Detroit has become the largest US city ever to file for bankruptcy, with debts of at least $15 billion.
The city of Detroit, once a symbol of US industrial power, is seeking protection from creditors who include public-sector workers and their pension funds.
Unions described the bankruptcy filing as a power grab.
Detroit has faced decades of problems linked to declining industry. Public services are nearing collapse and about 70,000 properties lie abandoned.
Mayor Dave Bing has vowed that public services will keep running and wages for public workers will be paid.
On Thursday, Michigan state-appointed emergency manager Kevyn Orr asked a federal judge to place the city into bankruptcy protection.
If it is approved, he would be allowed to liquidate city assets to satisfy creditors and pensions.
Detroit – known as Motor City for its once-thriving automobile industry – stopped unsecured-debt payments last month to keep the city running as Kevyn Orr negotiated with creditors.
He proposed a deal last month in which creditors would accept 10 cents for every dollar they were owed.
But two pension funds representing retired city workers resisted the plan. Thursday’s bankruptcy filing comes days ahead of a hearing that would have tried to stop the city from making such a move.
Kevyn Orr suggested at the time there was a 50-50 chance of the city needing to file for bankruptcy. He also said the city’s long-term debt could be between $17 billion and $20 billion.
At a press briefing on Thursday, Kevyn Orr said filing for bankruptcy was the “first step toward restoring the city”.
Alongside him, Detroit Mayor Dave Bing said that residents had to make a new start.
“I really didn’t want to go in this direction – but now that we are here, we have to make the best of it,” Dave Bing said.
The mayor also assured residents that the city would stay open and bills would be paid despite the filing.
“Paychecks for our city employees will continue, services will continue,” he said.
But Ed McNeil, the lead negotiator for a coalition of 33 unions, told Reuters news agency the move was about “busting the unions”.
“I’ve said all along that this is a power grab,” he was quoted as saying.
“This is not about fixing the city’s finances. It’s about the governor and his own agenda to take over the city of Detroit.”
In a letter accompanying Thursday’s filing, Michigan’s Governor Rick Snyder, a Republican, said he had approved the request from Kevyn Orr to file for Chapter 9 bankruptcy.
“Only one feasible path offers a way out,” Gov Rick Snyder said, adding that residents needed a clear exit from the “cycle of ever decreasing services”.
“The only way to do those things is to radically restructure the city and allow it to reinvent itself without the burden of impossible obligations.
“It is clear that the financial emergency in Detroit cannot be successfully addressed outside of such a filing, and it is the only reasonable alternative that is available”.
Meanwhile, the White House said it was closely monitoring developments in Detroit.
“While leaders on the ground in Michigan and the city’s creditors understand that they must find a solution to Detroit’s serious financial challenge, we remain committed to continuing our strong partnership with Detroit as it works to recover and revitalize and maintain its status as one of America’s great cities,” said White House spokeswoman Amy Brundage.
Analysts say there are some concerns that businesses might ditch their operations in Detroit.
But, in the wake of the filing, US car company General Motors said it did not expect any impact on its operations, and hoped it would mark a “clean start” for Detroit.
GM is proud to call Detroit home and today’s bankruptcy declaration is a day that we and others hoped would not come,” the company said.
The city, once renowned as a manufacturing powerhouse, has struggled with its finances for some time, driven by a number of factors, including a steep population loss.
The murder rate is at a 40-year high and only one third of its ambulances were in service in early 2013.
Declining investment in street lights and emergency services have made it difficult to police the city.
And Detroit’s government has been hit by a string of corruption scandals over the years.
Between 2000-10, the number of residents declined by 250,000 as residents moved away.
Detroit is only the latest US city to file for bankruptcy in recent years.
In 2012, three California cities – Stockton, Mammoth Lakes and San Bernardino – took the step.
In 2011, Harrisburg, Pennsylvania tried to file for bankruptcy but the move was ruled illegal.
But Thursday’s move in Detroit is significantly larger than any of the earlier filings.
Detroit decline:
- Population has shrunk from a peak of 2 million in the 1950s to 713,000 today
- Highest violent crime rate of any major US city, with 15,245 reported incidents in 2011
- Some 78,000 abandoned and blighted buildings
- 40% of street lights do not work
- Only a third of the city’s ambulances are in service
- Just 53% of owners paid their 2011 property taxes
Source: City of Detroit Proposal for Creditors
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