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Judge declares Detroit bankrupt, calls for 'fresh start'

© Photo: AFP

Video by FRANCE 24

Text by FRANCE 24

Latest update : 2013-12-04

A federal judge on Tuesday formally declared the US city of Detroit bankrupt in a landmark ruling that clears the way for potentially sweeping cuts to city worker pensions and retirement benefits and for steep losses to the city's bond holders.

The US city of Detroit won judicial approval to move forward with the largest municipal bankruptcy in the country's history on Tuesday, despite objections from city workers fearful of losing their pensions.

Saddled with more than $18 billion in debt and a tax base depleted by decades of population loss and urban blight, the city has been so strapped for cash it can't even keep the street lights on.

Once known as the cradle of the US auto industry, the arsenal of democracy and the birthplace of Motown music, Detroit can now claim an ignominious new title: largest bankrupt city in US History.

After lengthy initial hearings and weeks of deliberation, US Judge Steven Rhodes ruled on Tuesday that the city, which filed for bankruptcy protection in July, is eligible to restructure its debt and liabilities under Chapter 9 of the US bankruptcy code.

The decision was immediately appealed by the city's largest public sector union. But it was hailed by Michigan Governor Rick Snyder as the only "viable" way for Detroit to "stay on the path toward a brighter future".

"There will be other difficult decisions as we work through this process," Snyder said in a statement. "But Michigan and Detroit are resilient and are the comeback stories in the country. Working together we can and will make sure that reinvention happens."

Bankruptcy was a "foregone conclusion," Rhodes said, and should have happened years ago.

"The city no longer has the resources to... provide its citizens basic services," the judge told a packed courtroom. "To reverse this decline and attract new residents and revitalise and reinvigorate, Detroit needs help. It has an opportunity for a fresh start."

Union concerns

Thousands of retired city workers are fearful they will be pushed into poverty if Detroit is able to slash their pension benefits, which are supposed to be protected by the Michigan state constitution.

Rhodes warned that federal bankruptcy law allows for the pensions to be cut, but added that "the court emphasises that it will not lightly or causally exercise federal bankruptcy law to impair pensions".

The city-owned Detroit Institute of Arts is also at risk of closing its doors if Rhodes allows even part of its world-class collection to be sold to pay off Detroit's debts.

Rhodes indicated that may not happen, arguing that selling assets would be a one-time fix that wouldn't address Detroit's deeper problems.

The bankruptcy is expected to make it harder for municipalities in Michigan and other US states to borrow money by undermining confidence in what used to be among the most trusted bonds available.

The situation in Detroit is being closely monitored by government workers across the country who are fearful that they too may see their retirement benefits slashed by cash-strapped states and cities.

Outgoing Mayor Dave Bing urged residents to "pull together" and get behind the restructuring efforts.

"There's going to be a lot of pain for a lot of different people," Bing told reporters. "But in the long run, the future will be bright."

Struggling city

Once a bustling beacon of industrial might, the Motor City is now a poster child for urban decay, its landscape littered with abandoned skyscrapers, factories and homes.

Detroit has seen its population shrink by more than half, from 1.8 million people in 1950 to 700,000 today.

Racial tensions sparked by the civil rights movement and devastating 1967 riots exacerbated white and middle-class flight to the suburbs. Businesses followed suit, further shrinking the tax base.

With less revenue, Detroit had to cut back on services, prompting even more people to leave and eventually sending the city into an economic tailspin.

A whopping 40 percent of street lights don't work and the average police response time is 58 minutes, more than five times the national average of 11 minutes. About 78,000 abandoned buildings litter the city.

Home to the "Big Three" US carmakers – Ford, Chrysler and General Motors – the Motor City also saw its main employers go through rounds of mass layoffs as auto factories were automated and jobs outsourced.

(FRANCE 24 with AFP, REUTERS)

Date created : 2013-12-04

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