The New York Times
by Steven Rattner
July 19, 2013
For months, the question in many minds has been not whether Detroit would file for bankruptcy, but when.
But while Detroit’s decision this week to enter bankruptcy might make it easier to improve the city’s fiscal position, it will prove far tougher to design and implement an effective restructuring for Detroit than it was to put General Motors and Chrysler through Chapter 11.
That’s partly because municipal defaults are handled under a different section of the law — Chapter 9 instead of Chapter 11. The latter, which governs companies, includes a provision that allowed General Motors, the city’s largest company, to take a quick, 39-day rinse in bankruptcy.
Cities must go the slow route, almost certainly at least a year in Detroit’s case. Such lengthy bankruptcies are costly, not just in fees but more so in distraction for city officials and uncertainty for local businesspeople.
More important, Detroit is in far worse shape than the auto companies were in 2009. Its steadily declining population has meant falling tax revenues and, because it is difficult to cut expenses as quickly as revenues slip, six consecutive years of deficits.