Jim Armitage: Desolation of Motor City carries a warning for other American cities as Detroit files for bankruptcy

Bondholders and unions will see Detroit as a test-case for cash-strapped cities

Global Outlook For many advocates of the free market, the collapse into bankruptcy of one of the biggest cities in the US will doubtless be seen as the epitome of good sense. If a city fails to make enough of a profit to pay off its debts, just like a company, it should collapse and its creditors should lose out.

The problem is, while this may make sense for a company, like, say, Chrysler or General Motors, it’s hard to see how it can be anything but another disaster for the long-suffering residents of this once-blessed conurbation.

Already, services have been cut dramatically. Around 40 per cent of the city’s street lights no longer work. More than half of its parks have been closed since 2008. Only a third of ambulances are operating. Police take nearly an hour on average to respond to calls in a place where the murder rate is at a 40-year high.

The Michigan governor (a Republican ruling over this Democrat city) says he hopes this will be the first day of the city’s path to recovery, “the foundation of the city’s future”, as he puts it.

But that’s far from clear. Where bankruptcy allowed Detroit’s big car makers to shrug off their past debts, pension and healthcare liabilities, this was based on the promise of renewed growth in the future. The promise of fairly reliable future cashflow with which to negotiate renewed terms.

In the case of Detroit, as with Greece, there can be no such promise. It’s hard to see how, in this city that has been in decline for the best part of 50 years, it will be able to attract new investment. The decline of centrally provided services such as police and ambulances is hardly an advertisement for new businesses to move there, or for wealthy young go-getters to move their families in. Quite the opposite: the population has fallen from 1.8 million in its 1950s pomp to fewer than 700,000 today.

The flight has gathered pace in recent years, with more than a quarter of the population packing its bags since 2000. That means thousands upon thousands of taxpayers disappearing every month. It means house prices collapsing, with a further impact on the city’s income as property tax revenues melt away. It means more empty, boarded-up districts to put off newcomers.

It’s not even clear how bankruptcy will make it easier to force creditors and state employees to accept bigger haircuts on their loan repayments and pension entitlements. The municipal bondholders and the unions will clearly see Detroit as a test case for other cash-strapped cities. A line that must be held. Expect them to throw the country’s best lawyers, and big bucks, at the situation.

It’s plausible that a judge may have more luck in the negotiations than the city’s emergency manager, Kevyn Orr, has had so far. But the city will still need to win support from the majority of those it owes for the judge to give any plan his or her blessing.

Uncertainty abounds. But one thing’s for sure, Detroit will be using up huge resources of time and money sorting out this mess at a time when its citizens can ill afford either.

Alarming number of fracking violations

What the sprawling city of Detroit really needs is a whopping great shale gas discovery. Believe it or not, the state of Michigan is actually not too badly furnished with fracking opportunities. Unfortunately for the people of Detroit, most of it seems to be far to the north, away from the empty acres of Motor City’s wastelands.

One can imagine that given the Detroit’s current plight, it would bend over backwards to appeal to exploration companies to set up shop there – even ignoring the occasional tremor or pollution incident, such as that which hit the courts of fellow rustbelters in Pennsylvania this week.

The Exxon subsidiary XTO was fined and ordered to spend $20m (£13m) improving the way it handles the water it jets into the ground to free up the gas during the fracking process. The water emerges full of chemicals, including barium, strontium and chlorides. Failure to handle it properly and you end up getting serious pollution of the local water supplies, as happened when XTO polluted a tributary of the Susquehanna river in Pennsylvania with up to 57,400 gallons of the sludge over a period of two months.

It’s the latest in a long run of fracking violations in the state which are causing unease among many residents.

Just to give an idea of how widespread environmental mishaps are, records show that 25 of XTO’s wells have had 179 violations of  pollution laws. Thanks largely to XTO’s poor environmental performance, the 1,000 citizens of Penn Township, Lycoming County, where this incident occurred, have endured one of the highest number of drilling violations in the  shale gas-rich state.

Not wishing to spread alarm, but residents of Surrey might take note. XTO has its UK base in Exxon’s UK and European headquarters in Leatherhead, not a million miles from the proposed fracking sites of the Home Counties.

Exxon so far has adopted a watch-and-wait stance on fracking in the UK. But they’ll surely have noted new tax breaks for Britain’s would-be frackers announced yesterday.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Content Writer - Global Financial Services

£25000 - £30000 per annum: Recruitment Genius: From modest beginnings the comp...

Recruitment Genius: Web Developer - PHP

£35000 - £40000 per annum: Recruitment Genius: From modest beginnings the comp...

Recruitment Genius: Field Sales Consultant - Financial Services - OTE £65,000

£15000 - £65000 per annum: Recruitment Genius: This is an exciting opportunity...

Recruitment Genius: Loan Underwriter

£18000 - £20000 per annum: Recruitment Genius: This is a fantastic opportunity...

Day In a Page

A nap a day could save your life - and here's why

A nap a day could save your life

A midday nap is 'associated with reduced blood pressure'
If men are so obsessed by sex, why do they clam up when confronted with the grisly realities?

If men are so obsessed by sex...

...why do they clam up when confronted with the grisly realities?
The comedy titans of Avalon on their attempt to save BBC3

Jon Thoday and Richard Allen-Turner

The comedy titans of Avalon on their attempt to save BBC3
The bathing machine is back... but with a difference

Rolling in the deep

The bathing machine is back but with a difference
Part-privatised tests, new age limits, driverless cars: Tories plot motoring revolution

Conservatives plot a motoring revolution

Draft report reveals biggest reform to regulations since driving test introduced in 1935
The Silk Roads that trace civilisation: Long before the West rose to power, Asian pathways were connecting peoples and places

The Silk Roads that trace civilisation

Long before the West rose to power, Asian pathways were connecting peoples and places
House of Lords: Outcry as donors, fixers and MPs caught up in expenses scandal are ennobled

The honours that shame Britain

Outcry as donors, fixers and MPs caught up in expenses scandal are ennobled
When it comes to street harassment, we need to talk about race

'When it comes to street harassment, we need to talk about race'

Why are black men living the stereotypes and why are we letting them get away with it?
International Tap Festival: Forget Fred Astaire and Ginger Rogers - this dancing is improvised, spontaneous and rhythmic

International Tap Festival comes to the UK

Forget Fred Astaire and Ginger Rogers - this dancing is improvised, spontaneous and rhythmic
War with Isis: Is Turkey's buffer zone in Syria a matter of self-defence – or just anti-Kurd?

Turkey's buffer zone in Syria: self-defence – or just anti-Kurd?

Ankara accused of exacerbating racial division by allowing Turkmen minority to cross the border
Doris Lessing: Acclaimed novelist was kept under MI5 observation for 18 years, newly released papers show

'A subversive brothel keeper and Communist'

Acclaimed novelist Doris Lessing was kept under MI5 observation for 18 years, newly released papers show
Big Blue Live: BBC's Springwatch offshoot swaps back gardens for California's Monterey Bay

BBC heads to the Californian coast

The Big Blue Live crew is preparing for the first of three episodes on Sunday night, filming from boats, planes and an aquarium studio
Austin Bidwell: The Victorian fraudster who shook the Bank of England with the most daring forgery the world had known

Victorian fraudster who shook the Bank of England

Conman Austin Bidwell. was a heartless cad who carried out the most daring forgery the world had known
Car hacking scandal: Security designed to stop thieves hot-wiring almost every modern motor has been cracked

Car hacking scandal

Security designed to stop thieves hot-wiring almost every modern motor has been cracked
10 best placemats

Take your seat: 10 best placemats

Protect your table and dine in style with a bold new accessory