Detroit's Financial Crisis
A City in Turmoil
The city that once stood strong has dramatically declined, leaving many uncertain as to what lies ahead for the Motor City. During the 20th century, Detroit grew rapidly due to the arrival of the automobile industry, but then declined almost as fast it grew in recent decades. The city went from 1.8 million to nearly 700,000 people (US Census Bureau, 2013).
The U.S. Bureau of Labor Statistics reports that as of 2013 the current unemployment rate is 17.7% in Detroit. The state of Michigan has a 9% unemployment rate, making the city of Detroit's unemployment rate twice that of the entire state (US Census Bureau, 2013). State officials presented their case in front of U.S. Bankruptcy judge, Steven Rhodes, to argue that Detroit’s creditors, representative city workers, and municipal retirees should receive less wages and benefits so that the city could gain more money to come out of its financial crisis. Later judge Rhodes ruled in favor of state official's motion.
About Detroit
Bankruptcy experts and city leaders worried about the reputation and future effects on the city stemming from the filing. City leaders knew that bankruptcy would lead to benefit cuts for city workers and retirees. Also, they anticipated it would cause reductions in services for residents. It is difficult to imagine that such a large city can survive this brutal crisis. I am especially concerned for those residents who are retirees on fixed incomes, such as my father.
Business leaders, who have witnessed a rise in private investment downtown, despite the city’s struggles, argued that bankruptcy appeared to be the only choice they had in such a financial hardship. Sandy K. Baruah, president of the Detroit Regional Chamber, said in a statement: “the worst thing we can do is ignore a problem. We’re finally executing a fix.”
The decision to go to court was a sign of a breakdown after weeks of tense negotiations, in which Mr. Orr had been trying to persuade creditors to accept pennies on the dollar and unions to accept cuts in benefits.
Since the mid-1950s, there has been a little over 60 cities, towns, villages and countries who have filed under Chapter 9 (Bomey et al., 2013). White House spokeswoman Amy Brundage said in a statement, “While leaders on the ground in Michigan and the city’s creditors understand that they must find a solution to Detroit’s serious financial challenge, we remain committed to continuing our strong partnership with Detroit as it works to recover and revitalize and maintain its status as one of America’s great cities.” She affirmed that President Obama, along with his senior team, were keeping a close eye on the city’s financial crisis.