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Debt-ridden Detroit files for bankruptcy

Detroit entered uncharted waters after it became the largest American city to file for bankruptcy.

What happened Detroit entered uncharted waters this week after it became the largest American city to file for bankruptcy, sparking what is sure to be a long legal and political battle as government leaders try to slash the $18 billion the ravaged city owes to pension funds, unions, and creditors. “This is a difficult step, but the only viable option to address a problem that has been six decades in the making,” said Michigan Gov. Rick Snyder. The governor filed for Chapter 9 after Detroit’s state-appointed emergency manager, Kevyn Orr, failed to reach out-of-court settlements with unions, retirees, and a long list of lenders.

In an attempt to block cuts in the $9 billion owed to retired workers, city pension funds sued Snyder and Orr, claiming that the state constitution barred changes in promised benefits. A state appeals court this week put that legal challenge on hold, clearing the way for a federal judge to begin reviewing the city’s filing. Leaders of other financially troubled cities across the U.S. will watch the case closely. “If you end up with precedent that allowed the restructuring of retirement benefits in bankruptcy court, that will make it an attractive option for cities,” said bankruptcy lawyer Karol Denniston. “Detroit is going to be a huge test kitchen.”

What the editorials said The bankruptcy filing is “the can of consequences Detroit’s been kicking down the road for decades,” said The Detroit News. As the population steadily shrank from 1.8 million to 700,000, businesses fled, and the city’s tax base shriveled, officials “did nothing but bicker, deny, and avoid.” Remaining residents live in a place where, in a life-or-death emergency, “they may as well call a hearse as an ambulance”; where some 90 percent of murders go unsolved; and where entire neighborhoods are wastelands of abandoned buildings. Bankruptcy will bring yet more hardship, but “hopefully, the court will wipe away much of the accumulated debt, freeing money for restoring services.”

“If Detroit isn’t too big to fail, is any city?” said The Wall Street Journal. Many other municipalities, including Oakland, Philadelphia, and Chicago, have also dug themselves into deep holes by giving unions lavish benefits, and then making ends meet by borrowing, taxing, and slashing essential services. Detroit’s “bankruptcy shows the party is over, as it may soon be for other cities.”

What the columnists said Don’t blame unions, said David Sirota in Salon.com. Detroit was killed by globalization and corporate greed. Following the signing of the North American Free Trade Agreement, Michigan lost more jobs than any other state—43,600—as car manufacturers relocated factories to lower-cost Mexico. Another 80,000 jobs went to China. The Big Three automakers, meanwhile, made terrible business decisions, while getting tax breaks from desperate city officials. Detroit serves as a cautionary tale of what happens when large corporations are allowed to “dictate the economic future of an entire city.”

Actually, it was 51 years of continuous Democratic rule that did in Detroit, said Kevin Williamson in NationalReview.com. Knowing they were safe in power, the city’s liberal leaders grew fat on corruption while failing to provide their citizens with basic services, from good schools to safe streets. Fed up with dysfunction, huge numbers of Detroit’s citizens “packed up and left, taking their businesses, their innovation, and their tax dollars with them.” Public unions must also share in the blame, said John Stossel in RealClearPolitics.com. They refused to let the city trim its bloated workforce, which has twice as many municipal employees per capita as comparable cities. Detroit’s water and sewer department still employs a “horseshoer,” even though it keeps no horses.

You’re ignoring the race factor, said Jonathan Chait in NYMag.com. Following the 1967 race riots, vast numbers of white Detroiters fled the city and moved to the suburbs. That left Detroit with mostly very poor black people “who can’t afford to pay much tax and who require high levels of government services.” Today, Motown “teeters close to anarchy,” and “it’s hard to imagine any plausible way to pull the city out of its death spiral.”

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