Last Friday, a federal judge approved a plan that would hopefully allow Detroit to escape years of financial ruin. The approved plan comes less than 16 months since Detroit became the largest city in the United States to file for bankruptcy. The plan enables the city to clear $7 billion in debt and invest approximately $1.7 billion in neglected city services.
The Motor City did not fall into financial ruin because of a couple bad months. A number of factors led to this which includes the long decline in the auto industry and a population flight to the suburbs, both of which have hurt the city for decades. After years of not bringing in enough tax revenue to cover pensions, retiree health insurance, and ballooning debt levels, the city was left with no other choice but bankruptcy.
Detroit's departure from bankruptcy does not signal an end to its challenges. While the city is now able to invest almost $2 billion in needed improvements it doesn't automatically mean thy will attract businesses or bring new residents into the city. Despite technically being out of bankruptcy, this is only the beginning for the Motor City. Only time will tell if it can become viable again and rebuild its tax base.
Ethan Wade, Financial Advisor
(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp. The author's opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).