatever necessary to save the faltering city that was once America’s hub in regards to the booming automobile industry and rhythm-and-blues music.

"I think we have to learn to make the best out of a bad situation," the mayor told the AP. "The state and the city will have to work together to get us out of this."

In 2011, the capital city of Pennsylvania — Harrisburg — voted to file for bankruptcy after a failed garbage-to-energy conversation program put the town more than $300 million in debt. The nearby city of Scranton quite close to soon following, and by this past summer three cities in California were all forced to do the same.

Since 2000, the city of Detroit has lost roughly 25 percent of its entire population. The number of Detroit residents today is equivalent to half of the city’s population in the year 1950.