|View of downtown Detroit, looking north from the Renaissance Center. Source: deadlinedetroit.com|
(Note: this article was posted last week at my Forbes site. Here, I reflect on the transformation in Detroit since its Chapter 9 bankruptcy and approval. I note that Detroit’s downtown and adjacent areas rebound, which started before the bankruptcy, continues to move ahead. However, the ability of the revitalization to go beyond the Greater Downtown Detroit area is being questioned. In the coming days, I’ll post another piece on a possible way to build on the city’s revitalization successes; consider this an introduction. -Pete)
First, some context. Detroit filed for Chapter 9 protection in July 2013, with an estimated $18-$20 billion in debt. The filing far surpassed the $4 billion filing by Jefferson County, Alabama in 2011, the largest previous municipal filing. Over a tumultuous 17-month period Emergency Manager Kevyn Orr, appointed by Michigan Governor Rick Snyder to usher the city through its fiscal abyss, negotiated with creditors, insurers, unions and pensioners to come up with a suitable plan for moving the city forward. Bankruptcy Judge Steven Rhodes confirmed a plan of adjustment for the city in November 2014, cutting about $7 billion due to affected parties.
The fiscal forensics done by Bomey and fellow reporter and columnist John Gallagher while at the Detroit Free Press (the original link is down, but this article provides a reasonable summary of major contributors to the city’s fiscal distress) point to something far more complex than the auto-industry-collapsed-and-people-left narrative that’s prevailed for decades. Another narrative, that it was largely Coleman Young’s fault (Detroit’s controversial first black mayor, elected in 1974), is largely dismissed as well. In fact, Bomey and Gallagher point to political leadership unwilling to confront economic changes that were evident nearly 60 years ago. Witness this, from the Columbia Journalism Review’s commentary on the Free Press report:
“Revenues exceeded debt during half of Young’s two decades as mayor (1974-94). The city’s debt, adjusted for inflation, stood at $3.3 billion in 1959. Under Young it fell to its lowest point since then, just $1.4 billion in the mid-1970s, before returning to the 1959 level by the time Young, one of the Tuskegee airmen, left office.
A drop in property tax revenues—the inevitable result of the city’s shrinking population base and a 77 percent drop in the value of property—combined with cuts in federal and state aide, a swollen city payroll, gifts to Chrysler and other industries, and some very bad deals with Wall Street were among the factors that lead to the city’s bankruptcy filing this year.”
The city tried to compensate for its decline in property tax revenues by instituting an income tax (1963), utility tax (1975) and gaming tax (1999). The city also lobbied vigorously for greater federal and state funding over the same period, but that went against the headwinds of the small government Reagan Revolution that dominated all levels of politics at the time. That, along with the city’s willingness to offer generous benefits to its retirees, a failure to “rightsize” its workforce as revenues declined, and a borrowing spree under former mayor Kwame Kilpatrick between 2001 and 2006, ultimately led to the city’s fiscal demise.
However, it’s also clear that Detroit endured a sort of socio-cultural bankruptcy the precipitated the fiscal one by many decades. The city has been stigmatized by two events that fueled middle-class exodus for nearly 50 years — the city’s infamous 1967 riots, and the 1973 election and subsequent tenure of mayor Coleman Young. It’s possible that the narrative emanating from those events had as much to do with Detroit’s fall from grace than anything the Big Three did.
The existential crisis that is municipal bankruptcy brought together the city’s business community, state legislature and nonprofits in unexpected ways. Each sector, which previously took a hands-off approach to the Motor City, took an active part in moving the city from the ledge. Each made considerable contributions that led to an expedited bankruptcy process.
How is Detroit faring today? The city is in the midst of a resurgence that actually began before the bankruptcy process. Downtown Detroit has seen a significant uptick in investment over the last ten years, led by the stewardship of billionaire Quicken Loans founder and Detroit native Dan Gilbert and fellow Detroiter and billionaire Little Caesar’s Pizza founder and Detroit Tigers and Red Wings owner Mike Illitch. Their efforts have led to the types of revitalization that typified many cities in the ’80s and ’90s — downtown stadiums, office and entertainment development. Detroit’s Midtown, Corktown, Woodbridge, east riverfront and other areas adjacent to downtown have become hotspots, and now the city and its residents are contemplating the spillover effects of such growth into areas that have long been forgotten.
In many respects the bankruptcy was the culmination of a decade of turmoil in the city, started by the ruinous fall of the Kilpatrick administration. Over the last ten years the Motor City has repaired its political and fiscal landscape, and doing so has signaled the availability of investment opportunities previously unseen. That’s a positive. But Detroit still has major hurdles to cross. There’s still a city to remake, an economy to restructure, and a social order to reconcile.