Detroit is broke; could bankruptcy lie ahead?

Published on NewsOK Modified: May 13, 2013 at 5:24 pm •  Published: May 13, 2013
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"I think we can avoid bankruptcy if people move forward in good faith," Orr said. "It's going to be hard. I don't expect anybody to say OK. I expect there to be some give and take. If we can't, we have to look at everything."

Snyder agreed that bankruptcy wasn't inevitable.

"There's a whole process you go through, and the process includes trying to work with people to not have that happen," the governor said.

City officials in Stockton, Calif., sought Chapter 9 bankruptcy protection after tentative agreements with some of the city's unions failed to provide enough financial relief. The community was still unable to pay its bills or make payroll, and City Manager Bob Deis said further cuts required court intervention.

"Bankruptcy is not a desirable option unless it's the absolute last option you have," Deis said. "Bankruptcy is not the disease. Bankruptcy is the chemotherapy for the disease."

Bankruptcy protection allowed Stockton to wipe out $8 million to $9 million in annual retiree health care costs and freeze $13 million in yearly debt payments for later renegotiation.

Orr may choose to go before a bankruptcy judge "when he gets his back against the wall and he can't meet payroll," McTevia said.

"He can default on payments to pension funds. He will try to sit down and negotiate with the pension funds: 'We can do this out of court or we can do this in court.' The same thing with bond holders. It will take years for Detroit to ever pay its bonds, and they need to be negotiated," McTevia said.

The bulk of the city's revenue comes from property and business taxes. But Detroit's population dropped by 250,000 between 2000 and 2010. And outside of downtown and a few other areas, business growth virtually is nil.

"My gut feeling is that taxes are going to have to be raised at some time," possibly a temporary surcharge on businesses to keep the city afloat, McTevia added.

A Chapter 9 bankruptcy filing would also mean even more spending cuts, according to Wayne State Law School professor Peter Henning.

Bing says his administration has cut about $350 million in wages and benefits. Dozens of jobs have been cut or left unfilled.

"Services never improve after a bankruptcy," Henning said. "I read through Orr's report. The emphasis is really on the cost-cutting and the restructuring. Rarely does that improve services in the short run. In the short run, city services are going to suffer."

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Associated Press Writer Tom Krisher in Warren, Mich., contributed to this report.