DETROIT– Detroit filed the largest-ever municipal bankruptcy in U.S. history on Thursday, marking a new low for a city that was the cradle of the U.S. automotive industry and setting the stage for a costly court battle with creditors.
In a letter accompanying the filing, Michigan's Governor Rick Snyder said he had approved a request from Detroit Emergency Manager Kevyn Orr to file for Chapter 9 bankruptcy protection noting, "Detroit simply cannot raise enough revenue to meet its current obligations, and that is a situation that is only projected to get worse absent a bankruptcy filing."
Snyder, a Republican, named Orr in March to tackle the city's spiraling long-term debt, which is estimated at $18.5 billion.
Detroit was once synonymous with U.S. manufacturing prowess. Its automotive giants switched production to planes, tanks and munitions during World War Two, earning the city the nickname of the "Arsenal of Democracy."
Now the city's name has become synonymous with decline, decay and crime. Detroit has seen its population fall to 700,000 from a peak of 1.8 million people in 1950. The city's government has been beset by corruption cases over the years. Waning investment in street lights and emergency services has left it struggling to police the streets.
The city's murder rate is at its highest in nearly 40 years; only a third of its ambulances were in service in the first quarter of 2013; and its nearly 78,000 abandoned buildings create "additional public safety problems and reduces the quality of life in the city," the governor noted in his letter.
In June, Orr presented a proposal to creditors offering them pennies on the dollar. His plan had met with resistance from some creditors, most notably Detroit's two pension funds representing retired city workers. The funds recently filed lawsuits in a state court challenging the governor's ability to authorize Orr to file for bankruptcy.
Creditors are expected to mount a stiff challenge to the bankruptcy, which was filed in the U.S. Bankruptcy Court in the Eastern District of Michigan.
Douglas Bernstein, a bankruptcy attorney at Plunkett Cooney in the Detroit suburb of Bloomfield Hills, said he expected the case would last one-to-three years and would be very costly.
"This could run to tens-of-millions to hundreds-of-millions of dollars," he said.