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“Detroit has a very high level of debt and the bankruptcy can correct some of it, but is it going to turn around its economy quickly? That’s probably unlikely,” said Jeff Previdi, Managing Director and Co-Head of Local Government Ratings at Standard and Poor’s.

To be sure, Detroit’s financial disarray was decades in the making: a downward spiral of company departures and failures accompanied by a dramatic drop in its population, to just below 700,000 from a peak of 1.8 million, and a rise in crime.

Once the cradle of U.S. automotive industry and Motown music, Detroit appears to have run out of alternatives to bankruptcy barring a bailout from the state.

New York, Cleveland and Philadelphia previously teetered on the edge of bankruptcy but Detroit is the first major U.S. city to file for bankruptcy, pressured by US$18.5-billion of outstanding liabilities.

To this point, only much smaller local governments have gone the bankruptcy route without external help and facing similar issues.

Take for example Vallejo, California, with about 116,000 people. It spent more than three years in bankruptcy from 2008 to 2011, weighed down by generous labour contracts and retirement benefits.

The city, about 30 miles northeast of San Francisco, was allowed to terminate its collective bargaining agreements, but it never renegotiated some US$128-million of unfunded pension liabilities.

And while Vallejo generated about US$34-million in savings on some of the liabilities it faced heading into bankruptcy, those have been nearly matched by expenses related to the bankruptcy itself, according to a 2012 study by Standard & Poor’s.