Detroit Seeks to Rebound from Bankruptcy

By: - October 2, 2015 12:00 am

© Getty Images/Bloomberg

A worker smoothes wet concrete during construction on a section of the M-1 Rail line in Detroit on August 11, 2015.

Stephen C. Fehr, a senior officer at The Pew Charitable Trusts, researches and analyzes the fiscal health of states and localities

Kate Davidoff, a senior associate at The Pew Charitable Trusts, researches and analyzes the fiscal health of America’s largest cities

Nearly a year after exiting the largest municipal bankruptcy in U.S. history, Detroit is taking steps toward improving its services and creating a new version of its economy to keep and attract residents crucial to the city’s long-term recovery.

“Detroit is off its back, off its knees, standing up again,” Vice President Joseph Biden said during a recent visit. He was there to mark the delivery of federally funded buses that will allow the city to cover its routes instead of stranding riders at stops.

Many of Detroit’s political, civic and business leaders share Biden’s enthusiasm but say they are realistic about the magnitude of the task of fixing myriad financial and social problems that festered for decades. (Detroit’s decline and lessons learned from the bankruptcy were examined in a recent Pew Charitable Trusts report).

“This has been a multigenerational decline and will be a multigenerational climb back. But I think we’re on our way,” says Carol O’Cleireacain, deputy mayor for economic policy, planning, and strategy.

Tangible signs of progress are evident even though Detroit faces years of catching up.

Crews are ahead of schedule installing about 65,000 LED streetlights that will illuminate all Detroit neighborhoods for the first time in decades. Police officers are driving new or refurbished cruisers—”cars that actually have bumpers,” says former Detroit emergency manager Kevyn Orr. Public safety responders are answering calls in half the time it took during the bankruptcy, contributing to a drop in the crime rate.

By the end of the year, the city will have torn down about 8,000 vacant homes since Mayor Mike Duggan declared a war on blight when he took office in 2014. The city has filed complaints against 2,000 property owners to either clean or demolish their nuisance houses or turn them over to the city land bank, which has been renovating and auctioning homes. Home prices are rising in pockets of the city, albeit slightly, and new residents are moving in.

See cranes rising into the Detroit skyline lifting materials for a new NHL arena that will anchor a five-neighborhood, $650 million sports and entertainment district. Hear the excavators removing rocky soil where the rails will go for a 3.3 mile, 20-station streetcar line along Detroit’s main thoroughfare. Walk or bike along the Detroit River shoreline which the city and private developers are turning into a 5.5-mile stretch of parks, pavilions, housing and other amenities. Tour the Shinola watch and bicycle plant, a catalyst of the thriving midtown area north of downtown popular with empty nesters and millennials.

Detroit’s tone is different too. No more yelling at city council meetings, and no more mayor in legal trouble, notes Martin Lavelle, economist at the Detroit branch of the Federal Reserve Bank of Chicago. Michigan’s governor and Detroit’s mayor generally get along; the state continues assisting the city, most recently by taking over Detroit’s income tax collection to bring in more money. Having galvanized business and civic leaders, Mayor Mike Duggan is focusing on uniting Detroit’s neighborhoods.

“He’s just not going to not succeed,” says Michael Porter, a Harvard professor who specializes in distressed inner city economic development.

A few private investors have been stepping up, some before the bankruptcy. Most notable is Dan Gilbert, founder of Quicken Loans and owner of the NBA Cleveland Cavaliers, who has invested nearly $2 billion in downtown Detroit largely by converting outdated industrial and office buildings into a mix of housing, shops, restaurants and tech-oriented offices. The Illitch family, which owns Little Caesar pizza, the Detroit Tigers and the Detroit Red Wings, and Roger Penske, owner of the Penske transportation services company, have joined Gilbert in trying to revitalize downtown.

“To the outside world, the bankruptcy was wrongly interpreted as the end of the city,” says Detroit native Matthew Cullen, president and chief executive office of Rock Ventures, Gilbert’s development company. “We really do think we are just getting started.”

Porter and others believe one way Detroit could  draw people and jobs  is by co-locating industries, large corporations, nonprofits and educational institutions in cohesive clusters instead of scattering development piecemeal across a vast 139-square mile city. Boston’s biotechnology corridor is such an example.

Detroit already has assets that could support such clusters. It is a center of automobile innovation, with a high concentration of engineers.  Biden  announced that federal money will help finance an institute in the city’s Corktown area where engineers  will develop alternatives to steel for building cars, which will result in lighter vehicles that burn less gasoline. Reinforcing Detroit’s medical centers and educational institutions, a group of private and public organizations has been pushing a technology cluster that would include medical devices and digital health information.

Food is another potential cluster. The vision is a regional, year-round fresh food hub at the city’s Eastern Market with small processing companies—like salsa and pickles—supplied by Michigan growers. The district near downtown, which already has a thriving Saturday food market, would be transformed into a dense mix of residences, food classrooms, arts and cultural venues and restaurants. “We want to change Detroit’s relationship with food,” says Dan Carmody, president of the Eastern Market.

Though some officials say Detroit’s decline has been checked, they say it will take a sustained focus to enhance services, tackle the housing crisis and generate jobs. The goal is to persuade the city’s 688,000 residents to stay and to lure more outsiders, which would boost property values and tax revenue to prevent another budget crisis. A chief financial officer and a nine-member commission independent of the city government are monitoring Detroit’s finances to make sure it has a balanced, multiyear budget.

One test in the months ahead will be strengthening Detroit’s schools, currently run by a state-appointed emergency manager after years of budget deficits, declining enrollment, staff turnover, school violence and poor student performance.

The city faces other challenges. Unemployment is persistently high, an explanation for the large number of residents living below the poverty line. While home values are rising, assessed values are not. Depressed values and foreclosures contributed to a $5 million drop in property tax revenue in fiscal 2014.

Detroit lacks a premier college, unlike Pittsburgh and other cities where major universities helped spur comebacks. Its public transportation system is inadequate. The city’s sheer size is prompting discussions about shrinking Detroit to cut service costs; Orr tells of one neighborhood where the water line was built to serve 36 homes but only two remain. “You still have to run that line there,” he says.

In a city in which eight of 10 residents are black, officials and developers must make sure the economic renaissance extends beyond downtown and midtown so no one feels they are left out. “Clearly there’s a need to make better linkage between the progress downtown and midtown to the neighborhoods where the bulk of Detroit’s residents are,” says O’Cleireacain.

Change will not happen overnight. Pittsburgh Mayor William Peduto, noting the similarities between Detroit and his city, says it took Pittsburgh 30 years to recover from the collapse of the steel industry that began in 1979. Pittsburgh— smaller in land area and population than Detroit— also had a more regionally focused economy. Cullen, the Detroit developer, says he is realistic about the scale of the challenge facing his hometown. “It’s one thing to have a bad day. Detroit had a bad 60 years.”

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Stephen Fehr

Stephen Fehr is a senior officer with Pew’s government performance portfolio. He is a lead writer on many of the products generated by the portfolio, specializing in state and local fiscal health.