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Tuesday 30 September 2014

Detroit: Where did it all go wrong?

Harriet Alexander

Published 19/07/2013 | 14:55

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Detroit has filed for bankruptcy, unable to pay $18.5bn (€27.4bn) in debts. How did the city of Motown and the car industry sink so low?

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It shouldn't have come to this. Detroit was once the pride of America; home of the car industry, and centre of the Motown music scene. In the 1950s 1.8 million people called the city, on the Canadian border, their home.

But it has all gone terribly wrong, with the city now unable to pay its $18.5bn debt. On Thursday the city was forced to declare itself bankrupt – the largest municipal bankruptcy in history.

"This is a difficult step," said Rick Snyder, governor of Michigan. "But it's the only viable option to address a problem that has been six decades in the making."

Once a bustling beacon of industrial might, the city is now a poster child for urban decay, its landscape littered with abandoned skyscrapers, factories and homes.

Crime has soared and the murder rate is at a 40 year high; the council has literally been unable to keep the lights on, and 40 per cent of all street lights are out of order.

Now a third of Detroit's 700,000 residents live in poverty and about a fifth are unemployed. The population has fallen by 60 per cent since its 1950s peak, as those able to leave the city do so. As a result, the educated people able to contribute to the economy, run businesses and pay their taxes have moved out, leaving behind those reliant on the state.

Almost 80,000 homes are empty, and more than half of the owners of Detroit's 305,000 properties failed to pay their 2011 tax bills, exacerbating the city's financial crisis.

The exodus from the city stemmed from race riots in the 1960s – in particular the July 1967 riots, which killed 43, left 467 injured, and destroyed over 2,000 buildings when the army were sent in to quell the violence.

The trickle of departure became a flood, and with it went the businesses.

The collapse of the motoring industry played a part over the years, as car manufacturers went through round after round of mass layoffs as factories were automated or outsourced and Asian competitors siphoned away market share. President Barack Obama's decision to prop up the drowning General Motors in 2009 saved the main company, however, and GM has, since 2010, returned to being profitable.

But perhaps just as damaging than population flight and car manufacturing problems was the general mismanagement of the city's finances.

The city has been borrowing money to pay its bills for more than a decade, a short-sighted move that further depleted its coffers.

Some 38 cents of every city dollar was going to debt repayment and obligations like pensions, and that was projected to hit 65 cents on the dollar by 2017.

Detroit's municipal government is crippled by its pension bills for staff – the city owes $9 billion to the pension fund.

A plan devised in June called for city-employed retirees to accept less than 10 per cent of what they were owed under pension plans. But earlier this week the city's two pension funds sued Detroit's state-appointed emergency manager in an attempt to stop the cuts in retirement pay. An insurance group also threatened legal action.

Meanwhile, life in the city has got increasingly poor.

Only a third of ambulances are in working order, and police take an average of 58 minutes to arrive on crime scenes. Anyone who can leave has done so.

The governor of Michigan summed the situation up neatly.

"The citizens of Detroit need and deserve a clear road out of the cycle of ever-decreasing services," he said.

Telegraph.co.uk

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