One year after a Michigan Treasury report concluded that Detroit was all but insolvent, another Financial Review Team has predictably concluded the same. Despite $14 billion in long-term liabilities, despite annual debt payments ($580 million) exceeding the city’s main sources of revenue ($530 million), despite a staggering 33:1 debt: asset ratio (GM was 20:1 when it went bankrupt in 2009), Detroit political leaders could make no significant inroads into solving the crisis.
Because the money kept flowing. The city burned through a $137 million state loan lifeline. But, a top bankruptcy expert told The Detroit News last month, he has never seen a company restructure until the money ran out. Bankruptcy focuses the mind.
That is where Detroit has finally arrived. The till is dry. Only an emergency manager will answer the phone. With an EM (which is a state-appointed official after all) instead of a bankruptcy judge, of course, there will still be the temptation by the state to offer more money. That would be a mistake.
The time has come for Governor Snyder to put the city in the hands of an EM receiver. Restructure now and Detroit – like New York City 30 years ago – has a chance at a new beginning.