‘Motor City’ Detroit is broke; files for bankruptcy

Detroit in Michigan, the cradle of America's automobile industry and once the fourth-most populous city in the US, filed for bankruptcy on Thursday, the largest American city ever to do so.

The decision, confirmed by officials after it trickled out in late afternoon news reports, also amounts to the largest municipal bankruptcy filing in American history in terms of debt size.

''This is a difficult step, but the only viable option to address a problem that has been six decades in the making,'' said Governor Rick Snyder, who authorised the move after a recommendation from the emergency financial manager he had appointed to resolve Detroit's dire financial situation.

Kevyn Orr, the state-appointed emergency manager, asked a federal judge to place the city into bankruptcy protection.

Speaking to reporters, Detroit's mayor Dave Bing said that it was "a difficult day".

"I really didn't want to go in this direction, but now that we are here we have to make the best of it," he said.

Not everyone agrees how much Detroit owes, but Orr has said the debt is likely to be $18 billion and perhaps as much as $20 billion.

For Detroit residents, the filing came as a painful reminder of the city's fallen status; but it was hardly unexpected. ''This has been coming for ages,'' said a city worker who learned of the development on Thursday evening.

Detroit expanded at a stunning rate in the first half of the 20th century with the arrival of the automobile industry, and then shrank away in recent decades at a similarly remarkable pace. A city of 1.8 million in 1950, it is now home to 700,000 people, as well as to tens of thousands of abandoned buildings, vacant lots and unlit streets.

From here, there is no road map for Detroit's recovery, not least of all because municipal bankruptcies are rare. State officials said ordinary city business would carry on as before, even as city leaders take their case to a judge, first to prove that the city is so financially troubled as to be eligible for bankruptcy, and later to argue that Detroit's creditors and representatives of city workers and municipal retirees ought to settle for less than they once expected.

Some bankruptcy experts and city leaders bemoaned the likely fallout from the filing, including the stigma. They anticipate further benefit cuts for city workers and retirees, more reductions in services for residents, and a detrimental effect on borrowing.

The decision to go to court signalled a breakdown after weeks of tense negotiations, in which Orr had been trying to persuade creditors to accept cents on the dollar and unions to accept cuts in benefits.

All along, the state's involvement - including Snyder's decision to send in an emergency manager - has carried racial implications, setting off a wave of concerns for some in Detroit that the mostly white Republican-led state government was trying to seize control of Detroit, a Democratic city where more than 80 per cent of residents are black,  like its mayor.

The nature of Detroit's situation ensures that it will be watched intensely by the municipal bond market, by public sector unions, and by leaders of other financially challenged cities around the country.

Just over 60 cities, towns, villages and counties have filed under Chapter 9, the court proceeding used by municipalities, since the mid-1950s.