Detroit Lawmakers Could Opt for Bankruptcy

Detroit's widening financial crisis has left lawmakers between a rock and a hard place.

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Detroit Mayor Dave Bing (Getty Images)

Detroit's widening financial crisis may force city officials to opt for bankruptcy in a move that financial experts say could cost taxpayers millions, obstruct economic development and take years to settle in the courts.

The Detroit News reports:

Bankruptcy is an option if the city can't win major concessions from its unions and if the state's tough new emergency manager law is suspended or repealed.

Under the law passed in March, an emergency manager appointed by the governor would have the power to throw out union contracts, sell off assets such as the Detroit Water & Sewerage Department and other powers to fix the city's fiscal crisis.

Attorney General Bill Schuette said he is undecided whether Michigan would revert to its old emergency manager law if opponents get enough signatures to put the repeal question on the ballot next year.

But bankruptcy would be a worst-case scenario, warned Brad Coulter, who specializes in municipal turnaround and bankruptcy services.

Others contend a Detroit bankruptcy could be an advantage because city officials would have more control over the outcome than if it were under the thumb of a state-appointed emergency manager.

A city Detroit's size has never filed for bankruptcy. In the late 1970s, Cleveland defaulted on its bank loans, but never filed for Chapter 9. There were bankruptcy filings in Orange County in 1994 and Vallejo, Calif., in 2008, and both emerged from it after their finances were restructured.

Detroit Mayor Dave Bing, who is negotiating with the city's 48 unions for major concessions and the state officials who recently finished a preliminary review of Detroit's finances, won't even comment on the possibility of filing for bankruptcy. State Treasurer Andy Dillon and Gov. Rick Snyder have declined to discuss it as well.

Detroit has been on the brink of bankruptcy and economic collapse for long enough. We hope that this will be the time city leaders turn things around for the Motor City.

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