Introduction
Boroughs usually pursue recourse from some or all of their deficits through the legal process of filing bankruptcy. In the United States, cities have a right to petition for insolvency relative to chapter 9 of the federal bankruptcy code. This case study on Detroit’s municipality insolvency is key in understanding the available legal druthers through which cities can recoup optimum performance. Detroit is one of the municipalities in the United States that have completed a petition to file bankruptcy.
Literature Review
The municipality of Detroit completed its petition to file bankruptcy in 2013. When inferring the eligibility of a given municipality to file bankruptcy, there is a need to comprehend its demographics, sources of revenues, and expenditures (“Financial reports,” n.d). Cities need to avoid the inimical impacts of budget deficiency to sustain their current and prospective plans (Cwiek, 2021). The most efficient way through which this can be succeeded is by exploiting alternative sources of finance (Lofchie, 2018). In a nutshell, municipalities should always consider these sources of finance before reaching a point of no return.
Methodology
In this case study, an extensive analysis of secondary data was employed to augment the research solutions about Detroit’s bankruptcy. This particular methodology was suitable because auxiliary sources of data are readily available on the internet. These sources of data were first used to redefine the concept of metropolis insolvency. They were then used to deduce the demographics of Detroit and the specific details of its bankruptcy petition. No drawbacks whatsoever were encountered while exploiting this specific methodology.
Findings and Discussions
The first outcome of this case study is relative to the demographics of Detroit. In regards to the general population, the municipality has a total of 713,777 denizens as per the 2010 census (“Detroit city,” n.d). Females form the preponderance of this population with 52.6% of the total residents (“Detroit city,” n.d). Relative to health, 15.3% of the total number of persons under the age of 65 years with disabilities have medical insurance (“Detroit city,” n.d). Economy-wise, 54.4% of persons above the age of 16 years are in the civilian labor force as of 2019 (“Detroit city,” n.d). Lastly, 35.0% of the entire population in Detroit municipality is in poverty (“Detroit city,” n.d). This is quite a huge percentage of poverty for any municipality in the United States.
Secondly, income tax has been a major source of revenue for Detroit for the fiscal years of 2019, 2018, and 2017. As of the fiscal year that ended 30 June 2019, income tax formed 32% of the total revenue collected (“Financial reports,” n.d). The second dominant inception of revenue for the municipality was wagering taxes (“Financial reports,” n.d). For the fiscal year that ended 30 June 2019, wagering taxes formed 16% of the total resources collected. Relative to expenditures, Detroit’s major expenditure was on the police and fire outbreaks (“Financial reports,” n.d). This was for the fiscal years that ended 30 June 2019, 2018, and 2017.
Another finding is relative to the issues contributing to the municipality’s budget deficits. The most recent facet that has prompted budget deficiency for the city is the coronavirus pandemic (Cwiek, 2021). As a result of the pandemic, the city’s estimated revenue for the 2022 fiscal year was set at $995 million (Cwiek, 2021). This is significantly less than the revenue that was collected in 2019. The drop in revenues consequently resulted in the layoff of thousands of workers.
Lastly, Detroit should utilize alternative financing options that can replenish the budget deficit. Through Crowdfunding, external parties invest, lend, or contribute a significant amount of money to the municipality (Lofchie, 2018). Another source of financing which is pertinent in filling the budget deficits is venture capitalists (Lofchie, 2018). This revolves around investment companies and governments that are ready to provide cash in return for part-ownership of the municipality’s projects. The last alternative financing option is term loans issued by international banks like the IMF.
Conclusion
In conclusion, Detroit is a perfect example of municipalities in the United States that have filed bankruptcy successfully. While evaluating the bankruptcy status of a given municipality, it is necessary to assess the comprehensive demographics. It is also indispensable to examine the previous trends of the municipality’s sources of revenue and expenditures. Lastly, before filing bankruptcy, boroughs need to explore alternative sources of finance to eliminate budget deficits.
References
Cwiek, S. (2021). Duggan: COVID-19 impacts to linger in Detroit budget. Michigan Radio. Web.
Detroit city, Michigan; Michigan. (n.d). Census. Web.
Financial reports. (n.d). Detroitmi. Web.
Lofchie, M. F. (2018). The state of the nations: Constraints on development in independent Africa. Univ of California Press. Web.