The city’s bankruptcy petition far surpasses the $4.2 billion filing by Jefferson County, Alabama in 2011, which previously was the largest in the nation. That county, which includes Birmingham, is on track to emerge from court protection by the end of the year, with many bondholders forgoing interest payments, and others unable to recover even the amount of money they loaned to the county.
In all, Jefferson County’s bankruptcy plan cut $1.2 billion in principal payments to investors who held bonds in a defaulted sewer project, according to Bloomberg.
Many observers see that outcome as a hopeful sign for Detroit, which they say needs to shed its debt to have an opportunity to recapture any part of its past glory.
“If Detroit comes out of this a decent credit risk, other municipalities are going to absolutely want to follow their lead,” said Ken Noble, a New York bankruptcy lawyer. “This is absolutely a watershed event for municipal finance. And, really, it is the only shot that Detroit really has.”
Daniel Miller, the city comptroller in fiscally pressed Harrisburg, Pennsylvania said that Detroit’s move could prove to be a model for other distressed cities across the country.
“I like what is happening in Detroit very much,” Mr. Miller said, noting that Harrisburg is not in bankruptcy but is struggling in state receivership. “People say that if a city files for bankruptcy it cannot borrow again. That is all just ridiculous talk. Guess what? In Harrisburg, we can’t get access to capital markets right now.”
Mr. Orr has said he wants to use bankruptcy to erase many of Detroit’s debts and then invest $1.25 billion in upgrading the city services and infrastructure in hopes of putting the city on a path to lasting recovery.
A former mayor suggested the city could take a cue from two of its own automakers, which were bailed out by the federal government, brought through bankruptcy and are now thriving — a fact that Mr. Obama frequently boasted of during his re-election campaign.
This time, there are few signs of help from Washington. But former Mayor Dennis W. Archer said Detroit could still seem the same kind of recovery.
“Once the city gets through this it will be well on its way to substantial revitalisation,” Mr. Archer said. “The stigma of bankruptcy has not prevented corporations from going on to be successful. Witness Chrysler and General Motors. The same could be said of the City of Detroit. If this works, other distressed cities will be knocking on our door and asking, ‘How did you do that?’”
© 2013, The Washington Post