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Michigan Governor Rick Snyder today declared what was ultimately the inevitable: Detroit is in a state of fiscal emergency due to the sweeping federal budget cuts that took effect after congress and the White House failed to amend them before today’s deadline. It set the stage for what could potentially be the largest municipal bankruptcy in the history of the U.S.
Snyder appointed a six member team to conduct an audit on the city’s finances in December of last year. They submitted their report to him early this year, and concluded that the financial situation of Detroit was severe. They did, however, leave the decision up to the governor of taking the information public, which he has.
“I believe it’s appropriate to declare the city of Detroit in financial emergency,” Snyder said at a forum in Detroit.
The officials of the city are allotted a ten day grace period during which time they can request a hearing with Gov. Snyder regarding the situation. After that time period has passed, the governor may then either revoke or confirm his determination of declaration. The officials are also afforded the ability to appeal the fiscal emergency determination in court as well.
If Detroit files a Chapter 9 municipal bankruptcy, it would be the largest one in the history of the U.S.
Once upon a time, Detroit boasted being the fifth largest city in the nation. But the sweeping economic recession, coupled with the automaker bust and the housing market crisis saw an exodus of jobs and money leave the city. From 2000–2010, the city’s population declined by more than 25 percent. The city now is ranked 18th in the nation, with fewer than 700,000 residents.
The next step could see an emergency financial manager taking the reins and trying to steer the city in the direction of prosperity via budget cuts, salary reductions and fiscal moves that could help balance the books again.
The fiasco in Detroit is a frightening prediction of a negative downward spiral and trend that could roll through the nation in shockwaves if the budget cuts that went into place today are not redacted and corrected. While many think that our economy has been slowly recovering, Detroit is a prime example of how tender and fragile it still is.
