When the cash runs out

The US city of Detroit was once a powerhouse of industrial production and home to the US automobile industry. But time, like it does to pretty much everything, has taken a toll. In the case of Detroit, the news is not good.


Population decline and shifting production capacity has resulted Detroit suffering significant losses  over the last number of decades. The bailout of the car industry there a number of years ago simply staved off all-out collapse but the financial woes of this once booming city refuse to go away.

Some of the actions being proposed in a bid to hold off bankruptcy have ranged from the peculiar to the spectacular, for example:

Suspension of payments on $2 billion of unsecured debt, marketing parking garages and telling retirees to rely on Federal health-care law.

With a $39.7 million missed payment on debt issued to fund pensions, Detroit becomes the most populous U.S. city to default since Cleveland in 1978. Unsecured creditors may receive less than 10 cents on the dollar.

Sale of the family silver

Detroit could now market its parking operations through a sale, long-term lease or concession arrangement while closing departments that manage or operate nine garages, two lots and 3,404 parking-meter spaces. The city also wants to lease the 982-acre Belle Isle Municipal Park to the state to save $6 million a year.

Loss of pensions and private health insurance

Active and retired workers would see their pensions reduced under the dramatic survival plan, and the city intends replacing its retiree health-care plan with one relying on federal insurance exchanges with city supplements.

Active and retired city workers will face significant cuts in accrued, vested pension amounts as a result of the general retirement system and police and fire system which are underfunded by about $3.5 billion.

A May 12 preliminary report detailed the dire finances of the shrunken city of 701,000 that’s kept itself afloat only by borrowing and skipping payments to pension funds. Since 2008, the city has spent an average of $100 million more than its revenue each year, according to the report.

Turning the lights off

Detroit’s revenue fell as its population declined and home values dropped. Once among the top 10 U.S. cities by population, it has lost more than a quarter of its residents since 2000, to about 701,000 last year. That’s fewer than half its postwar peak of 1.8 million in 1950.

Collapse in property values

The city’s income-tax receipts have dropped 40 percent since 2000, to $233 million in 2011, while the jobless rate has tripled and property values decline.

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