Detroit rock bottom: City announces $2.5bn debt default

Detroit said it will stop making payment on $2.5 billion of the city’s massive $18.5 billion debt and has asked creditors to accept 10 cents in the dollar of what the city owes them in a bid to avoid the largest municipal bankruptcy filing in US history.
Detroit Emergency Manager Kevyn Orr said the city would stop
making payments on its unsecured debt in a bid to “conserve cash”
for vital services like police and firefighters. He further said
pension benefits both present and future along with healthcare
would face cuts, while control over the city’s water and sewage
would be turned over to an independent body.
“We’re tapped out,” Orr was quoted by WWJ-TV as saying.
“We need to come up with a plan to restructure our debt
obligations and our legacy obligations going forward — that is:
pension, other employee benefits, healthcare, so on and so
forth.”
Orr continued that $1.25 billion would be set aside over the next
decade, $750 million of which will go towards public safety,
including funds for police, fire, streetlights and other
endeavors. The remaining $500 million will be for blight removal.
The emergency manager spent two hours with about 180 bond
insurers, pension trustees, union representatives and other
creditors holding Detroit debt on Friday in an effort to fix
fiscal problems which have left the city insolvent.
One bond holder present at the meeting who asked not to be
identified told Reuters Orr’s proposal was likely more than debt
holders would be able to accept.
“It’s just too much. It is an unprecedented amount to
ask.”
If creditors reject the plan, Detroit could be forced into what
would be by far the largest-ever municipal bankruptcy in US
history.
Orr said there is a “50:50” chance the city will be forced
into bankruptcy and that decision would likely happen in the next
30 days.
“Financial mismanagement, a shrinking population, a dwindling
tax base and other factors over the past 45 years have brought
Detroit to the brink of financial and operational ruin,” Orr
said.
In a report issued to creditors on Friday, Detroit’s skyrocketing
debt, pension and healthcare obligations will sell to almost 65
percent of total city revenue by 2017, up from the current level
of 42.5 percent.
Detroit has also experienced a 26 percent decline in population
since 2000, while unemployment surged from 6.3 percent in June
2000 to 18.3 percent in June 2012, further shrinking the city’s
revenue base. Meanwhile, the city’s budget deficit is likely to
exceed $380 million by July 1.
Orr, who was appointed three months ago by Michigan Governor Rick
Snyder to salvage the city’s finances and operations, has been
met with skepticism by local residents who have accused him of
exaggerating the current situation.
“We feel that the bankers and the creditors who are here today
with the emergency manager are not going to negotiate in the best
interest of the people of the city of Detroit. And we are saying
that the same financial institutions that Mr. Orr is negotiating
with today are responsible in large part for the crisis that
exists in Detroit,” Abayomi Azikiwe, a protester outside the
meeting told PBS.
Leaders of some of Detroit’s 48 public sector unions were also
upset by the proposals, with water and sewage workers vowing to
strike over the privatization plans.

This article originally appeared on: RT