It’s official: the city of Detroit is broke. A recent report by the appointed emergency manager for the city details the financial struggles of the city. The report by bankruptcy attorney Kevyn Orr is the first he’s released since taking the position in March. According to Michigan state law, a report is due within 45 days of the emergency manager taking his position. Within his initial assessment, Orr says that the city’s financial health is bleak and that the fiscal condition is conducive for bankruptcy.
Detroit’s Money Management Perils
Currently, Detroit’s net cash position stands at approximately $162 million, but Orr projects that the budget deficit will double to $386 within the span of two months. As the city’s finances continue spiraling out of control, Orr warns that without stronger money management by city officials, Detroit might have no option but to file for bankruptcy.
Furthermore, Orr notes in the report that more data is being collected and analyzed, and that the financial standings of the city might even be worse than thought. According to Orr, the current course for the city is not only ill advised, but also complete unacceptable and unsustainable. Because of its money management issues, Detroit is now the largest city in the country that is controlled by the state.
To avoid a bankruptcy and improve money management, Orr suggests looking at outdated policies and practices that make the city inefficient and wasteful. For instance, tens of millions of dollars that should have been forwarded to citizens for pensions were instead used to settle the liquidity crisis in Detroit. Aside from its budget deficit, Detroit already owes an outstanding $400 million to various debtors.
While morale in the city government is low based on these reviews, Orr urges Michigan law enforcement agencies and public officials to pursue a strategic redistribution of resources and administrative functions. By improving money management, Detroit might still be able to avoid bankruptcy, but that remains to be seen.