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Motor City emerges from bankruptcy


A judge has cleared Detroit to emerge from bankruptcy (AP)

A judge has cleared Detroit to emerge from bankruptcy (AP)

A judge has cleared Detroit to emerge from bankruptcy (AP)

A judge has cleared Detroit to emerge from bankruptcy and approved a tough turnaround plan after years of corruption, mismanagement and an exodus of residents brought the one-time industrial powerhouse to financial ruin.

Judge Steven Rhodes brought the case to a close a remarkably speedy 16 months after Detroit - the cradle of the car industry - became the biggest city in US history to file for bankruptcy.

The plan calls for cutting the pensions of 12,000 non-public safety staff by 4.5%, erasing seven billion dollars (£4.4bn) of debt and spending 1.7 billion dollars (£1bn) to demolish thousands of blighted buildings, make the city safer and improve long-neglected basic services.

The Motor City was brought down by a combination of factors, including misrule at City Hall, a long decline in the car industry, and a flight to the suburbs that caused the population to plummet to by 688,000 from 1.2 million in 1980.

The exodus has turned entire neighbourhoods into desolate, boarded-up landscapes.

Detroit did not have enough tax revenue to cover pensions, pensioners' health insurance and buckets of debt sold to keep the budget afloat.

Judge Rhodes praised decisions that settled the most contentious issues in the bankruptcy case, including a deal to prevent the sell-off of world-class works at the Detroit Institute of Arts and a consensus that prevented pension cuts from getting even worse for thousands.

Politicians and civic leaders, including Michigan governor Rick Snyder, hailed the decision.

The case concluded in lightning speed by bankruptcy standards. The success was largely due to a series of deals between Detroit and major creditors, especially pensioners who agreed to accept smaller cheques after the judge said they had no protection under the Michigan constitution.

Bond insurers with more than one billion dollars (£632,000) in claims also dropped their push to sell off art and settled for much less.

The most unusual feature of the plan is an 816 million-dollar (£516m) pot of money funded by the state, foundations, philanthropists and the Detroit Institute of Arts.

The money will forestall even deeper pension cuts and also avert the sale of city-owned art at the museum - a step the judge warned "would forfeit Detroit's future".