MercoPress. South Atlantic News Agency

Motor City files for bankruptcy; city offers 10cents for every dollar of debt

Michigan State-appointed emergency manager Kevyn Orr at press conference

The US city of Detroit in Michigan, once renowned as ‘Motor City’ has become the largest American city ever to file for bankruptcy, with debts of at least 15bn dollars. State-appointed emergency manager Kevyn Orr asked a federal judge to place the city into bankruptcy protection.

If it is approved, he would be allowed to liquidate city assets to satisfy creditors and pensions. Detroit stopped unsecured-debt payments last month to keep the city running as Mr Orr negotiated with creditors.

He proposed a deal last month in which creditors would accept 10 cents for every dollar they were owed. But two pension funds representing retired city workers resisted the plan. Thursday's bankruptcy filing comes days ahead of a hearing that would have tried to stop the city from making such a move.

Mr Orr suggested at the time there was a 50-50 chance of the city needing to file for bankruptcy. He also said the city's long-term debt could be between 17bn and 20bn. Dollars.

At a press briefing on Thursday, Mr Orr said filing for bankruptcy was the “first step toward restoring the city”. Alongside him, Detroit Mayor Dave Bing said that residents had to make a new start.

“I really didn't want to go in this direction - but now that we are here, we have to make the best of it,” Mr Bing said.

The mayor also assured residents that the city would stay open and bills would be paid despite the filing. “Pay-checks for our city employees will continue, services will continue,” he said.

In a letter accompanying Thursday's filing, Michigan's Governor Rick Snyder, a Republican, said he had approved the request from Mr Orr to file for Chapter 9 bankruptcy.

“Only one feasible path offers a way out,” Gov Snyder said, adding that residents needed a clear exit from the “cycle of ever decreasing services”.

“The only way to do those things is to radically restructure the city and allow it to reinvent itself without the burden of impossible obligations.

“It is clear that the financial emergency in Detroit cannot be successfully addressed outside of such a filing, and it is the only reasonable alternative that is available”.

Meanwhile, the White House said it was closely monitoring developments in Detroit.

“While leaders on the ground in Michigan and the city's creditors understand that they must find a solution to Detroit's serious financial challenge, we remain committed to continuing our strong partnership with Detroit as it works to recover and revitalise and maintain its status as one of America's great cities,” said White House spokeswoman Amy Brundage.

Analysts say there are some concerns that businesses might ditch their operations in Detroit. But, in the wake of the filing, US car company General Motors said it did not expect any impact on its operations, and hoped it would mark a “clean start” for Detroit.

“GM is proud to call Detroit home and today's bankruptcy declaration is a day that we and others hoped would not come,” the company said.

The city, once renowned as a manufacturing powerhouse, has struggled with its finances for some time, driven by a number of factors, including a steep population loss.

The murder rate is at a 40-year high and only one third of the ambulances were in service in early 2013. Declining investment in street lights and emergency services has made it difficult to police the city. And Detroit's government has been hit by a string of corruption scandals over the years.

Between 2000 and 10 the number of residents declined by 250,000 as residents moved away.

Detroit is only the latest US city to file for bankruptcy in recent years. In 2012, three California cities - Stockton, Mammoth Lakes and San Bernardino - took the step. In 2011, Harrisburg, Pennsylvania tried to file for bankruptcy but the move was ruled illegal.