Detroit Files For Bankruptcy—With Fingers Crossed

 Philip Bump 4:24 PM ET  Atlantic Wire
The city of Detroit has filed for Chapter 9 bankruptcy, according to the Associated Press, completing the city's long, slow economic slide and marking the largest municipal bankruptcy in history. Doing so only addresses one of the city's problems, though, suggesting that it has almost certainly not hit rock bottom. According to the Free Press, the city owes $18.5 billion to creditors, including its public employee pensions. If you're curious (as we were), what would happen if each of the city's 701,475 residents took their $13,965 annual per capita income (!) and gave it to the city to retire that debt, the answer is that it would still take two years before it was retired. Which is precisely the problem. From a peak population of 1.8 million in the 1950 Census, the city emptied. To oversimplify, the people left in concert with (though not only because of) the decline of the manufacturing industry, including automobiles. With that industry went higher-paying jobs. For the city, fewer people meant fewer collected taxes. Meanwhile, the population aged. City workers moved into retirement, expecting that the pensions that were part of their contracts would help provide for them. Less in taxes, more in obligations, a smaller, poorer tax base. Again: oversimplified. But in summary, this is Detroit.In March, Michigan Gov. Rick Snyder appointed Kevyn Orr as the city's emergency manager—an unelected position essentially granted autocratic power to make changes as Orr sees fit. (The law allowing emergency managers was itself highly controversial.) Just yesterday, Orr was profiled by the Wall Street Journal.

Mr. Orr, who is paid $275,000 a year, has hired a new police chief and chief financial officer. The city is in the midst of privatizing its garbage collection and outsourcing its publicly run electric department for street lighting. Mr. Orr is contemplating leasing the city's island park and its regional water and sewer system. He is also weighing a takeover of at least one of the city's pension funds, which are under investigation by the city's auditor general for possible mismanagement.

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