The city of Detroit, collapsing under the weight of up to $20 billion (£13bn) in debt, had “no choice” but to file for bankruptcy, an emergency financial manager appointed by the state of Michigan said last night.
Defending his decision to seek the largest public sector bankruptcy in US history, Kevyn Orr said the move would free up revenue streams to allow essential city services such as police, fire and rubbish collection, to keep operating.
Current and retired city workers, however, were trying to figure out their next move as the prospect of cuts in their wages, benefits and pensions, which had been threatened for months, became a reality.
Meanwhile, a county judge’s ruling later yesterday that the bankruptcy filing was unconstitutional and must be withdrawn, set up the prospect of a lengthy legal fight, with the state’s attorney general filing an immediate appeal to have circuit judge Rosemarie Aquilina’s decision thrown out.
Union leaders attacked the bankruptcy filing, which was supported by Rick Snyder, the Michigan governor, as an assault on workers who had given years of loyal service to the city.
“Apparently governor Snyder and Kevyn Orr want Detroit’s public service workers to rely on their children for food and shelter, or have to work until they die,” said Lee Saunders, president of the American Federation of State, County and Municipal Employees.
Mr Orr and Mr Snyder appeared at a press conference yesterday to explain the reasons behind the decision and set out the steps ahead for the 700,000 residents of Detroit, nicknamed Motor City for its status as the headquarters of America’s automobile industry.
“These problems have been a long time in the making, over 60 years, more acutely in the last ten or 20,” said Mr Orr, who added that he had been negotiating without success with creditors, unions and pension fund representatives since Mr Snyder appointed him to take the purse strings from city leaders in March.
“The concept that someone else is going to come in and solve problems of our making isn’t exactly productive,” he added, dismissing suggestions that he had asked the US government for a financial bailout.
President Barack Obama’s administration has taken credit for the 2009 automobile industry bailout that “saved Detroit”.
Mr Orr assured the city’s 9,700 employees and 19,700 retired workers that no financial changes would affect them before the start of next year.
He has suspended payments on $2bn of debt, reached settlements with some creditors and negotiated a deal with others that would allow $180m in casino revenue to flow into city coffers.