After years of trying to work its way out of its $18 Billion deficit, the appointment of an Emergency Operator, bailouts of the automobile industry. and pleas by the Republican Presidential Nominee to let Motown go bankrupt, as of this afternoon, the City of Detroit has declared bankruptcy.
Kevyn Orr, Emergency Operator for Motown, has tried to bargain with the cities creditors to reduce its $11 Billion unsecured liabilities by cutting healthcare benefits to city employees and cutting pensions. A bus tour for creditors was arranged so that they could see the city in which their dollars were invested, but the tour was cancelled, and the debts still loomed.
As I’ve said before, filing for bankruptcy is a business strategy: something that could be very good for the citizens of the City of Detroit. The people that will be hurt the most are all of the city employees. Only $10,000.00 of the employees’ plans will be treated as a priority claim. This means that every dollar of an employees’ pension will be treated as an unsecured, non-priority claim, which means that those employees could get pennies on the dollar, if anything at all, for the amount of their pension in excess of $10,000.00.
I wish the City of Detroit the best of luck. Reorganization in bankruptcy can do a lot of good for an underwater municipality. Hopefully an effective reorganization will spark the economic growth that the City needs.
For those interested, here is the bankruptcy petition of the City of Detroit.