Detroit's Financial Crisis

 

 

Recovery will not be easy for this city; bankruptcy  can destroy a city's economy and credit rating. 

 

The newly elected mayor is working hard to ressurrect this dead city. He plans to have 50% of streetlights relit by the end of this year, and all streetlights working by the end of 2015.

 

Mike Duggan said in his address: "The change has started, the change is real and it's not nearly as far away as most people think."

 

There is a plan in motion to revitalize downtown Detroit. Emergency Manager, Kevyn Orr, is planning to invest $1.25 billion in the city's failing infrastructure and hoping that this will lead to economic growth. He is even thinking of moving Quicken Loans, a top-rated company, to Detroit's downtown area as evidence that the city has a renaissance of its own. 

 

The mayor's other plans to revive the city include: buying 15 new ambulances and hire 70 emergency medical service workers; provide new public buses; and plans to  file law suits agains homeowners who improperly care for their homes.

 

The city has a lot of work to do before it fully recovers, but with Mike Duggans in office, many are hopeful that they will see tremendous progress. Here's an interesting article describing what the future of Detroit could look like 20 years from now:  http://www.huffingtonpost.com/2013/11/26/detroit-in-20-years-2033_n_4269422.html

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General Motors Recovered From Bankruptcy, Can Detroit also Recover?

 

In 2009 GM filed for chapter 11 bankruptcy. The federal government bailed out General Motors providing them with 49.5 billion dollars (Reese & Sands, 2013). Many may wonder why the government can’t do the same for the city of Detroit, which is less than half of GM’s bailout. But according to Reese and Sands (2013), the bailout of GM resulted in the U.S. government owning numerous shares in the company, which has been selling for large sums now that GM is back on its feet and doing really well. If the federal government were to bail out the city of Detroit, could they get a profitable return on their investment?

 

According to Bomey et al. (2013), Detroit is expected to receive $100 million from the federal government. Several members of the Obama administration met in Detroit to discuss its Chapter 9 bankruptcy filing. While this may only put a small dent in the amount of debt the city owes, it will still help the city. The $100 million dollars include 10 million to help with policing around schools, $20 million in private sector matching funds, and $52 million in federal dollars marked for demolition (Bomey et al., 2013).

 

 

Detroit Can look at How Other Cities Revived and Emulate their Strategies

 

Detroit can look to other cities for strategies to recover from some its major issues. Perhaps other major cities around the world can also learn what not to do from Detroit, so that they do not encounter bankruptcy. According to Christoff and Green (2013), Detroit is not one big disaster, it’s a cluster of smaller disasters. He suggests the Motor City to learn from other cities, who once shared a similar struggle Detroit is currently facing. Cities such as Milwaukee, Cleveland, Philadelphia, Washington, and Leipzig, Germany were all able to conjure up an effective plan to tackle an issue Detroit is currently facing.

 

Milwaukee Combated Huge Crime Problems

 

Milwaukee, another Midwestern industrial city, also battled a significant amount of crime. According to Christoff and Green (2013), all of Milwaukee’s crime, both property offenses and violence, has dropped 19 percent. Edward Flynn, police chief, ordered officers to walk high-crime neighborhoods, instead of chasing minor disturbances in their cars. He called this program Building Neighborhood Trust. Residents now feel safer and say that their neighborhoods are more cohesive, vigilant, and overall improved.The Manhattan Institute for Policy Research is working to enforce the Milwaukee model in Detroit (Christoff & Green, 2013).

 

Cleveland Tremendously Decreased Blight

 

Detroit could also look to Cleveland to explicate their blight issue. In Cleveland, the Cuyahoga Land Bank –which is a private, nonprofit corporation- can acquire, sell, or demolish homes. They were able to demolish over 2,000 homes in just 4 years and rehabilitated over 700 others (Christoff and Green,2013). Land banks acquire properties from foreclosures or abandonment, and they have the jurisdiction to build them for future development or sell them. In Cleveland, it is against the law for a property to sit vacant and pile up back taxes. In six months maximum time, the Cuyahoga Land Bank in Cleveland will foreclose upon or tear down, vacant, blight, or abandoned properties. Detroit does currently have a land bank, which opened in 2010, but has not been able to remove blight property nearly as fast as Cleveland.

 

Philadelphia Increased Population and Recovered Some Blight Areas

 

Detroit can look to Philadelphia to circulate new land-use rules to foster development. Philadelphia also came close to bankruptcy in 1991. According to Christoff and Green (2013),  Frankford Avenue once struggled with a huge blight problem. Thanks to Sandy Salzman, Director of New Kensington Community Development Corporation, Frankford Avenue is now a popular area that attracts many visitors with its art galleries, numerous coffee shops, and many other attractions. This area was once filled with prostitutes and drug dealers. The transformation of this area will receive support from the first zoning charges in half a century, which will make it easier to change abandoned industrial areas to residential and commercial uses, urban gardens and farms or allow artists to have a shop next to their homes, according to Eva Gladstein, executive director of the commission that developed the charges.

 

Philadelphia also once struggled with population decline in the Fishtown area; however, homes that weren’t really worth anything –like many of the homes in Detroit- are now selling for up to $400,000, according to Christoff and Green (2013). Also, according to a study from the University of Pennsylvania’s Fells Institute of Government (2013), homes in the Kensington/Frankford area are now 45% higher than a decade ago. According to the Census Bureau (1997), Philadelphia’s population fell 1.4 million in the late 1990s, but now they have a population of approximately 1.6 million. Dan Kinkead, Director at Detroit Future City, argues that if Detroit wishes to recover, they should zone and incorporate new land uses, which can speed up projects and encourage investments. The city has a current population of around 700,000, which is down around 1.85 million from 1950, according to the US Census Bureau (2014).

 

Leipzig Increased its Population after a Dramatic Decline

 

Leipzig, Germany, like Detroit, was an industrial city that almost wasted away. According to Christoff and Green (2013), Leipzig, lost nearly 20 percent of its population to western cities between 1990-1998. However, the city is now on the rise once again and has experienced a huge population increase, including 11,000 new residents in the year 2013 alone, according to Weigel-Federal Ministry of Transport, Building and Urban Development. Enabled by federal state funds, in 2000, the city's plan created privately built housing, demolished 9,200 blight properties, and spurred development Christoff and Green (2013). Industrial sites that suffered from pollution were scrubbed; green spaces were carved out; and lakes and beaches were formed from open mines. In addition, arts and entertainment also begin to bloom in the city. Since 1997, their government spent around 2.5 billion euros helping to restructure Leipzig’s housing, train stations, museums, infrastructure, and a new subway station at Leipzig University’s campus, according to Jorg Plogger, senior researcher at the Institute for Regional and Urban Development in Dortmund. Leipzig is now a beautifully blooming city that many are happy to reside in. According to Christoff and Green (2013), Germany does not allow its cities to go bankrupt. Perhaps Detroit could benefit from more government help as well. President Barack Obama offered the city $320 million, most of which already exists through federal programs. Plogger suggests that Detroit present Obama with a five-year economic recovery plan. He argues that the city is not in a position to rebuild itself without the help of the federal government, and the recovery plan will allow for a major turnaround in the Motor City.

 

 

Why should other major cities be concerned with Detroit's crisis?

 

Other cities should be concerned so that they do not follow the same mistakes that Detroit made. By making the wrong decisions, bankruptcy can happen to any city. Here are 7 other cities on the verge of bankruptcy, as noted by Tyrone (2011): Washington, D.C, Camden, NJ, Sandiego, CA, San Francisco, CA, Los Angeles, CA, and Baltimore, MD. Tyrone (2011) provided these alarming statistics for each US city:

 

Washington, D.C has a budget deficit of $9.6 billion and unemployment rate of 11.1%. The city just passed a ‘living wage’ law that forces employers to pay their employees a minimum of $12.80 per hour, as opposed to the $7.25 national minimum wage (Tyrone, 2011). As a result, many businesses are leaving the city and relocating to nearby states such as Virginia and Maryland.

 

Camden, NJ has a population of 517,234, with a budget deficit of 138 million and unemployment rate of 11.1%. In 2011 a budget proposal led to major budget cuts, and as a result, nearly one-sixth of all city workers lost their jobs. This included nearly 50% of the police force and 33% of their fire department.

 

San Diego, CA has a population of 3 million, budget deficit of $2.8 billion, and unemployment rate of 10.2%. The city experienced major cuts to public and higher education sectors, and with their fire department.

 

San Francisco, CA with a population of 808,976, budget deficit of $6.8 billion and unemployment rate of 9.7%. The mayor Edwin Lee enacted a hiring freeze arguing that this would save the city millions of dollars, but unfortunately leave those unemployed jobless.

 

Los Angeles, CA with a population of 9.8 million, budget deficit of $6.9 billion, unemployment rate of 13.3%. The city initiated severe cuts to its police, fire departments, and recreation and parks department. They also cut 10% from homeless programs.

 

Baltimore, MD has a population of 599,657, budget deficit of $2.2 billion, and unemployment rate of 9.4%. According to census data, 22% of the city’s residents live in poverty. There are over 16,000 vacant properties and the city has the highest property taxes in the state of Maryland.

 

Lessons these major cities can learn from Detroit, as well as all other major cities who wish not to fall into bankruptcy: the importance of spending properly; to effectively take care of blight and unemployment issues; to keep good residents in the city and avoid population decline; the importance of maintaining property value; and decreasing and avoiding crime from getting out of control.