History offers no support for Detroit; scarce with happy endings for municipal bankruptcy filings

By IVCPOST Staff Reporter

Jul 27, 2013 11:13 AM EDT

Detroit officials may be hopeful that their Chapter 9 bankruptcy filing will ultimately strengthen their economy, but history has shown otherwise. Smaller local governments that took the bankruptcy route have not emerged from it shining. One example is Vallejo municipality based in California that filed for bankruptcy from 2008 to 2011. Now, their budget still faces a deficit, they are still excluded from the municipal bond market, and they do not have the money to repair aging infrastructure. Stockton, which was granted Chapter 9 protection in April, has seen a rise in their crime rate.

Saddled by USD 18.5 billion in liabilities, Detroit had to take the bankruptcy route, but it's unlikely that the move will revive Motown soon. Managing Director and Co-Head of Local Government Ratings at Standard and Poor's Jeff Previdi said that bankruptcy won't be the sole solution. "Detroit has a very high level of debt and the bankruptcy can correct some of it, but is it going to turn around its economy quickly? That's probably unlikely," he told Reuters in an interview.

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