Stateside: What would a Detroit bankruptcy bring?

Dec 5, 2012

As the prospect of a Chapter 9 Bankruptcy looms over Detroit, many are wondering what will become of the city.

We spoke with Forbes.com contributor Micki Maynard and the Detroit News' Daniel Howes about restructuring the city and those who run it.

“It would be very difficult for the image of the city. It would be the largest municipal bankruptcy in the history of the country. It would probably last three years and be very unforgiving to the employees and residents,” said Howes.

Howes insisted that taxpayers would mostly likely have to fund the restructuring of the city.

“If Detroit were a corporation it would probably already be in bankruptcy. I don’t think this will get all the way to the finish line without the federal government weighing in in some way,” said Maynard.

“Under Chapter 9, the Tenth Amendment of the Constitution comes into play here. There are limits to what the federal government can do in terms of what it can tell states to do,” said Howes.

The question of who would run the city under the bankruptcy was of importance to Howes.

“It’s not clear who’s in charge. Because of the charter, you have a debtor. Who would the debtor be? Would it be City Council president?” Howes asked.

Bringing in the federal government could potentially reveal important information about Detroit’s political and economic past.

“If you get the federal courts involved, we will get more transparency on the Detroit situation,” said Maynard.

Maynard added she could see the reconstruction occurring for the next decade.

Howes insisted this is a time of great urgency for Governor Snyder.

“The Governor historically has thought Detroit’s not going to go bankrupt. And this week he’s begun to be more open about the prospect. I think Rick Snyder faces a number of difficult issues that will define his governorship,” said Howes.

“This bankruptcy of the city is a one-time historic opportunity for a municipal restructuring. You’re going to have a room filled with Detroit VIP’s who all have the same objective: They want to see this city fixed,” said Maynard.

Maynard pointed to two characteristics she feels are telling of Detroit’s future plans.

“If you see no action on the emergency manager law and you see payless paydays, that’s what gets us closer to the decision of a Detroit bankruptcy,” said Maynard.

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