Detroit Is out of Money

A blog about business and economics.
May 13 2013 3:55 PM

Detroit Is out of Money

The General Motors world headquarters building dominates the Detroit skyline Nov. 7, 2007

Photo by Bill Pugliano/Getty Images

The fact that Michigan Gov. Rick Snyder picked a bankruptcy attorney to serve as Detroit's city manager was probably a good warning that bankruptcy was in the city's future, and now the city manager in question, Kevyn Orr, is telling people the city is insolvent.

Insolvent isn't quite the same as bankrupt in the municipal context, but he says that to avoid running out of cash by June the city will have to "defer payments on its current obligations." That includes some kind of nonpayment of Detroit's pension obligations. I am not very well-versed in the municipal bankruptcy process, but I think based on general bankruptcy principles you'd have to say this is something that has to look pretty attractive to Detroit. The city needs a way to use a much-diminished tax base to finance ongoing public services. The only way to do that is to slough-off some obligations incurred in the past, and that means obligations to retired employees and to bondholders. It's not fair to stiff people who've already put years in on the job in expectation of a pension and it's not sound practice to refuse to repay money that you've borrowed. But ultimately Detroit isn't going to be able to pay anyone anything unless it can break the cycle of population flight, tax base decline, and service cutbacks. And bankruptcy processes were put on this earth precisely to give organizations a chance to do things like that.

Of course if things get really desperate you could always try to sell the city to Omni Consumer Products to be redeveloped as Delta City (arguably, Dan Gilbert is already doing this).

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.



More Than Scottish Pride

Scotland’s referendum isn’t about nationalism. It’s about a system that failed, and a new generation looking to take a chance on itself. 

What Charles Barkley Gets Wrong About Corporal Punishment and Black Culture

Why Greenland’s “Dark Snow” Should Worry You

Three Talented Actresses in Three Terrible New Shows

Why Do Some People See the Virgin Mary in Grilled Cheese?

The science that explains the human need to find meaning in coincidences.


Happy Constitution Day!

Too bad it’s almost certainly unconstitutional.

Is It Worth Paying Full Price for the iPhone 6 to Keep Your Unlimited Data Plan? We Crunch the Numbers.

What to Do if You Literally Get a Bug in Your Ear

  News & Politics
Sept. 16 2014 7:03 PM Kansas Secretary of State Loses Battle to Protect Senator From Tough Race
Sept. 16 2014 4:16 PM The iPhone 6 Marks a Fresh Chance for Wireless Carriers to Kill Your Unlimited Data
The Eye
Sept. 16 2014 12:20 PM These Outdoor Cat Shelters Have More Style Than the Average Home
  Double X
The XX Factor
Sept. 15 2014 3:31 PM My Year As an Abortion Doula
  Slate Plus
Slate Plus Video
Sept. 16 2014 2:06 PM A Farewell From Emily Bazelon The former senior editor talks about her very first Slate pitch and says goodbye to the magazine.
Brow Beat
Sept. 16 2014 8:43 PM This 17-Minute Tribute to David Fincher Is the Perfect Preparation for Gone Girl
Future Tense
Sept. 16 2014 6:40 PM This iPhone 6 Feature Will Change Weather Forecasting
  Health & Science
Medical Examiner
Sept. 16 2014 11:46 PM The Scariest Campfire Story More horrifying than bears, snakes, or hook-handed killers.
Sports Nut
Sept. 15 2014 9:05 PM Giving Up on Goodell How the NFL lost the trust of its most loyal reporters.