Detroit Bankruptcy Could Impact Cities Across the State

By: Anthony Sabella Email
By: Anthony Sabella Email

When a state's largest city files for bankruptcy, the effects are felt everywhere. MSU Economist Eric Scorsone says Mid-Michigan is no different.

"It is going to affect us, at least in some indirect ways," he said.

First, the good news. Mid-Michigan's economy and the economy of the rest of the state should be safe.

"There may be some investors that get nervous about Michigan because of Detroit, but I don't foresee a huge impact," he said.

But Detroit's bankruptcy may hit cities trying to take out loans by making them more expensive.

"This is going to have an effect on the ability of other local governments to borrow because one of the things that is likely to emerge from this is some of the creditors in the city are not going to be able to get a hundred cents on the dollar," said Patrick Anderson of Anderson Economic Group.

Scorsone says any city retiree should pay attention to what happens because Detroit's difficulties funding its pensions are shared by cities across the state.

If Detroit is able to get out of paying them in full, other cities that file for bankruptcy in the future could follow suit.

"People would assume those are protected pensions and those can't be touched, but now, all of a sudden, a city has found a way to go after those," said Scorsone. "Granted, it's bankruptcy, but it means it isn't as protected as you thought."

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