Detroit’s Bankruptcy is nearing finalization. The City has finally reached a settlement with its last creditor FGIC (the monoline insurer who has insured $1.1 billion of the COP’s issued to fund the pension plan). The settlement includes a $150 million in cash, some tax credits, and real estate in downtown Detroit. FGIC will need to recoup its losses by becoming a real estate developer.
Effects on the Municipal Market – Many “talking heads” on television have already begun to predict what city(s) will be the next Detroit. They claim cities like Los Angeles and Chicago are next in line. We disagree, as although both cities do have pension obligations that are large and not fully funded, neither city has had the demographic decay of Detroit. Remember, it took Detroit over 50 years to get to where it is today, as 60% of its population left town during that time period. Los Angeles & Chicago have not even begun this demographic downward spiral.
Reality Check for Other Cities — MainLine feels the Chapter 9 path taken by Detroit will help pave the way for other cities to begin to deal with their pension and aging demographic outlooks. The task will be difficult and we may not be able to measure its success in our lifetime. Detroit will never be the economic and social power it once was, but it could make for a nice large mid-size city along the Detroit River on the Canadian border.
If you’d like to read more, the link is here.