This brings me no joy. I went to grad school in Detroit. I like this city. It has character, it has guts, it has potential.
It also has no cash to continue operations. And that sucks.
Detroit filed for chapter 9 bankruptcy a few hours ago.
There are many reasons for this, but there are a number of specific ones, that are generalizable to businesses as well.
First, population decline has led to a tax revenue decline. Detroit is no longer a large US city. Population is hovering just over 700k people, and dropping rapidly. Fewer people means smaller tax base. One may argue about the collection efficiency (low) and other issues, but the point is that to collect a fixed/growing tax revenue amount from a smaller group of people means you raise their tax rates. Detroit has not been in a position to absorb tax rate increases in several decades.
Detroit had filed for bankruptcy protection a while ago. The rationale for this was simple, they simply did not have the cash flow to pay for all their liabilities. They had limited access to debt markets for a number of reasons, and they couldn’t keep cranking up the taxes on residents and businesses in the … Read moreAn article on Detroit that is worth the read