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Home > Economics, News > How Did Detroit Go Bankrupt? And Who Will it Hurt?

How Did Detroit Go Bankrupt? And Who Will it Hurt?

Detroit circa 1973.

Matt Yglesias at Slate breaks down the (less) big city’s bankruptcy:

The basic reason Detroit needs to do this is pretty simple. In 1950 there were 1.85 million people in Detroit. In 1970, it was 1.5 million. In 1990, it was a million flat. By 2010, it was down to 710,000. When your city is shrinking like that, you end up with a tax base that’s inadequate to maintain the fixed infrastructure or to pay off pension costs that were incurred in more prosperous times.

Governing.com has an interactive map in the link showing all municipalities that filed for Chapter 9 bankruptcy protection since 2010, along with local governments that voted to approve a bankruptcy filing:   http://www.governing.com/gov-data/municipal-cities-counties-bankruptcies-and-defaults.html

WaPo reports the progress on the bankruptcy filings:

The filing begins a one- to three-month process to determine whether the city is eligible for Chapter 9 protection and who may compete for the limited settlement money that Detroit has to offer. But it could be years before the city emerges from bankruptcy.

Also from WaPo, the impact on Detroit’s citizens:

Who gets hurt most?

Detroit is about $18 billion in debt, and will only be able to pay out a fraction of that in the short term. The two main groups of creditors arguing they’re entitled to that money are public employees and retirees, and bond holders. The investors are likely to make out better, since more of that debt is secured; the city will continue to pay water and sewer bondholders. Most of the pension debt has no similar backstop.

City residents will likely suffer a lack of anything other than the most rudimentary public services for a long time, but the impact is likely to be felt most keenly by those who lost a large chunk of the retirement they were counting on.

Tl;dr The cultural relevance and economic output of Detroit are both underwater and will continue to die. None of the journalists have the balls to say so, but I bet some of them are thinking, “Maybe we should let it die.”

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