According to an early analysis by Governing magazine, only 0. That figure is even smaller if you're looking at cases that weren't dismissed. While municipal bankruptcies aren't necessarily becoming more common, the last six years have made them much more visible. The Great Recession has worsened the fiscal situation in lots of municipalities. Five out of the six biggest municipal bankruptcies in history including Detroit's have taken place since the financial crisis, according to data gathered by the New York Times.
Detroit's bankruptcy plan lays out how the city expects to deal with its debts — what the different classes of creditors are and who will be paid what. It's by no means a static document — currently, it's in its seventh amended version. Many creditors have reached agreements with Detroit reducing the city's future obligations. The city's retired public workers agreed last year to take pension cuts of up to 4. There are other elements which cover how Detroit will handle its finances going forward — for example, the city may assume a lower expected return on pension investments than it had used in the past.
If the city assumes too big of a return, that could cause pension shortfalls. Martha Kopacz, the expert that bankruptcy judge Stephen Rhodes chose to testify on the plan's feasibility, has said that the plan is workable, but barely. Speaking October 22 , she said the borrowing the city will have to do under the plan is "at the edge of what the city can be able to service in the future.
After that, the city just had to finalize deals with all of its creditors, as USA Today explains. On December 10, the city exited bankruptcy, and Emergency Manager Kevyn Orr's resignation went into effect. But the city's work is nowhere near done. Now it has to implement that bankruptcy plan. That involves a few changes. For example, the city will now have a nine-member Financial Review Commission overseeing all of its fiscal affairs.
Relatedly, the city will have to balance its budget and set aside enough money for debts and pensions each year, as The Detroit News reports. At the Nov. We give it back to you with the fresh start that this city needs and deserves under our federal bankruptcy laws.
We hope we helped. It is now on you to implement this plan. I have found that you will do that. Please make me right. It is in the city's best interest. The city's true and full fresh start depends on it. One of the central and more fascinating parts of that deal was a so-called "grand bargain" involving the Detroit Institute of Arts, home to many well-known and high-value works of art.
There is lots of great information out there on the history behind, and the road ahead for, Detroit's bankruptcy. Here's a rundown of a few good resources:. This is very much a work in progress. It will continue to be updated as events unfold and as fresh questions emerge. So if you have additional questions or comments or quibbles or complaints, send a note to Danielle Kurtzleben: danielle vox.
December 15, Card 8 was updated to reflect that Detroit had exited bankruptcy. Our mission has never been more vital than it is in this moment: to empower through understanding. Financial contributions from our readers are a critical part of supporting our resource-intensive work and help us keep our journalism free for all. Please consider making a contribution to Vox today to help us keep our work free for all. Cookie banner We use cookies and other tracking technologies to improve your browsing experience on our site, show personalized content and targeted ads, analyze site traffic, and understand where our audiences come from.
By choosing I Accept , you consent to our use of cookies and other tracking technologies. In another move, Detroit recently doubled the size of its rainy day fund to better prepare for any economic downturn. Financial experts had warned that two of Detroit's three largest annual revenue sources — income taxes and gaming taxes from the three casinos — are at risk if and when the next recession happens. Council President Brenda Jones, who is also a member of the Detroit Financial Review Commission, declined through a representative an interview for this story.
Census than in Mayor Duggan cited the Retiree Protection Fund when asked last week whether the city would be ready to make its large pension payments. Wall Street credit rating agencies have praised Detroit since the bankruptcy for its stabilized finances, revitalized downtown and success in attracting new high-profile development projects such as the Flex-N-Gate automotive supplier plant, Ford's train station redevelopment and this year's announcement of a large Fiat Chrysler plant expansion.
But despite giving Detroit some credit upgrades, the rating agencies still deem the city's debt as somewhat risky and below investment grade, what is commonly known as "junk. Financial analysts note how most of the eye-catching growth has happened in and around downtown — not throughout the city — and how Detroit city schools, now known as the Detroit Public Schools Community District, are still struggling and "could also become a major drag on revitalization beyond downtown.
In addition, Detroit did a citywide parcel-by-parcel reappraisal several years ago that resulted in some lower property tax assessments. The bond sale was not only the city's first since bankruptcy, but also its first bond sale in more than 20 years that didn't require "credit enhancements," such as buying bond insurance, to reassure investors and get a better rate, according to Massaron.
Steven Rhodes, the federal judge who presided over the bankruptcy, memorably warned representatives for the city's retirees to not dismiss the Grand Bargain, even though the deal called for cuts to pensions and health care benefits. In the end, the city's two older pension plans were frozen and retirees saw their benefits cut.
Still, the cuts were smaller than they likely would have been without the Grand Bargain. Two new pension plans were created for current and future workers. About 32, active or retired workers were impacted. Those numbers are critical because they show how costs have increased even though the number of employees was decreasing.
The city also missed opportunities to rightsize retirement benefits. For instance, when the State of Michigan switched from pensions to k -style plans in , Detroit failed to follow suit. Archer negotiated with the pensions funds to create a new plan for city workers, but it was never implemented. The practice of distributing 13th checks and annuity bonuses dated to at least the mids. Alarmed, Archer vowed to kill the practice.
So Archer backed an effort to block the payments through a proposed new city charter, which actually passed in August Enraged, several city unions and a retiree group sued and won. Archer tried again to block payments through a ballot initiative, called Proposal T, but it failed.
Pension fund trustees dispute that figure, saying the funds are healthy despite the 13th check practice and a string of poor investments over the last decade. Officials have told the Free Press, however, it was a much less frequent practice and that it happened in earnest for only a few years. The funds also raised benefits year after year for decades through a cost-of-living allowance and through higher benefits negotiated by unions. Shirley Lightsey, president of the Detroit Retired City Employees Association, said many retirees have accepted that times have changed.
Three to five years is a more responsible time frame for predicting market returns. On Dec. He cracked a joke on stage, and Wall Street chuckled. Photographs from the event show laughing faces, a high-priced evening, a night to envy. City officials openly bragged that they had to construct a byzantine legal structure to justify the deal.
The deal hailed by Wall Street was a disaster. For a year, Kilpatrick had lobbied the City Council to approve the idea of borrowing to fund pensions.
But his new deal was designed to fix all that. Eventually, the council members capitulated under pressure from Kilpatrick and criticism from unions, including the American Federation of State, County and Municipal Employees, which represented city workers.
The deal eventually passed council unanimously. Three years later, interest rates tanked and the stock market collapsed. The bill soared in part because the city made only interest payments for about five years. Bankruptcy was not inevitable. Kilpatrick was full of ideas — like turning the crumbling Michigan Central Station into police headquarters — but was never able to build realistic budgets. He added city workers, then had to cut them. His stock answer to budget issues was to borrow.
And chronic annual deficit spending started under him. The borrowing also was aided by Wall Street. But even after eventual downgrades, investors continued to scoop up each new city bond issue.
The state will step in and ensure that they right the ship and that the bonds are paid. Then, too, Detroit suffered overwhelming unemployment, chronic budget deficits, rampant crime. Supreme Court. Contact Nathan Bomey: nbomey usatoday. Follow him on Twitter NathanBomey. Contact John Gallagher: or gallagher freepress. Follow him on Twitter jgallagherfreep.
Staff writer Kristi Tanner contributed to this report. City financial audits before were available in print only. Reports from and were not available. The Free Press also conducted dozens of interviews with outside experts and leaders from the last six mayoral administrations to provide context and additional information.
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