19 Shocking Facts About Detroit's Bankruptcy

At the end of the day, the Detroiter may be the most important American there is because no one knows better than he that we're all standing at the edge of the shaft. – from Detroit: An American Autopsy by Charlie LeDuff.

The lights are literally going out all across Detroit. Currently, 40% of its streetlights are not functioning, which is just one example among many of how the city is failing to meet the most basic needs of its residents. With long-term debt estimated between $18 billion and $20 billion, it's difficult to see how conditions in Detroit will improve anytime soon.

Earlier this year, Detroit filed for Chapter 9 bankruptcy making it the largest municipal bankruptcy in American history. On Dec. 3 at 9 a.m., Judge Steven Rhodes will decide if the city can proceed with its bankruptcy. The ultimate decision will have huge implications for pensioners, bondholders, and ordinary residents, who are wondering if the city will be allowed to revise the terms of its long-term obligations.

Regardless of the judge's ruling, Detroit faces daunting challenges on both the revenue and expense side of the ledger. I recently looked at some of the documents relating to the bankruptcy, and was struck by how desperate the situation has become. Below are some of the more shocking facts I discovered.

1. Detroit's revenue, in inflation-adjusted dollars, fell 40% from 1962 to 2012.

2. The city currently has just 9,700 workers, yet has 21,000 retirees drawing benefits.

3. Detroit's population has declined 63% since 1950, including a 26% decline since 2000. As of December 2012, its population was 684,799 – down from 1,849,600 in 1950.

4. Unemployment has tripled since 2000. As of June 2012, it's 18.3%, which is more than double the national average.

5. The number of employed residents has dropped more than 53% since 1970.

6. Property tax revenues have decreased by approximately 19.7% over the past five years.

7. The per capita tax burden on Detroiters is the highest in Michigan, despite relatively low levels of income for city residents.

8. The total assessed value of property in Detroit declined by 77% over the past 50 years in inflation-adjusted dollars.

9. Without restructuring, the city is projected to have negative cash flows of $198.5 million in FY 2014.

10. Detroit's long-term debt is estimated to be between $18 billion and $20 billion.

11. The city has unfunded pension liabilities of $3.5 billion.

12. Its unfunded health care liabilities are $5.7 billion.

13. In 2012, Detroit had the highest violent crime rate of any U.S. city with a population over 200,000. The overall crime rate is five times the national average.

14. Detroit has just 370 functioning street lights per square mile, compared with 812 for Cleveland and 785 for St. Louis.

15. Detroit has witnessed 11,000-12,000 fires every year for the past decade.

16. Detroit's homicide rate is at the highest level in 40 years, and it has been named one of the most dangerous cities in America for more than 20 years.

17. Its citizens wait on average more than 58 minutes for the police to respond to their calls, compared to a national average of 11 minutes.

18. The city has 78,000 abandoned structures.

19. More than half of its parks have closed since 2008.

It's always darkest...
Detroit's situation is extremely dire right now, and it will require great leadership and shared sacrifice in order to turn things around. Fortunately, there are already some glimmers of hope.

The big three auto companies, for example, are now profitable again after having experienced extreme difficulties in 2008 and 2009. GM (NYSE: GM  ) and Chrysler still have a significant presence in the city, while Ford (NYSE: F  ) is based in nearby Dearborn. Both GM and Ford have seen their share prices rise by 29% so far in 2013.

Also, Detroit's downtown is reviving with Quicken Loans founder Dan Gilbert having invested more than $1 billion. Warren Buffett is a huge fan of Gilbert, and was recently very complimentary of the latter's efforts on behalf of Detroit.

Finally, Detroit has a new mayor who appears to possess the kinds of skills that will be essential for turning the city around. The path ahead will be difficult, but at least one great investor is hopeful. At a recent event for small businesses in Detroit, Warren Buffett said that he has a "real love for the city, and the potential is huge." He also said, "The United States with a flourishing Detroit is going to be a lot better than without one." I think all Americans would agree with that.

Note on sources
For the facts listed above, I relied primarily on the City of Detroit's Proposal for Creditors and the actual Chapter 9 bankruptcy filing. I also benefited from the outstanding investigation How Detroit Went Broke by the Detroit Free Press.

As every savvy investor knows, Warren Buffett didn't make billions by betting on half-baked stocks. He isolated his best few ideas, bet big, and rode them to riches, hardly ever selling. You deserve the same. That's why our CEO, legendary investor Tom Gardner, has permitted us to reveal The Motley Fool's 3 Stocks to Own Forever. These picks are free today! Just click here now to uncover the three companies we love. 


Read/Post Comments (6) | Recommend This Article (12)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 30, 2013, at 11:17 AM, TaxPayer wrote:

    You missed the most important fact. The one that explains how this ALL happened is they have been electing Democrats as mayors and city leaders for over fifty years.

    Why is it none of the media ever mention this fact?

  • Report this Comment On December 01, 2013, at 5:21 AM, lem2004 wrote:

    Tax Payer,Give it a rest.

  • Report this Comment On December 02, 2013, at 3:26 PM, gskinner75006 wrote:

    20. Doesn't matter if you live there or not. You are going to pay for this.

  • Report this Comment On December 02, 2013, at 6:21 PM, xetn wrote:

    You also missed the fact that there has been an economic (make that free market) renaissance going on due in large part to the collapse of the city government being unable to enforce its own rules. For example, abandoned lots have been converted into gardens and one individual has started planting trees on numerous lots. Small businesses have been cropping up all over the city and there has been a migration of people back to the city to take part in the new market.

    Much more at:

    http://detroitrusttoriches.blogspot.com/

  • Report this Comment On December 02, 2013, at 8:48 PM, fromthecenter wrote:

    I wonder how many of the 21,000 retirees and 9,000 employees of the city actually live in the city and how many live in the low tax suburbs that surround the city? I guess the same may be asked of the employees of the companies that have maintained a location in the city of Detroit. Could it be that the city is expected to support the lives of the people living in the suburbs without benefiting from their taxes?

  • Report this Comment On December 03, 2013, at 2:21 PM, leehawks wrote:

    No, Lem you need to give it a rest, Taxpayer is absolutely correct. The fact that Dems have run Detroit into the ground should be trumpeted from every hilltop. I live 30 miles away so I see it all the time. Our country is also being destroyed by the democrat party. Look around at the economy for the last few years. Now add in Obamacare. Then tell me how well that is going for us all.

    And to "from the center": Detroit has a city tax that they inefficiently collect from workers that live in the suburbs and the city.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2746872, ~/Articles/ArticleHandler.aspx, 9/2/2014 8:25:28 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement