Gov. Rick Snyder approved plans for the city of Detroit to file for Chapter 9 bankruptcy on Thursday, calling it the "only reasonable alternative" for the cash-strapped city to survive.
In a letter addressed to Detroit's emergency manager, Kevyn Orr, and Michigan Treasurer Andy Dillon, Snyder argued that the bankruptcy -- the largest ever for an American city -- was an ultimately inevitable "last resort."
Just last January, however, Snyder told The Huffington Post in an interview that he felt Chapter 9 municipal bankruptcy was not efficient enough to address Detroit's issues in a timely fashion. "The track record, so far, has been pretty dismal," he said. "And the associating stigma of what it does, trying to get people to go there in the interim, is even worse."
But Thursday, Snyder cited dismal city services, like low crime clearance rates and long police response times, to explain why he had changed his mind.
"We have a great city," he said during a press call Thursday evening, "but a city that's been going downhill for the last 60 years."
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Detroit currently has a structural deficit of more than $18 billion, and has come close to running out of cash multiple times over the past 24 months. Legacy costs paid to pensions and health care and debt obligations currently account for 38 cents of every dollar that Detroit takes in. By 2017, Gov. Snyder argued, that number could rise to 65 cents of every dollar.
Emergency manager Kevyn Orr was appointed by Gov. Snyder to create a restructuring plan that could bring the destitute city back to financial stability. But Orr's background as a bankruptcy attorney with the Jones Day law firm let many to speculate that he would recommend the city file Chapter 9 bankruptcy, the bankruptcy law for struggling municipalities and cities. Snyder said Orr requested that he approve a bankruptcy filing for the city Tuesday evening. Orr says he hopes to move the city through bankruptcy proceedings by early fall 2014, between 12 and 14 months from today's filing.
On Wednesday, both of Detroit's pension funds sued the governor and Orr, hoping to block drastic cuts to pensions benefits. The lawsuit argues that those benefits are protected under Michigan's constitution, but Snyder has indicated he believes a federal ruling in bankruptcy court would overrule this stipulation. Snyder told reporters that Wednesday's lawsuit hastened Detroit's bankruptcy filing by mere days, but did not influence his overall decision.
Thursday's filing in federal court also won't guarantee bankruptcy proceedings. A federal judge will now have one to three months to determine whether Detroit is eligible for Chapter 9 protection. If so, that judge will decide which creditors and unions will be able compete in court for pennies of the city's few remaining dollars.
It's possible that masterpieces from the Detroit Institute of Arts' collection, buildings or even classic cars owned by the Detroit Historical Society could all be sold to help pay off the city's creditors, although, so far, officials have denied plans to auction off Detroit's prize assets.
Snyder also blasted decades of Detroit leadership in the letter, arguing that government "cannot meet the basic obligations of its citizens."
"This decision comes in the wake of 60 years of decline for the City, a period in which reality was often ignored," he wrote.
While the city has declined, services to citizens have deteriorated to a point that Snyder declared unacceptable. The city's clearance for solving crimes hovers around 8%. Almost half of the streets are dark at night, due to an outdated and unmaintained streetlight system. It can take more than an hour for police officers or ambulances to come. Almost 80,000 abandoned structures drive down property values and are targets for scrappers, vandalism and arson. Despite pockets of growth, new residents and adventurous entrepreneurs, the majority of the city has suffered steady disinvestment to a level that would surprise most residents of any other American city.
"Many people may say this is a low point in Detroit's history -- but without this action, Detroit will only going to continue to go downhill," Snyder claimed.
But he emphasized that tomorrow would be business as usual in the Motor City -- whatever passes for ordinary, that is, in a city where residents cannot confidently depend on local governance, public safety, working ambulances or even streetlights in their daily lives.
"Enough is enough with the downward spiral in Detroit," Snyder declared. "Let's move forward and upward."