Bankruptcy Proceedings for Detroit will Go Forward after Judge Ruling
U.S. Federal Judge Steven Rhodes announced on Tuesday that the City of Detroit, Michigan, met all of the criteria required for moving forward with its bankruptcy proceedings.
The case will mark U.S. history as the largest city ever to seek relief from debt under Chapter 9 bankruptcy.
Over the last four months prior to this ruling, it has been uncertain as to if the case could proceed. Now, the city can get relief from its creditors and its estimated $18 billion in unpaid debt.
The high debt has prevented Detroit from addressing issues like crime and city maintenance projects.
Judge Rhodes stated publicly that the “once proud city cannot pay its debts.”
He also went on to say that Detroit will be able to get a fresh start now.
There is concern among the city’s pensioners and bondholders that this decision will affect obligations based on the long term for them. The city currently has 21,000 retirees receiving benefits and pension liabilities of $3.5 billion.
Another challenge that city faces is that city has experienced a 26% population decline since 2000. Thus, there is ongoing pressure that the city will not be able to generate enough tax revenue to fulfill its obligations.
Currently, it is estimated that 40% of every revenue dollar goes to meeting its obligations and that figure is expected to reach 60% as fewer residents are gainfully employed for generating tax revenue.
Complicating matters is the fact that as of June of last year the unemployment rate in the city was just above 18% which is higher than the national average by 3 times.
Property values have also dropped by 77% over the last 50 years with a decrease in property tax revenues by almost 20% in the last 5 years.
It is hoped that with a fresh start, the city can address some serious issues such as its crime rate which is the highest of any city in the U.S. with a population of 200,000 or more.
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