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Detroit Bankruptcy: Silver Linings?

Neal Peirce / Aug 02 2013

For Release Sunday, August 5, 2013
© 2013 Washington Post Writers Group

Neal PeirceYears ago I sat across a dinner table with Coleman Young, Detroit’s legendary and divisive mayor from 1974 to 1994. Young related a story of wielding a stick to subdue – in self-defense, he claimed – a corporate “goon” he thought was about to assault him in a United Auto Workers showdown with the Ford Motor Co. in the 1930s.

Detroit has always been a tough town.

With post-World War II white flight leaving an overwhelmingly African-American city, its relations with its suburbs ranged from indifference to deeply race-tinged hostility. A city of 1.8 million people in 1950 is down to 700,000 – a staggering 61 percent decline in population.

Today vast sections of Detroit’s 138 square miles are marred by vacant lots, burned-out hulks of buildings and abandoned storefronts. Rates of violent crime are alarmingly high; residents respond with metal bars and barricades on their homes. Police response time is a painful 58 minutes (the U.S. average: 11 minutes). Educational levels are low, and the schools lag alarmingly. Major retailers have long since decamped for the suburbs.

And recently the world has heard the alarming news: Detroit has become the biggest American city ever declared officially bankrupt. It’s $18 billion short of the resources it needs to pay its massively underfunded pension and bond payment obligations – the equivalent of $25,000 per resident.

There’s no doubt: the odds against early solvency are immense. Consider pensions alone: Detroit has only 3,200 active workers paying into a system that benefits 9,300 retirees. Although the average pension benefits are fairly modest by national public employee standards, bankruptcy proceedings may well pit retired workers against municipal bondholders for payment. Such is the price, some have commented, of decades of massive suburban flight.

Against all that, it would seem amazing that emergency manager Kevin Orr and Michigan’s Republican Gov. Rick Snyder, at the press conference announcing the official bankruptcy decision, stood at a podium with signs declaring: “Reinventing Detroit.” In their remarks, both made clear they understand a city can’t, like a private company, simply be liquidated in bankruptcy. Basic services, from lighting the streets to sewer service to answering 911 calls, must be maintained. Orr’s bankruptcy plan, he noted, includes a commitment to spend $125 million a year for 10 years to remediate blight and address the needs of Detroit’s citizens.

A doom-and-gloom scenario for Detroit is also defied by the spirited revival already occurring in just 5 square miles of the 138 – starting at the Detroit riverfront, then along the increasingly vibrant Woodward Avenue Midtown corridor area to the so-called “New Center,” where General Motors formerly had its headquarters.

Immense new private and public capital has been pouring into this area, which is home to thriving public institutions – the Detroit Medical Center, the Henry Ford Hospital, Wayne State University (29,000 students) and the College for Creative Studies (one of the world’s foremost design colleges). Concurrently, young creative professionals are generating activity – “buzz” for downtown Detroit not seen in decades.

The area has been invigorated by Dan Gilbert, a dedicated industrialist, sports team owner and urbanist who moved his Quicken Loans firm, with its 7,000 jobs, from suburban Farmington Hills to downtown. Blue Cross Blue Shield has moved thousands of workers into downtown as well, as have other major companies. Overall, close to $2 billion in new investment has come into the area. Now it has a startling shortage of housing units.

Detroit area foundations – Kresge, Skillman, McGregor and Hudson-Webber, plus the nationally based Living Cities – have poured impressive resources into the revival. Together with Chrysler and General Motors and business leaders, the foundations contributed heavily to a $100 million fund to help build a new 3.3-mile light rail line from downtown to Midtown – a scale of local contribution former U.S. Transportation Secretary Ray LaHood hailed as “unprecedented.”

Making the new line possible was the Michigan Legislature’s creation, at Snyder’s urging, of a Detroit Regional Transit Authority – a move disgracefully resisted for decades by anti-Detroit suburban political forces. Now Orr is considering a plan to get neighboring jurisdictions, far wealthier than Detroit, to make use of Detroit’s superior water and sewer operations, an efficiency move that could unlock $50 million to $150 million of regional resources.

Such moves suggest a new era of regional collaboration – pushed forward by state power – to benefit the large U.S. metro region historically most resistant to it.

A huge agenda remains – for example, obliging Detroit homeowners to leave mostly deserted blocks the city simply can’t afford to serve with water, sanitation or police services. Mayor Dave Bing’s earlier plan to do that got torpedoed by hold-out residents. Maybe bankruptcy can finally push his move forward, opening new land for inventive experiments in urban agriculture.

One is reminded that, as wondrous as democracy is, sometimes it takes a disaster or emergency to trigger rational steps long resisted by entrenched forces – ethnic, political, regional, sometimes just neighborhood-based. Detroit is clearly at that point, as frightening as its bankruptcy may, at first blush, seem to be.

Neal Peirce’s e-mail is

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  1. Posted August 2, 2013 at 11:20 am | Permalink

    Sometimes, Neal, we need to remember that we are all on the same ship. Fighting over who owns the hole in the hull isn’t very useful.

  2. Gino Carlucci
    Posted August 2, 2013 at 11:38 am | Permalink

    I have one small idea to help Detroit that I think could aid in its recovery. We have historical villages in Plimoth Plantation, Colonial Williamsburg. Sturbridge Village, etc. Why not preserve some of the buildings slated for demolition and create a historical village representing the 1920’s — Detroit’s heyday? Several blocks could be preserved and restored. It would need to include residences (which could serve as hotel rooms) as well as storefronts, offices, schools and perhaps an auto factory. Visitors could experience life in the 1920’s, including restaurants and speakeasy’s (since Prohibition was in effect). Docents could portray characters from the era. It could be a popular tourist attraction.

  3. May
    Posted August 2, 2013 at 2:57 pm | Permalink

    Snyder understands Detroit metro’s future is tied with Detroit. He also understands job sprawl is bad. He has a more mature understanding than the GOP leaders in North Carolina who have recently enabled sprawl.
    Can Placemaking Save Michigan? 2011/05/26/with-help-from-a- republican-governor-michigan- moves-toward-livability/
    With Help From a Republican Governor, Michigan Moves Toward Livability
    MI needs to implement a financial monitoring system. A Detroit like collapse in a Japanese city (Yubari) made Japan also change its ways and they have developed a system of alerts. In 2007 the Local Finance Soundness Law was passed to prevent any such examples.
    Please note at CFR, this post also commended the proactive approach:
    Policy Initiative Spotlight: North Carolina’s Local Government Commission
    Le Monde recently published an article about Detroit and in it was discussed why French local governments will not be like Detroit.
    A city can go bankrupt in France?

  4. Marc Brenman
    Posted August 2, 2013 at 3:07 pm | Permalink

    I’m not seeing any silver lining. Neal has underemphasized the effect that institutional racism has had on Detroit, and Detroit residents’ self-inflicted wounds.

  5. Lance Buhl
    Posted August 2, 2013 at 3:07 pm | Permalink

    Neal, another good and timely article. I did some work for Ford Foundation 10 or so years ago with respect to assessing the state of community development in the City, working primarily with LISC there. What struck me most was the weakness, almost scarcity, of well-functioning CDCs. There were very few and even fewer with any track record of success. Coming from Cleveland, with a dense, well-funded and otherwise supported, CDC community, the paucity in Detroit was very troubling. I had to occasion last fall to revisit the Cleveland CDC scene and was very impressed by its continued resilience, creativity and strong support from funders. Quite a contrast, one that, in Detroit’s case, deepened that City’s demise and the effects on its remaining citizens. Lance

  6. Mary DeWolf
    Posted August 2, 2013 at 3:09 pm | Permalink

    Dearborn has been the tourist attraction for decades!
    The folks downtown in Detroit’s Indian Village neighborhood were of French ancestry (the highest social class), and their ballrooms were private entertainment centers with such as members of the Detroit Symphony. I wish Ford’s River Rouge plant’s assembly line could be shown; now it consists not of many, many workers, but of a computer and many, many robots.
    I taught in Grosse Pointe’s elite private school, when the saying went, “As Detroit goes, so goes the nation.”
    I wonder if the oyster dinner at the Institute of Art still requires formal attire, or can they afford the oysters?
    The answer is a 20 hour week for twice as many workers with deflation caused by it. Let wages drop, and prices have to follow.

  7. Posted August 4, 2013 at 5:45 am | Permalink

    Neal, I enjoyed reading this column more than most (painful as the situation in Detroit is) and the thoughtful comments as well. Having worked for Detroit Renaissance as the director of downtown and community development, I can testify to the truth of Lance Buhl’s observations. I like Gino Carlucci’s imaginative suggestion. White flight was certainly a huge factor. But I have come to believe that Detroit’s current situation stems mostly from the actions of one man: Coleman Young. You said he was divisive, and that’s true; but he was also blatantly corrupt, according to everyone, black and white, that I knew during my years there. If Detroit had elected a Dennis Archer or a Dave Bing in 1974 (or someone of either Archer’s or Bing’s dedication, intelligence, and integrity – I knew them both), white flight might have been stemmed, cooperation with suburbs might have occurred, and the rotting away of great neighborhoods might never have happened. Detroit now must look to the future, and anyone who has visited there lately knows it has a potentially better future. But when the history of the 20th century in Detroit is written, the most singularly destructive figure will be Coleman Young.

  8. Posted August 4, 2013 at 2:34 pm | Permalink

    And until the pop – pop – pop of the 9MM stops being heard, the city has no chance to pull out of this tail spin…. more drug dealers in the city via ending drug prohibition.

  9. Posted August 4, 2013 at 3:13 pm | Permalink

    Neal, look back at “The Economy of Cities” by Jane Jacobs published in 1969. She defines a ‘development rate’ and contrasts cities with high and low development rates. She used Detriot as an example of a city with a low development rate. She noted that Detriot had a high development rate in the mid 19th Century when 1,000s of machine shops operated to serve the great lakes shipping industry. These machine shops supplied the fledgling auto industry. When the auto industry consoldiated, the development rate dropped, so that by the mid 1960s she forecasted the conditions the led to today’s circumstances. Does Jacobs’ premise or analysis hold true for cities in today’s global economy?