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June 15th, 2013 
Peter Nolan 
The US city of Detroit threatens to become the largest-ever US municipal bankruptcy.
Source: AAP
THE troubled US city of Detroit has defaulted on its debt payments as it threatened to become the country’s largest-ever municipal bankruptcy.
With the Motor City struggling to provide basic services to a shrinking population, its state-appointed emergency manager submitted a restructuring plan to holders of some $US18.5 billion ($A19.27 billion) in IOUs.
“Financial mismanagement, a shrinking population, a dwindling tax base and other factors over the past 45 years have brought Detroit to the brink of financial and operational ruin,” said Kevyn Orr, the bankruptcy expert appointed by Michigan’s governor to straighten out the city’s troubled finances.
“Detroit’s road to recovery begins today.”
The city imposed a moratorium on some debt payments effective on Friday in order to preserve the cash needed for essential services.
It said it will work with its creditors to restructure its debts in order to “return Detroit to a sustainable financial foundation and to permit much-needed reinvestment in the city”.
“My team and I hope Detroit’s creditors and constituents recognise that compromise and shared sacrifice are required for a better, more sustainable future for Detroit and its citizens,” Orr said in a statement.
If creditors do not accept the plan, Detroit could be forced into what would be by far the largest ever bankruptcy by a US city.
Orr told reporters there is a “50-50” chance that Detroit will declare bankruptcy and that a decision should happen in the next 30 days.
The restructuring proposal addresses how it will meet its obligations on about $US7 billion in secured debt and $US11.5 billion in unsecured borrowings.
Unsecured creditors, including pension plans for city retirees, could end up with a fraction of what they are owed under the proposal.
In the report, Orr described city conditions that would worsen if a deal on the debt cannot be reached.
It said that due to police cutbacks Detroit’s crime rate became the worst among large cities in the country in 2012, five times the US average.
Some 40 per cent of street lights do not function, and the police department is “dysfunctional” – strained by cutbacks and having gone through five different chiefs in five years.
The report said the city has 78,000 abandoned and blighted buildings, “nearly half of which are considered dangerous”.
Fewer than half of Detroit’s ambulances were functioning at any time during the first quarter of this year, fire department vehicles are in bad shape and the city’s income tax systems are in “catastrophic” state.
Once the fourth largest city in the United States, Detroit has seen its population shrink by more than half, from 1.8 million people in 1950 to 685,000 today, as crime, flight to the suburbs and the hollowing out of the auto industry ate away at its foundations.
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