The Examiners: Philip Dublin on Municipal Distress

As Detroit nears a crucial point in its restructuring, what lessons does the city’s historic bankruptcy offer troubled municipalities?

Having worked on the Chapter 11 case of auto supplier Collins & Aikman from 2005 to 2007 and, as a result, spending significant amounts of time in Detroit, it was clear that Detroit was a city in despair. The financial crisis of 2008 was the tipping point, making it only a matter of time before Detroit—with mounting indebtedness, swelling pension obligations, an aging population, urban flight and the disintegration of its cornerstone enterprises—would need to find a way to restructure.

Detroit’s resulting Chapter 9 case presents a clear example of the need for a city’s leaders to recognize early when its fiscal foundation is failing and corrective measures are needed. Many articles have been written about the need for states to pay closer attention to their municipalities, to recognize the early signs of financial crisis and be proactive with aid and policy measures to steer their cities away from the type of challenges faced by Detroit. Attention must also be paid at the local level, and education is key. Leaders must be educated to recognize the warning signs of financial trouble, to insist on advancing with the times, obtaining necessary technology and learning how to teach those that implement policy to ensure that the ship they pilot does not become rudderless.

In order to provide this education, however, the city will need people to invest in its future; investments both from inside the city, through its residents, and from outside, through traditional investors. These investors, whether institutional investors or investment funds, are more knowledgeable and sophisticated than ever. City leaders must be just as knowledgeable and sophisticated to access capital from these resources for their jurisdictions, whether to address a current crisis or to enable their cities to thrive.

Philip C. Dublin is a partner at Akin Gump Strauss Hauer & Feld LLP in New York, where he concentrates on creditors’ rights, corporate restructurings and bankruptcy law.