Detroit Bankruptcy: Can China Come to the Rescue?


Detroit is going to run out of cash on June 30.

On April 26th, Detroit had $64 million in cash on hand but its current obligations totaled $226 million, making the city insolvent. But some residents still feel this is all a set-up by the State of Michigan to impose control.

Detroit Emergency Manager Kevyn Orr's new report calls the city "dysfunctional and wasteful after years of budgetary restrictions, mismanagement, crippling operational practices and, in some cases, indifference or corruption.” Expenses exceeded revenues by $100 million a year on average between 2008 and 2012 demonstrating astounding financial mis-management. 

This evaluation comes as a result of thorough analysis of the city's operations that revealed major systemic flaws in public services. The New York Times summarizes Orr's findings about the Police Department as having "extremely low" efficiency, effectiveness and morale, and ... [out of date] equipment and technology." Twelve out of 52 fire stations are out of service on any given day. For every one worker in Detroit, there are two retirees compounding the fiscal mess because of absurd pension and health care costs.

Detroit's economy has cratered in recent years. The unemployment rate is at 18.3%, triple of what it was in 2000 and double the national average. The population has decreased by 30% just since 2012, which has left 100,000 vacant lots and buildings. 

Many are still not convinced. “It’s not as bad as what they’re trying to make it out to be,” Edward L. McNeil, a local official for the American Federation of State, County, and Municipal Employees, said on Sunday though he had yet to read the details of the report. 

There may be some Chinese hope for growth. Chinese companies are investing in vehicle technology, according to the New York Times: "Everything from seat belts to shock absorbers in retail stores, and hiring experienced engineers and designers in an effort to soak up the talent and expertise of domestic automakers and their suppliers."

These companies are trying to fly as under the radar as possible and avoid litigation or policy changes that will impact their investments. Till then, Detroit is bracing itself for major economic and policy overhauls. The city is likely to go bankrupt without comprehensive restructuring affecting practically every public sector.

The city is going to run out of cash on June 30th if these overhauls are not implemented. Maybe one way to help would be to replace the Police Department by bringing their Robocop statue to life: