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Bankruptcy is not the end, but the beginning for Detroit

On the surface it appears that the City of Detroit is facing a hopeless future. A closer look suggests that the picture is not so bleak. The alarm has been raised by the State of Michigan placing the city…

The Spirit of Detroit may yet rise again. Dave Sizer/Flickr

On the surface it appears that the City of Detroit is facing a hopeless future. A closer look suggests that the picture is not so bleak.

The alarm has been raised by the State of Michigan placing the city under federal bankruptcy court protection from its creditors. Detroit has outstanding debts of $18 billion and a current operating deficit of $300 million. Emergency manager Kevyn Orr, appointed by the state to put the city’s fiscal house in order, requested the filing after determining that the city was insolvent. The city’s bankruptcy is the largest in US history, dating back to adoption of the first federal bankruptcy code in the 1930s.

The bankruptcy proceeding is expected to last 18 months and will allow Detroit to design a plan with creditors under supervision of the bankruptcy court to reduce and restructure its debt. Up to 40% of the city’s budget is devoted to satisfying past debt obligations. Relief from this heavy burden will allow more of Detroit’s revenues to be spent on improving city services and the quality of life in Detroit neighbourhoods.

However, as important as balancing the city’s budget is, it is only a short-term solution to Detroit’s problems. In the long term, Detroit’s future is dependent upon economic growth.

Growth is already occurring in the city’s core areas of Midtown and Downtown that constitute seven square miles of Detroit’s 140 square miles of geography. Young professionals are moving into the core and new businesses are taking root resulting from several decades of effort by Detroit’s civic, corporate and university leaders to stem the city’s decline. The movement has built upon a foundation laid by local entrepreneurs who have worked for years at the grass roots level to stabilise and rebuild Detroit’s centre.

This revitalisation has been accelerated recently by the arrival of Dan Gilbert and his Rock Financial empire of mortgage and IT companies and their affiliates, better known as Quicken Loans. Gilbert bought 20 substantially vacant Downtown office buildings and has filled them with his workforce, new IT companies and tenants from the Metropolitan Detroit office market. He is backing the construction of M1, a three mile light rail system through the centre of the core to further spur the area’s economic growth. The goal is to develop an urban centre that rivals those of other major cities in the US.

The primary challenge for Detroit, however, is to achieve growth in the city’s remaining 130 square miles where the population has declined from a height of nearly 2,000,000 in the 1950s to less than 700,000 residents today.

The ruins of Michigan Central Station, one of the city’s many grand buildings brought low. JasonParis/Flickr

Over this period the city witnessed a mass exodus of business and industry, a loss of people and commerce that left many Detroit neighbourhoods largely vacant and others critically blighted and abandoned. There are an estimated 80,000 vacant lots in the city and nearly as many vacant buildings most of which need to be demolished. Taken together, they would cover nearly 40 square miles of vacant land. But assembled into development sites, this could represent a major opportunity for economic growth.

Detroit desperately needs to create jobs to support its residential population. The median household income in the city’s neighbourhoods is one of the lowest in the nation and the poverty and unemployment rates two of the highest. The majority of Detroit residents who have jobs work outside the city, in the metropolitan area where the economy is rebounding from the post-financial crisis restructuring of the US auto industry.

It has been suggested that the city be merged with Wayne county in which it is located, covering the southeast corner of Michigan. This would expand its economic base by including the well-off suburbs, but each of these are separate municipalities with elected councillors. Politically, the idea has little appeal to the residents of the other Wayne County municipalities, or to Detroit residents. Those outside the city limits (popularly known as the “eight mile”) have no interest in sharing in Detroit’s problems, and the residents of Detroit object to having their voting power diluted.

An alternative view came from Detroit’s Mayor Dave Bing. Two years ago he commissioned a planning team to prepare a framework plan for Detroit’s future. The result is the Detroit Future City Plan, a document that is now the blueprint upon which Detroit’s 130 square miles of distressed neighbourhood will be put on a path to prosperity. The plan would see efforts to preserve the city’s remaining good neighbourhoods, stabilise those that are salvageable, and take the bold and doubtless unpopular step of moving people from those that are not. These would then be demolished, to shrink Detroit’s enormous city area down to a more manageable size that reflects today’s smaller population. The large areas of vacant space will be repurposed as green areas for public use or dedicated to urban farming. There’s certainly ample space for new businesses and industry.

The major barrier to the city achieving its aims over the following decades will be its ability to administer what the plan requires. This will require leadership and demand administrative capacity and performance beyond anything Detroit has attempted, or managed, before. Nonetheless, with a plan in place Detroit has begun its long route back to recovery.

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