Once the very symbol of American industrial might, Detroit became the biggest U.S. city to file for bankruptcy Thursday, its finances ravaged and its neighborhoods hollowed out by a long, slow decline in population and auto manufacturing.
The filing, which had been feared for months, put the city on an uncertain course that could mean laying off municipal employees, selling off assets, raising fees and scaling back basic services such as trash collection and snow plowing, which already have been slashed.
“Only one feasible path offers a way out,” Gov. Rick Snyder said in a letter approving the move.
The filing marked a turning point for city and state leaders, who must now confront the challenge of rebuilding Detroit’s broken budget in as little as a year.
Kevyn Orr, a bankruptcy expert hired by the state in March to stop the city’s fiscal free-fall, said Detroit would continue paying its bills and employees.
But, said Michael Sweet, a bankruptcy attorney in Fox-Rothschild’s San Francisco office, “They don’t have to pay anyone they don’t want to. And no one can sue them.”
The city’s woes have piled up for generations. In the 1950s, its population grew to 1.8 million people, many of whom were lured by plentiful, well-paying auto jobs. Later that decade, Detroit began to decline as developers starting building suburbs that lured away workers and businesses.
Then beginning in the late 1960s, auto companies began opening plants in other cities. Property values and tax revenue fell, and police couldn’t control crime. In later years, the rise of autos imported from Japan started to cut the size of the U.S. auto industry.
By the time the auto industry melted down in 2009, only a few factories from GM and Chrysler were left. GM is the only one with headquarters in Detroit, though it has huge research and testing centers with thousands of jobs outside the city. Since it was restructured, the new, more-prosperous company has racked up big profits and added jobs in Detroit.
The result is a city where whole neighborhoods are practically deserted and basic services cut off in places. Looming over the crumbling landscape is a budget deficit believed to be more than $380 million and long-term debt that could be as much as $20 billion.
Detroit lost a quarter-million residents between 2000 and 2010. Today, the population struggles to stay above 700,000.
In recent months, the city has relied on state-backed bond money to meet payroll for its 10,000 employees.
“It’s an embarrassment, number one, to come to the realization that we’re actually in this situation,” said Kevin Frederick, an admissions representative for a local career-training school. “Not that we didn’t see it coming. I guess we have to take a couple of steps backward to move forward.”
Orr made the filing in federal bankruptcy court under Chapter 9, the bankruptcy system for cities and counties.