Detroit bankruptcy: Motor City runs out of fuel with debts of $20billion (2024)

Decline of DetroitView gallery

In its heyday, Detroit had grown to become the symbol of the American dream.

It boasted nearly two million people, the world’s largest car industry and in Motown produced music that transcended the country’s racial discord.

But today, after decades of decline, Motor City has finally run out of fuel. Detroit has officially been declared bankrupt.

In doing so it became the biggest city in US history to become broke, leaving its finances ravaged and its neighbourhoods left run by the country’s most violent criminals.

In total the Michigan city has debts as high as $20billion (£13billion) with a list of more than 100,000 creditors.

It includes the names of every one of the city’s employees, its retired staff and tens of thousands of local businesses.

Driving through the city the once well heeled suburbs, then home to America’s middle class, are now a haven for drug addicts and their dealers.

Some 78,000 houses have been abandoned, while 40% of all street lights don’t even work.

Little more than half of property owners have actually paid building tax in the last two years.

The mismanagement of Detroit by successive city administrations has led to accusations of widespread corruption.

The state of Michigan alone was required to pay the Motor City more than £131million while one prominent businessman is said to owe a similar amount.

However the city pushed through with a controversial consent agreement against the wishes of many residents which prevented the debts ever being collected.

As a result to attract businesses into the city owners were offered tax free incentives, with the bill being left to be picked up by the hard pressed dwindling population.

Community leader Edith Lee-Payne, who has lived in Detroit all her life, told the Mirror: “It the greatest public corruption in American history.

“It makes Watergate look like a joke. In Detroit there has been a wilful disregard of the constitution.

Corruption has seen this once thriving city left to rack and ruin.

“We have people in Detroit, who have given everything they have ever had to the city, now left in abject poverty through the greed of others.”

The 62-year-old added: “Growing up in Detroit there was a huge buzz around the place.

“It was America’s biggest city and prosperity was high. The sound of Motown was everywhere. All we have left now though is the memories.

Children are going hungry, crime is a huge problem and yet we have been left desolate by the very people elected to care for us.

“I just hope the truth comes out one day.”

Between 1910 and 1950, few cities grew faster, were wealthier, were more attractive to those seeking success than in Detroit.

In the 1950s, its population grew to two million people, lured by plentiful, well-paying auto jobs.

Berry Gordy Jnr founded the famous record label Motown - a hybrid of motor and town - in 1959 which went on to become the world’s greatest musical powerhouse.

With acts like Marvin Gaye, Diana Ross and the Supremes, The Jackson 5 and Stevie Wonder hit after hit made Detroit the epicentre of music.

Coupled with a thriving manufacturing industry workers arrived in their thousands wanting to be part of the Detroit scene.

Large swathes of housing were built to accommodate the surge in population and as a result Detroit made many millionaires.

But like many American cities, Detroit began to decline late that decade as developers starting building suburbs.

The city’s deterioration started in earnest after the 1967 race riots which were among the most violent in the country’s history.

The following years witnessed auto companies such as Ford, Chrysler, Cadillac and General Motors opening plants in other cities.

In later years, the rise of autos imported from Japan started to cut the size of the US auto industry.

The decline also saw Motown relocate to Los Angeles in 1972 taking with it it’s stable of talent.

As a result property values and tax revenue plummeted, and police couldn’t control crime.

A recent survey found four out of the top ten of America’s most violent neighbourhoods were all in Detroit.

In fact in Livernois Avenue, Helen Street and Gratiot Avenue, the city could embarrassingly boast the top three spots.

In 2011 it had the highest violent crime rate of any major US city, with 15,245 reported incidents.

In some areas the average police response time is almost an hour.

For those that are left the unemployment rate now stands at 18 per cent, more than twice America’s national rate.

The problem has been compounded by the decision to cut state benefit off at 20 weeks instead of the normal 26.

Detroit has banned all federal benefit to the long term unemployed after four years stopping all income to those most in need.

The move has prompted vast migration leaving parts of the city looking like a ghost town.

Detroit bankruptcy: Motor City runs out of fuel with debts of $20billion (3)

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The city’s troubles came to international attention in 2009 when General Motors sought a £32.5 billion government loan to help it bankruptcy because of its debt and high labour costs.

The US government got a stake in the restructured company, part of which was sold in an initial public stock offering in November 2010.

But today many of the car factories and motor plants have closed entirely.

The filing, which had been feared for months, places the city on an uncertain course that could mean laying off council staff, selling off buildings, raising fees and scaling back basic services such as binmen and snow ploughing, which have already been slashed.

Only a third of the city’s ambulances are now in service.

In a letter authorising the bankruptcy filing, Governor Rick Snyder said the consequences of working under extreme debt would be even worse than bankruptcy.

He wrote: “There is only one feasible path offers a way out. I know many will see this as a low point in the city’s history.

“If so, I think it will also be the foundation of the city’s future - a statement I cannot make in confidence absent giving the city a chance for a fresh start, without burdens of debt it cannot hope to fully pay.”

That view is widely shared, as few political leaders pushed for a bailout of the city.

Kevyn Orr, a bankruptcy expert hired by the state in March to stop Detroit’s fiscal free-fall, made the filing in federal bankruptcy court on Thursday.

Mr Orr said the city would continue paying its bills and employees.

However, Michael Sweet, a bankruptcy attorney in Fox-Rothschild’s said: “They don’t have to pay anyone they don’t want to. And no one can sue them.”

Since the turn of the millennium the city has lost a quarter-million residents. Today, the population struggles to stay above 700,000.

In recent months, the city has relied on state-backed bond money to meet payroll for its 10,000 employees.

Mr Orr was unable to persuade a host of creditors, unions and pension boards to take pennies on the dollar to help with the city’s massive financial restructuring.

If the bankruptcy filing is approved, city assets could be liquidated to satisfy demands for payment.

Orr said that he “bent over backward” to work with creditors, rejecting criticism that he was too rigid.

“Anybody who takes that position just hasn’t been listening,” he snapped.

After news of the bankruptcy filing, the White House issued a statement saying President Obama is following the situation and that he remains “committed to continuing our strong partnership” with Detroit.

* French photographers Yves Marchand and Romain Meffre captured the decline of the city in their 2011 exhibition The Ruins of Detroit.

Take a look at their haunting photos below and visit their website here.

Detroit bankruptcy: Motor City runs out of fuel with debts of $20billion (2024)

FAQs

What was a reason for the city of Detroit's bankruptcy? ›

GILBERT: Decades of financial mismanagement and population decline drove Detroit to the brink. State officials took over the city's finances until the mayor and city council produced three straight balanced budgets.

How much debt does Detroit have? ›

As of the FY2022 audited financial statements, Detroit had $927.8 million in bonded debt, or $102.1 million more than what was tallied up in bankruptcy court (adjusted for inflation). So, Detroit has more debt than it did pre-bankruptcy, yet those debts are by the two stated metrics, affordable.

Will Detroit ever recover? ›

Detroit's economic recovery is expected to continue over the next several years, with encouraging employment numbers and rising wages.

Why did Detroit's economy fail? ›

The decline of the automotive industry, which was once the backbone of Detroit's economy, resulted in significant job losses and economic instability. Many factors contributed to this decline, including increased competition from foreign automakers, changing consumer preferences, and economic recessions.

Why is Detroit in debt? ›

Revenue fell due to Detroit's declining population, which reduced the property and income tax base. Rising foreclosures and unemployment following the Great Recession reduced property values and further reduced the property and income tax base.

Is the city of Detroit in debt? ›

4 Page 78 of the City's Annual Comprehensive Financial Statements as of June 30, 2022. Per the Office of the Chief Financial Officer (OCFO), as of June 30, 2023, the City has $1,492,139,693 in General Obligation (GO) debt outstanding (UTGO $457,970,000 and LTGO $1,034,169,693).

Which state owns the most debt? ›

States With Most Debt

The ten states with the most debt in the US are California, New York, Texas, Illinois, Florida, Pennsylvania, Massachusetts, Ohio, New Jersey, and Washington. California ranks first for states with the most debt, with a debt of $520 billion, followed by New York in second place with $368 billion.

Who owns the largest debt in the United States? ›

U.S. Treasury Securities Holders by Type

The largest holder of U.S. debt is the U.S government. Which agencies own the most Treasury notes, bills, and bonds? Social Security, by a long shot. The U.S. Treasury publishes this information in its monthly Treasury statement.

Who owns the most debt to the US? ›

Nearly half of all US foreign-owned debt comes from five countries. All values are adjusted to 2023 dollars. As of January 2023, the five countries owning the most US debt are Japan ($1.1 trillion), China ($859 billion), the United Kingdom ($668 billion), Belgium ($331 billion), and Luxembourg ($318 billion).

What is a living wage in Detroit? ›

What is the living wage in Detroit? A living wage is the hourly wage that a worker needs to earn in order to afford basic necessities such as housing, food, transportation, and healthcare. The living wage in Detroit is estimated to be $16.43 per hour for a single adult with no children.

How is Detroit doing financially? ›

Detroit's Economy Continues to Grow at a Steady Pace

Detroit's economy continues to show steady growth marked by job and wage gains for Detroiters and improving employment level, according to the Detroit Economic Outlook for 2023-2028 released by the University of Michigan earlier this month.

Will Detroit bounce back? ›

So while the "Detroit is back" mantra may still be an aspiration for the Motor City, one thing is certain--the city's financial health is far better than it was during its bankruptcy days of a decade ago.

Why was Detroit so wealthy? ›

During the late 19th century, cast-iron stove manufacturing became Detroit's top industry; by the 1890s, the city became known as the "Stove Capital of the World". The rise of manufacturing led to a new class of wealthy industrialists, entrepreneurs, and professionals.

Is Detroit a declining city? ›

Detroit's population has dropped in every census since 1950 from a peak of 1.8 million people. However, census data shows the decline is slowing down; Detroit lost 74,666 residents from 2010 to 2020 after losing nearly 237,500 people the prior decade.

How much is the city of Detroit worth? ›

In 2022, the Detroit metro area GDP amounted to 269.53 billion U.S. dollars, an increase from the previous year.

What happened in Detroit in 2010? ›

2010 - Population: 713,777. Michigan governor Rick Snyder declares a financial emergency and appoints emergency manager Kevyn Orr for the city. Detroit goes bankrupt, the largest ever in American history. November: U.S. federal government grants $24,200,000 to hire firefighters.

What happened to the Detroit Motor industry? ›

The Mass Exodus

Between 1947 and 1963, Detroit lost approximately 150,000 manufacturing jobs to suburban factories. During this time, smaller manufacturers went out of business and the Detroit Three vacated the city for the greener, larger pastures of the surrounding suburban areas.

Why does Detroit have so many empty blocks? ›

Vacant lots are what Detroit is known for today, but the phenomenon began much earlier in history. The city's problem with vacant lots began with urban renewal in the 1960s when many Detroit neighborhoods were decimated for public projects that primarily included highways and parks.

What happened in Detroit in 1967? ›

Detroit Riot of 1967, series of violent confrontations between residents of predominantly African American neighbourhoods of Detroit and the city's police department that began on July 23, 1967, and lasted five days. The riot resulted in the deaths of 43 people, including 33 African Americans and 10 whites.

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