Detroit's bankruptcy is an utter defeat

July 19, 2013: 6:54 AM ET

The city's darkest day is a tragedy a long time in the making.

By Doron Levin

Fail.

Fail.

FORTUNE -- The bankruptcy filing on the afternoon of July 18 by the city of Detroit isn't just a massive financial implosion. Nor is it simply a milestone moment, the biggest municipal collapse ever in U.S. history. It is an utter defeat.

Detroit's bankruptcy is a profound failure for a place where once beat the heart of this country, where the economic engine of the American Century roared to life, where a banner of African-American empowerment flew, where the middle class came to know itself, and where timeless aspects of the American Dream were born.

No one should be shocked that Kevyn Orr, Detroit's emergency financial manager, finally took the step of petitioning the federal court for Chapter 9 protection from creditors. This outcome has been at least two years in the making and, by some reckoning, much longer than that. This is the bottom many of us have been gloomily waiting for.

As former General Motors (GM) executives can testify, even the world's biggest automaker can't borrow endlessly against faltering performance and expect creditors to keep furnishing money -- when every financial indicator shows that repayment is impossible. GM got caught with too much debt in late 2008 when credit markets went south. Lenders balked at refinancing GM's debt.

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Detroit, meanwhile, stumbled over a period of decades into irreversible insolvency because its elected officials dithered and dissembled and argued, instead of undertaking tough measures to close fiscal gaps. In truth, the city's financial liabilities were created by the very people who should have been resolving them: One administration after another promised wages, job guarantees, and pensions to city workers that were simply unsustainable.

Why did elected officials make those promises? Probably because they never feared being held accountable. Many of them, dead or retired, will have been correct.

And no one in office was able to reverse the decline of public services such as police and fire protection, emergency medical, transportation, and lighting. Since the 1980s, a few hundred thousand residents threw in the towel and moved away, leaving the 700,000 remaining to bear the brunt. Now those who remained will not get the basic city services they deserve, the police and fire protection they deserve, or the emergency medical care they deserve.

The criminality of ex-Mayor Kwame Kilpatrick and ex-council president Monica Conyers and others, though disgraceful, can't really be blamed as a key factor in the city's failure.

The current mayor, Dave Bing, labored mightily -- to his credit -- to slash budgets and reason with public employee unions, only to watch his efforts undermined by a city council that seemed never to comprehend or be moved by the horrific financial statements they were party to. Just one example: A deal to relieve the city of the expense of maintaining Belle Isle -- a jewel in the middle of the Detroit River -- was shot down because the council somehow viewed its transformation into a state park as an insult, a stain on the city's pride.

Governor Rick Snyder struggled heroically for two years to break the impasse, approving emergency loans, hiring a financial stability board, and finally appointing an emergency manager when it became obvious that Detroit's elected officials weren't willing or able to act. Accusations from his political adversaries notwithstanding, the governor's statutory authority and duty are clear-cut.

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I came to Detroit as a young reporter in 1984, when Coleman Young was mayor. In those days public works projects like Cobo Hall and the People Mover were seen as economic saviors for a city whose white residents had largely left for the suburbs. But the signs that his programs weren't sufficient were evident even then: shattered pavement, broken streetlights, uncollected garbage, blighted neighborhoods.

The struggle of GM, Ford (F) and Chrysler to reinvent themselves in the face of competition from the Japanese auto industry inevitably had repercussions for Detroit. Plants closed. Workers could no longer find jobs. The United Auto Workers and other unions, traditionally the distributors of higher wages and richer benefits, withered.

Detroit is down, not out. A downtown business district has been reborn. Young people are filling up downtown apartments. GM, Ford, and Chrysler are clawing their way back. Urban pioneers in city neighborhoods are tearing down abandoned houses, mowing lots, and planting trees.

Perhaps most importantly, bankruptcy will force a once-great city to face long-neglected obligations and delinquencies. Detroit must overhaul its finances, turn over a new leaf, prove to lenders that it's responsible and deserving of credit. If Detroit can do this, who's to say greatness can't be in its future again?

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