Detroit in largest US bankruptcy

Detroit has become the largest city in United States history to file for bankruptcy after decades of decline and mismanagement rendered the city insolvent.

Michigan's governor, Rick Snyder, said on Thursday that there was no other option to tackle the city's $18.5bn of debts. 

"This is a situation that's been 60 years in the making in terms of the decline of Detroit. From a financial point of view, let me be blunt, Detroit is broke," Snyder said in a video on the state's official website.

Once the fourth largest city in the US, Detroit's population has shrunk from 1.8 million in 1950 to 685,000 today - as crime, flight to the suburbs and the decline of the car-making industry ate away at its foundations and finances.

"The fiscal realities confronting Detroit have been ignored for too long," Snyder said in a statement accompanying the bankruptcy file.

"I'm making this tough decision so the people of Detroit will have the basic services they deserve and so we can start to put Detroit on a solid financial footing.

"The only feasible path to a stable and solid Detroit is to file for bankruptcy protection."

However, the filing puts the city on an uncertain course that could mean laying off municipal employees, selling assets and scaling back already threadbare basic services.

Earlier this year Snyder appointed an emergency manager, Kevyn Orr, with a background in bankruptcy to restructure the city's finances.

Detroit stopped making payments on some of its $18.5bn of debt and obligations last month as the emergency manager sought relief from creditors.

But the city's employee pension plans - which are owed $9bn - filed a lawsuit to prevent any cuts to retirement benefits.

That case is now on hold as a federal judge determines if Detroit is allowed to restructure - and even shed - its obligations in what is known as a "Chapter 9" bankruptcy.

Michael Sweet, a bankruptcy lawyer, said the city would pay current employees, but "beyond that, all bets are off".

"They don't have to pay anyone they don't want to," Sweet said. "And no one can sue them" if they have Chapter 9 protection.

Snyder listed a number of problems that Detroit's financial situation had exacerbated.

The murder rate is the highest in nearly 40 years. Police response times to call-outs average 58 minutes, compared with an average of 11 minutes nationwide.

There are 78,000 abandoned buildings in the city, and 40 percent of street lights do not work.

A lack of funds for maintenance and repairs means only a third of the city's ambulances work and police cars and fire trucks are also in poor condition.

About 38 cents of every city dollar was going to debt repayment and obligations such as pensions, and that was projected to hit 65 cents in the dollar by 2017.

The city's tax rate has reached its legal limit.

Orr's team said Detroit was defaulting on about $2.5bn in unsecured debt to "conserve cash" for police, fire and other services. In recent months, the city has relied on state-backed bond money to meet payroll for its 10,000 employees.