As mentioned in a previous post, many forces are responsible for Detroit's $18.2 billion bankruptcy - the largest municipal bankruptcy in the history of the United States. The city's debt averages out to around $27,000 dollars per Detroit resident.
According to the Economist, $9.2 billion of the total $18.2 billion in debt is due to unfunded public retirement benefits. Since 2008 the city has spent $100 million more per year than the revenues it brought in. Property taxes went down 20 percent. Since 2002, income taxes went down 30 percent.
In addition to the well documented population decline, there has also been an education crisis with 82 percent of the remaining 700,000 residents having no more than a high school diploma.
The central figures in this drama will be Judge Rhodes and Kevyn Orr. Mr. Orr will decide which parts of Detroit may be sold or leased to get some cash while all such actions must be approved by Judge Rhodes. There is talk that the Art Museum and the airport may be either sold or leased. Others however object because they believe that selling the last few treasures of Detroit will make it even more unattractive to live and thus drive the remaining population away.
In addition, due to an agreement with Bank of America, casinos will be releasing $11 million in revenues per month to keep the city afloat. In between all that, Mr. Orr will try to find a way to infuse the city with a $1.25 billion dollar investment that he wants to use to restore public services, fight urban blight, and upgrade the city IT systems.
For now, retired government workers can only nervously wait as the drama plays out. By filing for chapter 9 bankruptcy, the city is protected from all creditors including pensioners. Early indications are that pensions will be scaled back as well as health care benefits.