Detroit Toast

[voguy]

Detroit Seeks Bankruptcy, Facing Debts of $18 Billion By MONICA DAVEY and MARY WILLIAMS WALSH

Detroit, the cradle of America’s automobile industry and once the nation’s fourth-most-populous city, has filed for bankruptcy, an official said Thursday afternoon, the largest American city ever to take such a course.

The decision to turn to the federal courts, which required approval from both the emergency manager assigned to oversee the troubled city and from Gov. Rick Snyder, is also the largest municipal bankruptcy filing in American history in terms of debt.

Not everyone agrees how much Detroit owes, but Kevyn D. Orr, the emergency manager who was appointed by Mr. Snyder to resolve the city’s financial problems, has said the debt is likely to be $18 billion and perhaps as much as $20 billion.

For Detroit, the filing comes as a painful reminder of a city’s rise and fall.

Founded more than 300 years ago, the city expanded at a stunning rate in the first half of the 20th century with the arrival of the automobile industry, and then shrank away in recent decades at a similarly remarkable pace. A city of 1.8 million in 1950, it is now home to 700,000 people, as well as to tens of thousands of abandoned buildings, vacant lots and unlit streets.

From here, there is no road map for Detroit’s recovery, not least of all because municipal bankruptcies are rare. Some bankruptcy experts and city leaders bemoaned the likely fallout from the filing, including the stigma it would carry. They anticipate further benefit cuts for city workers and retirees, more reductions in services for residents, and a detrimental effect on future borrowing.

But others, including some Detroit business leaders who have seen a rise in private investment downtown despite the city’s larger struggles, said bankruptcy seemed the only choice left — and one that might finally lead to a desperately needed overhaul of city services and a plan to pay off some reduced version of the overwhelming debts. In short, a new start.

The decision to go to court signaled 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.

All along, the state’s involvement — including Mr. Snyder’s decision to send in an emergency manager — has carried racial implications, setting off a wave of concerns for some in Detroit that the mostly-white, Republican-led state government was trying to seize control of Detroit, a Democratic-held city where more than 80 percent of residents are black.

The nature of Detroit’s situation ensures that it will be watched intensely by the municipal bond market, by public sector unions, and by leaders of other financially challenged cities around the country. Only slightly more than 60 cities, towns, villages and counties have filed under Chapter 9, the court proceeding used by municipalities, since the mid-1950s.

The debt in Detroit dwarfs that of Jefferson County, Ala., which had been the nation’s largest municipal bankruptcy, having filed in 2011 with about $4 billion in debt. The population of Detroit, the largest city in Michigan, is more than twice that of Stockton, Calif., which filed for bankruptcy in 2012 and had been the nation’s most populous city to do so.

Other major cities, including New York and Cleveland in the 1970s and Philadelphia two decades later, have teetered near the edge of financial ruin, but ultimately found solutions other than federal court. Detroit’s struggle, experts say, is particularly dire because it is not limited to a single event or one failed financial deal, like the troubled sewer system largely responsible for Jefferson County’s downfall.

Instead, numerous factors over many years have brought Detroit to this point, including a shrunken tax base but still a huge, 139-square-mile city to maintain; overwhelming health care and pension costs; repeated efforts to manage mounting debts with still more borrowing; annual deficits in the city’s operating budget since 2008; and city services crippled by aged computer systems, poor record-keeping and widespread dysfunction.

All of that makes bankruptcy — a process that could take months, if not years, and is itself expected to be costly — particularly complex.

“It’s not enough to say, let’s reduce debt,” said James E. Spiotto, an expert in municipal bankruptcy at the law firm of Chapman and Cutler in Chicago. “At the end of the day, you need a real recovery plan. Otherwise you’re just going to repeat the whole thing over again.”

The municipal bond market will be paying particular attention to Detroit because of what it may mean for investing in general obligation bonds. In recent weeks, as Detroit officials have proposed paying off small fractions of what the city owes, they have indicated they intend to treat investors holding general obligation bonds as equal, in essence, to city workers — a notion that conflicts with the conventions of the market, where general obligation bonds have been seen as among the safest investments.

Leaders of public sector unions and municipal retirees around the nation will be focused on whether Detroit is permitted to slash pension benefits, despite a provision in the State Constitution that union leaders say bars such cuts.

Officials in other financially troubled cities may feel encouraged to follow Detroit’s path, some experts say. A rush of municipal bankruptcies appears unlikely, though, and leaders of other cities will want to see how this case turns out, particularly when it comes to pension and retiree health care costs, said Karol K. Denniston, a bankruptcy lawyer with Schiff Hardin who is advising a taxpayer group that came together in Stockton after its bankruptcy.

“If you end up with precedent that allows the restructuring of retirement benefits in bankruptcy court, that will make it an attractive option for cities,” Ms. Denniston said. “Detroit is going to be a huge test kitchen.”

Around this city, there was widespread uncertainty about what bankruptcy might really mean, now and in the long term, though leaders of other cities who have been through court cautioned of lingering effects.

“The label sticks with us, unfortunately,” said Daniel E. Keen, the city manager of Vallejo, Calif., which filed for bankruptcy in 2008.

More @ LINK (NY Times) & LINK (Freep)

[Doka]

Such a sad deal for all of us Americans. Detroit is not the only city going down the tubes. I am sure more will follow. We are becoming a vast wasteland. In my little corner of the world we have a dependency on agriculture , instead of cussing out the "fat farmer" which is a fallacy in it self, we all hope and pray for good crops, AS WE WILL ALL BENEFIT from success. Failure is also felt, but there are those who think it will not touch them and feel some sort of satisfaction ah ha "another fat cat has fallen". It does touch us all. And our crops do not look so good this year.

[Cherry Kelly]

And in PA - they are selling off Wild West museum items to help cut some of their ... debts.

[kbot]

Shrinking tax base and rising municipal obligations and pensions. Sounds familiar across the country........

[Riddick]

Shrinking tax base and rising municipal obligations and pensions. Sounds familiar across the country........

From 1960 and the city with the highest per-capita income in the nation AND the highest standard of living in the world, to the first major metro US bankruptcy today. Can't beat that for a government instituting and administering economic policies that only help to pound a once great place into the ground, eh... or can ya?

"If Obama had a city, it would look like Detroit"
- Twitter quip

[voguy]

That " highest per-capita income" came from a lot of people living free off others. Twas good as long as the money lasted, but now the party is over, everyone's gone, and the bartender has that WTF look on his face with a $20-billion bar tab.

[voguy]

BREAKING NEWS

Judge orders Detroit to withdraw bankruptcy filing.
Chris Isidore, CNNMoney - July 19, 2013 @6:58PM ET

A Michigan Circuit Court Judge ruled Friday that Detroit's bankruptcy filing is unconstitutional and ordered the case be withdrawn from federal bankruptcy court.

But Michigan Attorney General Bill Schuette said in a statement soon after the decision that he intended an immediate appeal to the Michigan Court of Appeals and would seek to block this latest order from taking effect while the appeal is heard.

The order came in response to motions by lawyers for retirees and pension funds for city workers, who argue the state constitution prohibits cutting pension and retirement benefits, as has been proposed in the bankruptcy case.

The order was from Ingham County Circuit Judge Rosemarie Aquilina, the county that includes the state capital of Lansing. Aquilina had been ready to issue an order Thursday that would have blocked the filing in federal bankruptcy court, but the hearing on the motion to do so started five minutes after the bankruptcy case was filed.

[voguy]

New report from Fox News

[voguy]

How did Detroit fall into the abyss?

The bankruptcy filing for Detroit marks a final step in the chrome-plated city’s decades-long decline – which started with the country’s overall manufacturing slowdown and continued with the departure of U.S. automakers and residents, leaving behind a sprawling city trying to survive on dwindling coffers.

Detroit was in the 1950s a worldwide hub of auto manufacturing, making it the fourth-largest U.S. city with one of the country’s highest per-capita incomes.

However, the so-called Motor City’s decline started soon after with residents -- following their counterparts in other U.S. cities – starting to move to the suburbs and take with them businesses, jobs and tax dollars.

Historians argue the deadly 1967 riot in Detroit, one of the many so-called “race riots” across the country in the 1960s, accelerated the trend.

And as the population dwindled from roughly 1.8 million to 700,000, city officials struggled to keep up with municipal services in the 142-square-mile city, with a tax base just half of what it was in the 1950s.

Meanwhile, auto companies began opening plants in other cities as Japan-made cars dominated the international market. By 2009, the U.S. auto industry collapsed with the entire economy, eventually pulling down Detroit with it.

The city’s efforts to provide and maintain such basic services as law enforcement and trash removal were further complicated by the costs of paying union contracts and benefits, which have contributed to nearly $15 billion in unfunded liabilities for the city.

State-appointed Emergency Manager Kevyn Orr on Thursday filed the bankruptcy, making Detroit the largest U.S. city to declare one, after failing to negotiate a restructuring of union contracts to lessen the city’s financial burden.

Orr, appointed in March by Gov. Rick Synder, appeared to have little choice, considering Detroit had a general fund in the red for roughly the past nine years and a fiscal 2012 deficit of $327 million.

In addition, Detroit has a roughly 18 percent unemployment rate, one of the country’s highest violent-crime rates and about 80,000 blighted or abandon buildings.

“Chronic budget problems have taken a significant toll on everyday life for citizens,” Snyder said recently. “Detroiters deserve to feel safe when they walk down the street, to have their street lights on, to have the bus show up to take them to work.”

However, the city also has a history of corruption that has led to its financial problems, including Mayor Kwame Kilpatrick resigning in a 2008 sex-and-perjury scandal that cost the city almost $9 million from a lawsuit and legal fees.

Read more with pictures: LINK

[voguy]

LINK

VO Note: This article was from 2011. It's interesting to look back 2 years and see if they got it right. Notice that Detroit is not on the list.

9 Worst Recession Ghost Towns in America
By BLAIRE BRIODY, The Fiscal Times - Aug 3, 2011

America has a new kind of ghost town, haunted by the spirits of the recession. Developers caught up in the runaway housing boom overbuilt and oversold lots, houses and condos, leaving neighborhoods barren with uninhabited model homes, eerily desolate luxury condos, and abandoned McMansions in the aftermath of the collapse.

Most of these recession ghost towns lie in heavily-hit regions of the housing crisis: South Florida, Arizona, California and Nevada. Some in metropolitan areas like Phoenix and Miami, have a better chance of surviving after the housing market recovers, but others are in remote desert developments where municipal services have long since left. “We saw a lot of overbuilding in areas where there isn’t going to be much buying activity,” says Rick Sharga of RealityTrac. “Those areas are going to take a long time to come back, if they ever do.”

There are currently 18,700,000 vacant units across the country, according to Census data, and vacancies rates in the homeowner market have grown 12 percent since the recession started. Vacancies are the highest in the southern and western regions of the country.

1. Rio Vista, CA - Once envisioned as an 855-home suburb with families populating the grid of freshly paved streets and sidewalks, now the only life you’ll see in this desert development are cows and eucalyptus shrubs.
2. La Cresta Community, FL - Ninety homeowners bought into the 55-and-over development by successful retirement community developer Del Webb. But in 2009 Webb abandoned the place after a dispute with the company that owned the land, and the development became a spooky retirement ghost town, complete with half-built homes, empty lots and murky pools.
3. Downtown Phoenix, AZ - Before the housing market crash, an acre in downtown Phoenix was selling for about $90 a square foot. Today, it sells for $9 a square foot. Empty dirt lots checker the area, where developers once dreamed of high-rise condos and office buildings, and many businesses have closed their doors.
4. Victorville, CA - When a bank couldn’t sell 16 new homes in San Bernardino County, Calif., they decided to bulldoze them instead. Four of the homes were completed and another dozen were under construction, but the bank figured that razing the homes would be cheaper than paying fines to the city.
5. Woods Landing, NJ - Midway through construction of an over-55 community in Mays Landing, NJ, 20 miles west of Atlantic City, the developer, Kara Homes, filed for bankruptcy. What they left were empty lots and a broken promise to build a clubhouse, pool and lush landscaping of over 1,700 plants, shrubs and bushes for residents.
6. Miami High-Rises, FL - One of the worst-hit real estate markets in the country, Miami is overflowing with empty condo units. For example, the Tao Sawgrass condos, have 26 floors of empty apartments. Property records show that 36 of the 396 units sold, but most of them were to investors.
7. Laurel Cove, TN - When Lehman Brothers went bankrupt in 2008, they also defaulted on a $121 million construction loan for a 1,120-acre golf course community in Williamson, Tenn. The first nine holes of the golf course were completed, 500 of the 800 lots were sold to builders, and the clubhouse, day spa and fitness center sit half-finished.
8. Fort Myers Condos, FL - One condo owner is the loneliest number, especially when you’re the last remaining resident in a 32-story tower. Victor Vangelakos paid $430,000 for his downtown Fort Myers condo in 2008, but when the building couldn’t sell the rest of the units, they hashed out deals with the buyers, except for Vangelakos, who says his lenders wouldn’t agree to a swap.
9. California City, CA - Perhaps an example of what will happen to America’s recession ghost towns, California City is one of the first real estate boom developments to become one. In 1958, a developer sectioned off lots and paved culs-de-sacs for a dream city 100 miles northeast of Los Angeles.
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[Doka]

If we look close enough we will probably find that "Pension Funding" is the single most budget breaking item, in cities and states. Oregon is "busted" because of it. Yet we have a Governor who gave pensions a raise! Our legislators this term where told to find solutions, Ha! They wouldn't touch it with a "ten foot pole". RE-Election don't ya know.



The top 10 biggest U.S. cities on the brink of pension bankruptcy
According to Business Insider, here are the top 10 U.S. cities whose pension obligations will soon collapse: (this article was originally published in 2010, so we have updated the "years" to reflect 2013)

#1 Philadelphia - Unfunded liability of $9 billion, $16,696 per household, only 1 year before the pension accounts are empty

#2 Chicago - Unfunded liability of $44.8 billion, $41.966 per household, money runs out in 4 years

#3 Boston - Unfunded liability of $7.5 billion, $30,901 per household, money runs out in 4 years

#4 Cincinnati - Unfunded liability of $2 billion, $15,681 per household, money runs out in 5 years

#5 St Paul - Unfunded liability of $1.4 billion, $13,686 per household, money runs out in 5 years

#6 Jacksonville - Unfunded liability of $4 billion, $12,944 per household, money runs out in 5 years

#7 New York City - Unfunded liability of $122 billion, $38,866 per household, money runs out in 6 years

#8 Baltimore - Unfunded liability of $3.7 billion, $15, 420 per household, money runs out in 7 years

#9 Detroit - Unfunded liability of $6.4 billion, $18,643 per household, money runs out in 8 years

#10 Fort Worth - Unfunded liability of $2 billion, $7,212 per household, money runs out in 8 years

Note that some of these numbers were actually optimistic. Detroit, for example, was predicted to run out of money in 2021, yet it already declared bankruptcy in 2013. What you are looking at here is a looming cascade of municipality bankruptcies over the next 10 - 20 years.

Learn more: http://www.naturalnews.com/041298_unfun ... ation.html

[voguy]

I heard the figure for Detroit (via CBS radio) was $19.7-billion, Doka.

Those towns you mention are all large, and although it's a drop in the bucket, we've had two small towns go under in our state in 2013.

All this "creative accounting" is coming home to roost.

[Doka]

Very scary indeed, Voguy, we are all at the mercy of "What?" Corruption? These next few years are going to test us all.

[Cherry Kelly]

Cities and unions are following the Congress - fed level - gee serve for what 6 yrs and get pay for life at the same pay you received when in office....

Just cap the pensions to be no greater than SS and only allowed after the same age as SS retirement. (AND configured in the same manner.) Oh wait for SS is 40 quarters - 10 years - but then still cannot collect until - well early retirement - cut to 75% of what you'd get if you waited longer.

SO these high pensions -- hmm. gone! (then who do you blame?)

[voguy]

This should probably be in another area of the board. (Fan, feel free to dup or move it). I found this interesting. John B. Wells posted this on his FB account. It's an interesting read.



Personal thought, I think the fed knows that when there is a collapse, there will be mayhem, and they will have to deal with it quickly and viciously. That's the only way to instill obedience quickly to a rioting mass. However, once the hoards of people turn their attention elsewhere, it will be the little old ladies and un-armed families who will fall prey.