Will Detroit Need Bankruptcy Help?
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Will Detroit Need Bankruptcy Help?

December 13, 2011

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According to DetNews.com, Michigan’s leaders are beginning to hash out the logistics of managing Detroit’s overwhelming debts. While some analysts reportedly believe that bankruptcy help is the best option for the Motor City, state governor Rick Snyder has reportedly asserted that he will assign the city an emergency manager if its leaders do not come up with a plan that he approves.

The problem, it seems, is that Detroit’s mayor, Dave Bing, and members of the City Council cannot come to an agreement on how to handle the budgetary problems plaguing Detroit. While Governor Snyder acknowledges that Chapter 9 protection is still an option, he would prefer that the city leaders come to an agreement that will allow the city to avoid seeking bankruptcy help.

It seems that a review process has begun: last week, Michigan’s State Treasurer, Andy Dillon, called for a preliminary budget review. The goal of this investigation, apparently, is to determine whether state funds could be used to help Detroit cover its budgetary shortfall of more than $45 million.

The investigation is just the latest sign that city and state leaders are getting serious about solving Detroit’s financial woes. Last week, sources note, union representatives sat down with city officials to discuss how rising healthcare costs are affecting the city’s debt problems and what might be done about resolving the two.

Traditionally, municipalities that seek bankruptcy help have been able to save significant amounts of money by renegotiating labor contracts with city workers. It may well be in the best interests of city employees to discuss payment and benefit alternatives before the city files for bankruptcy, as outside of the court’s protection, the city may have more room to negotiate.

It’s possible that Detroit union members have learned from their brethren in Vallejo, California. That city filed for Chapter 9 bankruptcy protection in 2008 and sloughed off many of its obligations to city employees (including unionized firefighters and police officers).

Regardless of what various debt-management efforts determine, it’s likely that Detroit’s and Michigan’s leaders will take some kind of action soon. The city is scheduled to run out of money in April 2012, and currently has debts in excess of $10 billion.


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