Detroit Can Either Reinvent or Wither…I Vote For Reinventing!

My analysis of Detroit’s problem is that the roots of racism that exists in all of America was uniquely exacerbated in this city. For the past 40 years, Detroit has been in a stubborn conflict of philosophies that unless is finally resolved will keep the city from a much needed recovery. In fact, this deadlock has now thrust the city into a crisis of immense proportions.

One side has attempted to create a conclave of gentrification to push through the malaise, to grow Detroit in spite of the frustrating residue of the city’s blue-collar era. The other side continues to try to find an economic solution to the city’s problems despite a school system that has failed miserably and community that commits crimes against itself at appalling rates.

My analysis suggests that no city government could have turned around Detroit’s depopulation without resolving the city’s institutional racism, which until now, has been a suppressed issue that acts out in violence. And my analysis also suggests that no attempt to gentrify Detroit out of its decay will have the growth rate to overcome the city’s budget issues. Even if the city’s small growth of last year were tripled to maximize the potential of the millennials, it would take a quarter century to grow out of the city’s financial crisis. The city’s infrastructure and pension costs are just too great for any realistic gentrification population growth to meet the city’s growing needs for revenue, even if we ignore for the moment the violent reaction and tax collection difficulties that would accrue to such an apartheid policy.

At some point, the city is going to have to find a way to reinvest in the city’s existing population as part of a holistic solution. Mr Gilbert has done a masterful job of buying up real estate and creating a vision of what Detroit could become. He just has no viable pathway to get there without bringing along the city’s population. Detroit has 620,000 African Americans spread throughout who are part of the equation. Their history is one of oppression, defiance, and internal struggle in the face of exodus.

Social safety net policies will not placate Detroit. Only a solution that builds a real economy that includes the current population will work. Yet few businesses remain in the United States that can provide a living wage to a population whose educational system has failed them so miserably. A radical departure from the status quo is what will be required to turn around Detroit.

My suggestion is that the gentrifiers who are putting their hopes in Kevin Orr to bust apart the city and start over should stop thinking that this path has any chance of success. Can Detroit gerrymander its geography and carve out the parts of the city that would take decades to recover under a build out scenario, returning blighted areas to the historical township structure of unincorporated American lands? That scenario is vastly unlikely politically or realistically, and no other city would annex blighted sections of Detroit. The emergency manager will not choose such a path. Detroit must face its demons.

Yet, with the right strategy, one that is inclusive of all its citizens, Detroit can actually recover quite quickly, and in so doing, Detroit can provide the rest of the country a blueprint to find the gold buried in all of our inner cities, our people. The strategy must overcome the catch 22 circular arguments I have listed above. No current political or economic policy exists to do so. It must be invented. As such, the paradigm shift that is necessary to create such a political invention will be called radical by some.

Radical or not, with no other viable alternative in sight, Detroit can either reinvent or wither. My vote is for re-invention.

Kevin Orr – Detroit’s Emergency Manager – Vulture or Savior?

Kevin Orr has now been sent by the State of Michigan into the City of Detroit as an Emergency manager. He will most definitely slash costs and raise revenues by whatever measures necessary to solve Detroit’s budget crisis. Why is Mr. Orr what some may call a necessary evil? Why were the city’s elected officials unable to balance Detroit’s budget?

Detroit was established in 1701 and later incorporated in 1815. Through incorporation, the town established its own city government to provide the city with services. The city government became in essence a public business, funded by taxes to provide services to the residents and businesses located within the city’s limits.

As the number of residents and businesses grew, the size and complexity of the Detroit city government grew to support them. Detroit was densely populated with auto companies, companies that supplied them, and thousands of laborers who banded together in unions within this compact town.

In the boom years between WWI and the decade after WWII, Detroit grew rapidly, and workers enjoyed union wages that were 33% higher than most parts of the country. Workers claimed boom wages from growing business profits.

Intent on acquiring the financial gains that private union members enjoyed, public workers unionized within dozens of unions and their wages and benefits swelled as well. At the height of Detroit’s population in 1950, the City of Detroit employed 29,004. The ratio of citizen to city employee was 64 to 1.

Faced with boom wages and a highly organized union, the Big three began to move plants outside of Detroit over the next 15 years, and manufacturing jobs decreased by 138,000. As the city’s population shrunk, Feeling the pinch, Mayor Cavanaugh added the city’s first income tax to city funds in 1962.

Shortly after, Detroit’s public workforce began to shrink but the ratio of citizen to public worker continued to condense. By 1980, the ratio was 54 citizens per public worker, and this ratio was maintained until the 2005 crisis of government deficits. Why was this ratio maintained for forty years without causing a city finance deficit until 2005? The ratio actually was a problem well before 2005, but public unions were strong enough that politicians dare not dilute them further.

Detroit had excess public employees compared to other cities but Detroit’s population kept her police busy with the nation’s highest crime rate and her firemen busy with double the average fires due to blight arson. While Detroit had 54 citizens per public employee, the average of comparable sized industrial towns had twice that ratio.

But the excess number of employees wasn’t the only problem. Detroit was growing an excess number of retirees. Public sector employees could retire with significant health and retirement benefits after 25 years, police and fire after 20. By 2010, the city had 20,000 retirees compared to half that of active ones, severely crowding out funds for city services.

To cover increasing imbalances, Detroit added a utility use tax of 5% in 1965. The state began sharing its sales tax with Detroit in 1971. But with a local economy in free fall, the city needed more. By 1970, Detroit’s population had fallen 35%. As critically, Detroit’s housing stock that was its tax base followed the decline in population, dropping 100,000 units.

Detroit chased its falling population and housing stock with additional taxes but was consistently in arrears. Between 1973 and 2006, the city passed 46 obligation bonds to cover basic city services, increasing its outstanding debt load to over $12 billion dollars.

After considerable debate, the city allowed the opening of three casinos in the 2000s that added $180 million in tax revenues. Detroit also increased charges for services and pursued grants and private contributions. Yet, during the 2000s, the value of housing stock plummeted. By 2010, the average home sold for a mere $10,000. A third of housing had been torn down or burned by arsonists. The state reduced it revenue share to Detroit, and incomes of Detroit residents decreased, markedly reducing the city’s income tax collections. With 8 years of continued deficits, the city is now backed against a wall.

Kevin Orr is now faced with “rightsizing” Detroit’s government at a time when murders are rampant, when Detroit fires burn at double the rate of other cities, when 25% of Detroit’s lights don’t work, when emergency services are dangerously slow to react, when the city is plagued with wild dogs and feral cats, and when Detroit’s neighborhoods are blighted.

He must face the city’s unions, not only to reduce their workforce, but also to reduce their pensions. Detroit will most likely suffer through the work disruptions and slow downs that result.

He will also most likely sell some Detroit assets and lease others, while cramming down some of its long-term debt on bondholders. In addition, some of the 47% of residents that currently are not paying their property taxes should expect to pay them or face foreclosure.

This is the ugly point from which Detroit will painfully start. The question is whether Detroit can fix its structural deficits to turn the corner on its way back to a prosperous city, or whether Detroit will further decay. If Detroit’s leaders, union leaders included, choose to take the important steps to restructure Detroit’s future, then Kevin can play a pivotal role in giving Detroit hope.

However, he must not gut the assets that Detroit can use to lever its future. If his true goal is to help the city and not to carve it up for asset vultures, then Detroit will be poised to create a livable city. The future for those that have been left behind is either of creating a violent island of economic oppression from which there is no recovery, or, with Kevin’s crucial choices and sacrifice by all, of setting the path toward a brighter future for all of Detroit’s citizens.