Ten years ago, Detroit was in dire financial straits. The city’s long-term debt far outpaced its estimated revenue. Decades of disinvestment and white flight had significantly shrunk the city’s tax base. Public services – including police, firefighters, and ambulances – were unreliable at best.
Against the protests of local elected leaders and many city residents, Michigan Governor Rick Snyder installed an emergency manager in March of 2013. That emergency manager, Kevyn Orr, had sweeping powers under state law to deal with Detroit’s crushing debt.
A few months later, Orr filed for bankruptcy. Detroit had more than $18 billion in long-term debt, making it the largest municipal bankruptcy case in U.S. history.
“I can remember the conversations I had with like family members and neighbors and people who had been here a long time, all of whom really reflected that this was this was a sad moment for us,” reflected Stephen Henderson, host of WDET’s Detroit Today and founding editor of Bridge Detroit. “And the uncertainty at that point of what the bankruptcy would mean, I think compounded that we didn't know what the future was going to look like.”
Tensions were high as Orr and his team sorted through the city’s assets and obligations. There was public outrage over the possibility that art from the Detroit Institute of Art might be sold off. City retirees worried about anticipated cuts to their pensions payments they were being asked to take as part of reducing the city’s debt.
Eventually, the city reached a bargain that reduced its debt to a manageable level.
“We went into bankruptcy with $18 billion worth of liabilities on the city's books. We came out with somewhere between 11 and 12 right there. That's an incredible, incredible markdown,” Henderson said.
In December of 2014, the city, its creditors, and city retirees agreed on what became known as the “Grand Bargain.” Retirees with city pensions agreed to take cuts in their payments, and the state and several philanthropic foundations put millions into the pension fund as well. The bargain also forbid the Detroit Institute of Art collections from being sold.
“And it freed up an awful lot of the city's budget to be able to go to services instead of creditors. So right there, that's, I think, the most consequential outcome of the bankruptcy,” explained Henderson. “You know, at the same time, there were a lot of hard decisions that had to be made to get to that point. And the hardest of them was about what to do with the pensions that the city had promised workers for decades, but had not put the money away to sufficiently fund everybody in.”
As part of the deal, the Detroit Water and Sewer Department was able to buy back bonds and refinance its debt at a lower interest rate. The bankruptcy also led to the state of Michigan taking over ownership and maintenance of Belle Isle, a beloved island park in the Detroit River. While the bankruptcy forced big changes onto the city, Henderson said that ultimately, it did what it was meant to do.
“Bankruptcy is a very finite, prescriptive tool. ... It's an aid for institutions or governments that have gotten themselves twisted up in their finances to get untwisted. The bankruptcy did that.”
Now, ten years past the initial bankruptcy filing, there are parts of Detroit that are seeing a lot of investment – particularly in the city’s downtown neighborhoods. Henderson said that the enthusiasm for building the downtown area was expected, but that there is still work to be done when it comes to making sure that the future the bankruptcy made possible is open to all of the city’s residents.
“It's our job to figure out how to make that matter to people who live here. It's the mayor's job, first and foremost. It's the city council's job, and those of us who are working in neighborhoods, to make things better for people. ... This is our chance.”
Despite business growth and public and private investment in the city, Detroit is still losing population, according to the most recent census. Given higher than projected pension costs, that could spell financial trouble down the road, explained Henderson.
“You know, the growth in investment in the city, in home ownership, all of those things should also pay dividends down the road. But will they be enough? Are we moving fast enough with those things to be able to sustain that liability?”
This episode originally was published on July 19, 2023.
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