Flint May Follow Detroit Into Bankruptcy

Flint May Follow Detroit Into Bankruptcy

The Great Recession popped a lot of bubbles, including the massive debt levels accumulated by many dying industrial towns. The most dramatic collapse was that of Detroit and its descent into bankruptcy. Now Flint, another once-booming auto town, may be forced into bankruptcy itself. And whether or not the city follows suit will likely hinge on a ruling by a judge as to whether or not the city can restructure health benefits to retirees.

The city is being headed by emergency manager Darnell Early, who was appointed by governor Rick Snyder. He has stated that if courts do not provide relief on retirement benefits, that the city will likely be forced into protection under the courts themselves. This essentially means declaring bankruptcy.

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Flint Has Struggled Since GM Left Town

Flint was once a booming auto town, home to more than 200,000 people but as General Motors Company (NYSE:GM) closed down many of its plants, the city fell on hard times. Now, just over a 100,000 people remain in Flint and while GM still maintains some operations, they are only a shadow of what they once where.

Flint has also emerged as one of the most crime ridden cities in the United States. Owing to its high murder and violent crime rates, Flint regularly lays claim to being America’s most dangerous city. While Detroit, Grand Rapids, and other Michigan cities have found other investors besides the auto companies, Flint has struggled.

Michigan, Once the Auto Capital, Now the Bankruptcy Capital?

Besides Flint, about a dozen other cities and counties along with two school districts are under state control. The state government is essentially forced to step in when the local city or school district can no longer pay its bills. Usually, this involves appointing an emergency manager who can then essentially take over governing the city.

While the state government has enjoyed some surpluses as of late as the auto industry has rebounded, it is looking to avoid the dangerous precedence set by bailing cities out. This is one of the chief reasons the state let Detroit, Michigan’s largest city, declare bankruptcy. This signaled that the state would not bail out cities who can’t manage their own finances and instead would leave it to the courts.

Still, a rash of bankruptcies would draw negative publicity for Michigan, a state trying to attract new investors and businesses. Still, the state might not have any other choices besides weathering the rash of bankruptcies, especially if judges decide it the best way to go.

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