Things aren’t getting any better in Detroit as detailed in this Washington Post report indicating that, later this month, the town of San Bernardino, California could lose its title as the nation’s biggest city to seek bankruptcy protection.
After decades of sad and spectacular decline, it has come to this for Detroit: The city is $19 billion in debt and on the edge of becoming the nation’s largest municipal bankruptcy.
An emergency manager says the city can make good on only a sliver of what it owes — in many cases just pennies on the dollar. A decision about whether to file for bankruptcy is widely expected this month.
Detroit’s dire fiscal condition is sending ripples of concern through the normally placid capital markets that all state and local government rely on to raise cash for everything from road improvements and school roofs to libraries and parks. Holders of Detroit’s municipal bonds — always touted as among the safest investment vehicles — are being asked to take on staggering losses.
It also has worried the city’s 9,500 employees and nearly 20,000 retirees, who have much to lose. Under the plan put forward by emergency manager Kevyn D. Orr, a former D.C. bankruptcy lawyer, retirees will have to absorb significant reductions in pension and health benefits.
The choice before bondholders and retirees is stark, given that both groups would inevitably face steep cuts in a bankruptcy.
Note that Governing.com provides a convenient list of municipal bankruptcies along with an interactive graphic that, while not very cluttered right now, could become so someday.