“No, the judge expects the city should not commit to spending money it doesn’t and won’t have. Having unlimited taxing authority means prolific spending obligations cannot be dodged via bankruptcy.”
They don’t have unlimited taxing authority. Detroit’s tax rates are already at the maximum the law allows.
Real estate values have crashed, so many properties raise a small fraction of the property tax they used to raise. Many property owners simply don’t pay the tax, and walk away. The city can foreclose the near-worthless properties, but they can’t find buyers for most of them.
Income taxes have a similar problem. There are many fewer people in Detroit, earning much less income, than in better times.
The city can’t meet its obligations. That fact is inescapable, whether the bankruptcy proceeds or is blocked. The city has no way to raise the money to meet its obligations. Most of the money they owe will never be paid back. Their pension contracts will be paid off at a rate less than 100%. Their existing contracts with employees will be voided or radically restructured, or perhaps the paychecks will simply start to bounce.
The injured parties can sue to get what they are owed. Some of them may win judgements. But they won’t recover much money, because Detroit DOES NOT HAVE IT.
Bankruptcy, if the various courts allow it proceed, will stop the injured parties from suing, getting liens on Detroit’s assets, freezing the bank accounts, etc. That’s the “protection” that bankruptcy provides for the debtor.
At this point, no private entity will voluntarily loan Detroit any money until a bankruptcy court shows a plausible way for the money to be repaid. No entity will insure any more of Detroit’s bonds. Detroit will have to make do with the cash in the bank accounts, and whatever pittance of tax revenue comes in day by day.
If the bankruptcy remains blocked for more than a few days, Detroit won’t be able to buy gasoline for the police cars. In a few months, the power company will shut off the lights in city hall because the power bill is delinquent. There’s no plausible limit to how bad things could get.
bump