High unemployment, a mass exodus of residents, a low tax base, large expenditures, few jobs and low revenue streams are the stuff that disasters are made of. And that is what the once thriving Motor City faces as it inches closer to insolvency.
The Detroit city government is weeks away from running out of the cash it needs to operate, according to an initial report from the emergency manager overseeing its finances, Kevyn Orr, the bankruptcy attorney appointed by the state in March. He laid out a bleak financial position for the city that, if it continues, will leave the city without the ability to care for itself by the end of June 2013.
“The city has effectively exhausted its ability to borrow,” Orr stated in the report, adding that the city “is clearly insolvent.” To avoid running out of cash before the end of its fiscal year on June 30, it must “defer payments on its current obligations,” including more than $100 million in pension payments that are due.
“No one should underestimate the severity of the financial crisis,” Orr said in a statement. “The path Detroit has followed for more than 40 years is unsustainable and only a complete restructuring of the city’s finances and operations will allow Detroit to regain its footing.”
Among Orr’s findings:
- Detroit is being crushed under the weight of its colossal $15 million debt after years of borrowing funds just to pay its bills.
- Its revenue streams have plummeted. Detroit, which has witnessed an exodus of residents for decades, is now hemorrhaging people. The population of Motown has fallen by 30 percent, since 2012. This has resulted in a drastic drop in revenues in both income taxes and property taxes.
- There are more than 100,000 vacant lots and buildings littering the landscape of the city, making the city an unattractive destination for residents, newcomers, immigrants, conventioneers and vacationers.
- Detroit needs a temporary reprieve from its “accounts payable,” including the debt payment of $246 million, or 20 percent of the city’s general fund budget.
- The unemployment rate in Detroit is more than double the national rate with a soaring 18.5 percent clip, and this is not counting the underemployed and part-time employees looking for full-time work — nor those who have stopped looking at all. That rate is also nearly triple the unemployment rate Detroit had in 2000.
