Detroit’s Debt: How a Major City Goes Bankrupt

Anna Williams
Posted

detroit bankruptIn a desperate move to remedy the city’s dire finances, the city of Detroit filed for bankruptcy on Thursday, becoming the largest municipality in U.S. history to do so.

The cash-strapped city has barely held on for the past two years, and is currently struggling under more than $18 billion of debt.

Municipal bankruptcies are, of course, considerably rare. Since the 1950s, a little over 60 cities, towns, villages, and countries have done so, and in those cases, the magnitude of debt lagged far behind what Detroit currently faces.

The Decline of Detroit

Detroit’s decision to file for Chapter 9 was a long time coming.

In its heyday, Detroit was a booming American metropolis, boasting the fourth-highest population in the country and a thriving automobile industry.

But over the past half-century, those fortunes have largely slipped away.

As automobile factories skidded to a halt, a large mass of the population fled with the business. Since the 1950, the population has plunged 63%.

At the same time, the city has battled some of the highest unemployment rates in the country—almost 30% in July 2009—and a rate of violent crime that’s the highest of any large U.S. city.

As tax revenues shrank with the population, city services were slashed. Today, 40% of the street lights have gone dark, and there are widespread complaints of dismal response times from emergency services. It now takes nearly an hour for a response from police, compared to a national average of 11 minutes.

The city, which barely 700,000 people currently call home, is now pockmarked with boarded-up buildings, vacant lots and abandoned streets.

RELATED: Foreclosures and Short Sales: What You Need to Know