Detroit goes bust: America’s biggest ever municipal bankruptcy with estimated debts of $20bn

DETROIT filed for bankruptcy last night, the biggest American city to go bust in history, following decades of decline.

The city’s emergency manager, Kevyn Orr, who was appointed by the state’s governor to deal with Detroit punishing financial challenge in March, signed the documents that will begin an application for bankruptcy.

The Michigan city’s enormous fall in population has led to the abandonment of many buildings and the collapse of land prices, plus dwindling tax revenues.

Orr has previously suggested that the city’s debt could be as high as $20bn (£13.1bn). When he came to his position, Orr said that there was only a 50 per cent chance that the indebted authorities would be able to avoid bankruptcy court.

Michigan governor Rick Snyder authorised Orr to file the 16-page request, saying that there were no other options left. “This is a situation that’s been 60 years in the making in terms of the decline of Detroit. From a financial point of view, let me be blunt. Detroit’s broke,” he added.

The governor also outlined the social breakdown which has blighted the area: “More important than the financial situation are the poor services that are being delivered to the citizens of Detroit. They simply deserve better.”

Going bust would allow the city to sell its assets, in an attempt to fund its liabilities to bondholders and pensioners. The emergency manager had previously argued for haircuts for creditors, as well as painful reductions in pensions and other retirement obligations.

Revenue for the municipal government has fallen by more than $200m since the financial crisis, and a fifth of its employees have been made redundant in the past two years. The city’s per capita income is also much lower than the US average, standing at only $15,261, and putting further limits on the tax base.

Unemployment is still cripplingly high in Detroit, standing at 18.6 per cent. The average unemployment rate in the US stands at 7.6 per cent.

The city’s population has declined dramatically since 1950, from nearly two million to only 701,000 in 2012, according to estimates by the US census bureau. At one point, it was the fourth biggest city in the country.

Detroit’s earlier prosperity was based on the car manufacturing industry, which used to employ many of the city’s workers and led to its motor city nickname.

The previous largest municipal bankruptcy was Jefferson County in Alabama, which filed for bankruptcy in 2011 with only $4bn in debt.