It’s crunch time for the city of Detroit. After a scathing report from former bankruptcy lawyer Kevyn Orr stating that the city would likely have to file for bankruptcy, Detroit now has a six-week deadline to get their finances in order. Negotiated settlements, bond restructurings, and budget reconsideration’s will all occur within the next month and a half as the city tries to avoid a Chapter 9 bankruptcy filing. Whether or not these new money management techniques will spare the city remains to be seen. These financial moves mark the beginning of a prolonged process as Detroit handles its financial crisis.
More American Cities Struggling with Money Management
While Detroit made headlines for the threat of a looming bankruptcy, it isn’t the only city in the nation struggling with money management. The sluggish economy, rate of inflation, and damaging cutbacks are hurting cities everywhere. Other cities with depressed revenues that are struggling with their finances and could also face a bankruptcy include:
· Jefferson City, AL
· Harrisburg, PA
· Moberly, MO
· Falls, RI
· San Bernardino, CA
Though many municipalities are struggling financially, it’s the scope of Detroit’s financial predicament that is making headlines. Though the city has $64 million on hand, it owes $226 million in pensions, loans, and payments. With a budget deficit towering over $200 million, the city of Detroit has no relief in site as increased expenses are met with a shrinking revenue. If Detroit files for a bankruptcy, however, it would not be the first to do so, as Stockton, CA has sought Chapter 9 bankruptcy protection.
Municipalities in distress have often been rescued by involvement and intervention from state governments. With proper money management, Detroit and these cities may be able to fix industry-wide challenges, budget imbalances, and other issues to avoid a bankruptcy filing. As money management talks continue, the importance of bond insurers is becoming apparent. Should any of these cities default or file for bankruptcy, the bond insurance firms will be the ones to reimburse the bondholders. Detroit expects to finalize a bankruptcy decision after their 6-week restructuring period.