For those who are interested in gaining some insight into Detroit's fiscal problems, here's a good report:
http://www.crcmich.org/PUBLICAT/2010s/2010/rpt361.pdf
It should be noted that the situation has broadly and significantly deteriorated since that report was issued. Nevertheless, the report provides some basis for understanding the magnitude of challenges confronting Detroit.
Notice, for example, on Table 3, just 10.9% of Detroit's population have attained a bachelor's degree or higher vs. 27.7% for the nation as a whole. That's a colossal gap. The unemployment rate in Detroit was running at just over 24% (p.2) at the time of the report. In other words, Detroit was suffering from Great Depression-type conditions. If one also examines the monthly employment situation reports published by the Bureau of Labor Statistics, one finds unemployment is inversely related to educational attainment. Hence, not only was Detroit suffering from Great Depression-type conditions, a substantial share of its extreme incidence of unemployment is structural, not cyclical in nature. That means no quick reductions are likely anytime soon.
Today, the city is largely a desert when it comes to business formation and economic activity. It finds itself in that situation on account of, among other things, chronic disinvestment in education (city and state finances) that resulted in a labor pool that was increasingly unattractive to business. With the global economy growing more competitive, the premium on knowledge increasing in the information era, and reduced trade barriers creating ever higher costs associated with a lack of competitiveness, businesses looked elsewhere. Lack of economic opportunity is but one factor among a complex web of overlapping factors (i.e., rising crime, racial divisions, etc.) that have driven Detroit into crisis.
As the city's long-term structural situation deteriorated, both Michigan's and Detroit's political leaders were less responsive than they should have been given the gradual nature of the decay. They were far more bystanders than change agents.
Some on talk radio today cast the crisis as one of political ideology. Yet, if those hosts were right, then the GOP would have passed a balanced budget as affirmed by CBO, on repeated occasions, would have seamlessly addressed such social challenges as the immigration issue, and provided a coherent alternative health reform package that would have dramatically reduced uninsurance and slowed the rise of health costs, etc. That hasn't happened.
Moreover, Michigan has seen both Republican and Democratic governors, none of whom took a decisive approach to head off the crisis toward which Detroit was headed. Action occurred when it was universally evident that Detroit was on the brink of fiscal catastrophe, long after easy remedies were no longer available. In other words, as often happens in any organization, there was lack of comprehension of the gravity of the changing structural environment confronting Detroit, leading to more of a bias toward the status quo in policy making both at the State and City level than bold reform.
Going back to the point about Detroit's educational attainment problem, there was no major infusion of investment in Detroit's educational system to address what was becoming a severe gap in educational attainment. In part, that gap is the result of better educated residents departing for better opportunities and other socioeconomic reasons (depletion of human capital). In part, it is the result of grossly underperforming schools (failure to regenerate human capital).
Given these, among other complex socioeconomic issues, stabilizing Detroit's finances via bankruptcy will likely be one of the city's easier challenges. Putting the city on a sustainable path of growth, which depends on rebuilding human capital could be more difficult.