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Countless unknowns remain about what Detroit’s historic bankruptcy filing might mean for the city and for other cities across the country in similar financial situations, especially regarding future development. While numerous projects are in the works citywide, it’s still unclear how these projects could be impacted.

When Detroit filed for bankruptcy July 18, it became the largest metropolitan government ever to do so. Michigan Gov. Rick Snyder (R) says the city’s insolvency was 60 years in the making. The city is more than $18 billion in debt.

AB16522Officials at numerous credit rating agencies say the filing comes as no surprise; only its timing. As with any bankruptcy, creditors will have the right to seize city assets if the city fails to pay it debts. Court battles with creditors, unions, and pensioners will surely ensue as all could be big losers in the bankruptcy. The outcome of these legal battles could set national precedents on issues such as whether bondholders get repaid when municipalities go bankrupt. The final decisions will influence how other cities around the nation try to resolve their own financial challenges.

Detroit now needs to prove that it is insolvent; creditors can be expected to file counter actions arguing the city still has the ability to pay its debts. Assuming the case goes forward, the city’s emergency manager will need to present a reorganization plan for the restructure of Detroit’s balance sheet. The move could mean layoffs, budget cuts, sale of assets, etc., and could take years of court battles to ultimately resolve.

Meanwhile, basic city services such as police, water, sewer, fire, etc., remain largely unaffected by the filing, but workforce reductions could be coming. Improving the city’s services has been cited as one of the major reasons for the bankruptcy filing, according to city officials.

Read about Community Development vs. Municipal Bankruptcy on CD Publications 

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