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Friday, March 21st, 2014

Detroit Emergency Manager Seeks to Unleash an Infero of Moral Hazard

One of lesser followed aspects of Detroit’s bankruptcy is a lawsuit filed by emergency manager Kevyn Orr to repudiate $1.4 billion in debt by claiming it was illegally issued. This appears to be mostly a negotiating tactic, but if the judge ends up agreeing with this, it will unleash an inferno of municipal moral hazard that will no doubt be exploited by politicians around the country.

Michigan, like many states, limits the amount of indebtedness cities can incur. To top off pensions, former mayor Kwame Kilpatrick borrowed $1.4 billion. To circumvent debt limits, he created special purpose entities to do the borrowing. Orr now claims these were sham entities, and so the debt issue was illegal, so the city is entitled to pocket the $1.4 billion and not pay it back.

Keep in mind that creating special purpose corporations of various types for this sort of purpose is widespread municipally and in the corporate world. Also keep in mind that Kwame Kilpatrick was a crook who’s going to spend the next 28 years in prison for corruption. It’s an interesting claim that an outright criminal who borrows money can claim that because his scheme is crooked he doesn’t have to pay the money back (Both Kilpatrick and Orr were both speaking ex-cathedra as municipal CEO). What kind of logic is this?

If Detroit successfully repudiates this debt, municipal leaders elsewhere would almost have to be idiots not to take advantage of the same trick. Elect a crooked mayor or merely one with few scruples. Borrow an insane amount of money by skating on the edge of the law. Then sue yourself claiming you couldn’t possibly have legally done the deal, so don’t have to pay the money back. Rinse, repeat.

The feds should drop the hammer on this hard on this. I don’t have a lot of sympathy for big banks. On the other hand, when someone takes out the municipal equivalent of a “lair’s loan”, they shouldn’t be allowed to profit from being a crook.

In large municipal bankruptcies, it’s pretty common to claim that the indebtedness is all the fault of those greedy bankers who deceived the poor servants of the public. I believe similar claims were made and generated quite a bit of municipal recovery in Orange County and Jefferson County, Alabama. But look closely and I think where you find a shady banker operating, you’ll often find a shady client as well.

Why do people keep electing crooks like Kilpatrick to office? Well, if it turns out those guys are able to fleece out of town bankers to the tune of $1.4 billion, why wouldn’t you? Looks like he might have cut a pretty savvy deal after all. This sort of behavior shouldn’t be rewarded. You can be sure shady municipal borrowing will only be on the increase if the courts allow the Detroit to play a heads we win, tails you lose game with the banks. Think about that the next time your city engages in legal contortions to dig itself even deeper into debt.

Speaking of Detroit, the free market Manhattan Institute will be doing a one hour live streamed event this Monday the 24th with Michigan Gov. Rick Snyder and Detroit emergency manager Kevyn Orr. It’s at 1pm ET and is called “Detroit: The Next American City of Opportunity.” You can access the event at: http://www.publicsectorinc.org/2014/02/detroit/. If you want to submit questions, tweet them to @ManhattanInst with the hash tag #SaveOurCities.

Thursday, January 30th, 2014

City-Specific Immigration Visas Would Be a Modern Day Indentured Servitude

An idea that’s been kicked around by many is to help turn around struggling cities like Detroit by offering geographically limited immigrations visas. That is, to allow foreigners get their green card if they agree to live in a particular city for a certain number of years.

Michigan Gov. Rick Snyder has now officially endorsed the concept, calling for Detroit to be awarded 50,000 city-specific immigration visas for skilled workers over five years. As the NYT put it:

Under the plan, which is expected to be formally submitted to federal authorities soon, immigrants would be required to live and work in Detroit, a city that has fallen to 700,000 residents from 1.8 million in the 1950s.

“Isn’t that how we made our country great, through immigrants?” said Mr. Snyder, a Republican, who last year authorized the state’s largest city to seek bankruptcy protection and recently announced plans to open a state office focused on new Americans.

Later, he added, “Think about the power and the size of this program, what it could do to bring back Detroit, even faster and better.”

The appeal of the idea is obvious. I’ve probably said positive things about it myself in the past. But examine it more closely and it’s clear this is an idea that’s fatally flawed. By requiring immigrants to live and work in the city of Detroit for a period of time, this program would effectively bring back indentured servitude, only instead of having to work for the people who paid for their trip to America, these immigrants would have to work for Detroit.

I’ve got to believe that the courts would look skeptically at such a scheme that so radically restricts geographic mobility and opportunity. What’s more, I think it’s plain wrong to invite people into our country with the idea that they are de facto restricted to one municipality.

L. Brooks Patterson, county executive of wealthy Oakland County in suburban Detroit, took huge heat again this week when he was quoted in the New Yorker saying “I made a prediction a long time ago, and it’s come to pass. I said, ‘What we’re gonna do is turn Detroit into an Indian reservation, where we herd all the Indians into the city, build a fence around it, and then throw in the blankets and the corn.’” Yet isn’t this idea of city specific visas almost literally treating Detroit like a reservation, only for immigrants instead of Indians?

Some have likened this to programs to entice doctors to rural areas by paying for medical school. I’m not sure how all of those are structured, but they may have questionable elements as well. But more importantly, my understanding is that they are purely financial, where medical school loans are paid off in return for a certain number of years of service. If a doctor elects to leave the program, they are in no worse shape than someone who didn’t sign up would be. They are still licensed to practice medicine and have to repay their loans just like every other doctor.

I don’t think Gov. Snyder is motivated by any ill will in this. I think he’s genuinely looking for creative solutions to the formidable problems Detroit faces. He’s taken huge heat for finally facing up to the legacy of problems there, and hasn’t shied way from making tough calls. He’s even willing to call for some bailout money, which many in his own party don’t like. But this idea is a bad one. He should withdraw it, and the federal government should by no means open to the door to these types of arrangements.

Immigrants remain a great way to pursue a civic turnaround, however. Detroit just needs to lure them on the open market the same way Dayton, Ohio and others are trying to do.

Wednesday, December 18th, 2013

Urban Skiing in Detroit

This week a video of some urban adventure types in Detroit that’s been making the rounds. But instead of scrapping or whatever it is people do in Detroit’s abandoned skiing, they decided on an urban ski adventure. There’s some pretty cool tricks in there. If the video doesn’t display for you, click here.

h/t Barrel~dEM

6 Comments
Topics: Urban Culture
Cities: Detroit

Friday, December 6th, 2013

Some Implications of Detroit’s Bankruptcy

There’s been so much ink spilled over Detroit’s bankruptcy that I haven’t felt the need to add much to it. But this week the judge overseeing the case ruled that the city of Detroit is eligible for bankruptcy. He also went ahead and ruled that pensions can be cut for the city’s retirees. Meanwhile, the city has received an appraisal of less than $2 billion for the most famous paintings in the Detroit Institute of the Arts.

A couple of thoughts on this:

First, every city in America should be doing a strategic review of its assets, and moving everything it doesn’t want turned into de facto debt collateral into entities that can’t be touched by the courts. In the case of the DIA, the city owns the museum and the collection. Hence the question of whether or not art should be sold to satisfy debts. If it were typical separately chartered non-profit institution, this wouldn’t even be a question.

At this point, I’d suggest cities ought to be taking a hard look at whether they own assets like museums, zoos, etc. that should be spun off into a separate non-profit entity. Keep in mind, the tax dollars that support the institutions can continue flowing to it. But this does protect the assets in the event of a bankruptcy.

In the case of Detroit, it seems inevitable that at least some art work will be sold. Given that worker pensions are going to be cut, it would be pretty tough to say no to selling art. Assuming this is the case, post-sale the museum should be spun off as a separate entity to hopefully reboot its standing the museum world. As the trustees of the group that operates it have been adamantly opposed to any sale, one would hope other museums would not hold any violations of industry standards against them for, particularly if they acquire ownership of the building and artwork away from the city afterward. The city of Detroit doesn’t need to be in the museum business anyway. It has bigger fish to fry.

Secondly, public sector employees will have to start rethinking their approach to retirement benefits. The current mindset has been to grab as much as you can anytime you can because the taxpayer will always be forced to cover the promises no matter what. As the actual results in Central Falls, RI and now this show, that’s no longer a good assumption.

Detroit’s workers don’t have lavish pensions as these things go. But they weren’t shy about abusing the system either. They in effect looted their own pensions by taking out extra, unearned “13th checks”. They also used pensions funds to give a guaranteed 7.9% annual rate of return on supplemental savings accounts workers were allowed to establish. All told these “extra” payments drained about $2 billion out of the pension system.

This was not something the city did through an arm’s length transaction. As the Detroit Free Press reported, Mayor Dennis Archer was alarmed by the practice and wanted to stop it. But “the city doesn’t control its pension funds, which have been largely administered by union officials serving on two independent pension boards.” So he tried to amend the city’s charter to stop the practice. According the Free Press, “Archer backed an effort to block the payments through a proposed new city charter, which actually passed in August 1996. Enraged, several city unions and a retiree group sued and won. Archer tried again to block payments through a ballot initiative, called Proposal T, but it failed.”

The unions could brazenly loot their own pension plan because they felt rock-solid assurance that the taxpayers would ultimately be required to make them whole. This bankruptcy is showing that may not be the case after all. It should serve as a warning to unions everywhere not to get too aggressive with their shenanigans.

They’ll of course appeal the judge’s ruling and may win. But the Michigan constitution says pensions are a contract right. The very definition of bankruptcy is that you can’t pay what you’re contractually obligated to. Bankruptcy is all about breaking contracts. The bondholders have contracts that are not supposed to be impaired too, after all. I’m a fan of local government autonomy as you know, but as Steve Eide rightly points out, any freedom worth its name is freedom to fail. If cities and their various constituencies don’t suffer the consequences of their mistakes, they should be heavily micromanaged from on high.

When individuals fail, we have a safety net (unemployment insurance, for example). Plus we have personal bankruptcy to give people a fresh start. We don’t even worry about whether the person is at fault for their own position or not. We provide that backstop regardless. But that backstop doesn’t allow people to go on living like they did before as if nothing happened. Similarly, cities in trouble shouldn’t be abandoned, but they need to realize that there are genuine consequences for failure. A realization that failure has consequences for pension holders as well as the taxpayer should hopefully promote healthier decisions about how retirement benefits should be offered, funded, and administered.

Thursday, August 22nd, 2013

Parking Madness, Detroit Edition

RustWire pointed me at this map from Data Driven Detroit that shows the simply staggering amount of parking downtown. I never cease to be mind-blown when I see one of these:

Sunday, July 28th, 2013

Humiliating Detroit

As I’ve noted before, Detroit is all too frequently just a blank screen onto which people project their own personal bogeymen. So liberals see in Detroit racism gone wild, America’s comeuppance for its love affair with the automobile, and corporate greed. Conservatives see the ultimate end result of unions and where liberalism will take the US as a whole if it isn’t stopped.

There’s a bit of truth in all of these. The left would have us believe that having Democrats in charge of the city for so long had nothing to do with where it is today. But they reality is, they’ve got to own their piece of blame. Detroit certainly hasn’t been a bastion of conservative policy, that’s for sure.

On the other hand, Republicans should be aware that Detroit’s decline has been ongoing for quite a while, and there were definitely some mayors with R’s by their name who were in on the game. And economic forces shaped Detroit far more than they’d like to admit.

But ultimately what we see today is the left furiously spinning about Detroit (for example, see the book “Detroit: A Biography”) and the right trying to use it as a poster child for everything they hate. Yet on the right I can’t help but observe a particularly mean streak in the commentary, one that’s positively gleeful about Detroit’s demise. It’s as if, not content with letting the results speak for themselves about what happened under Democratic rule, the right seems determined to humiliate Detroit, reveling in its pain. It’s schadenfreude on steroids.

Let me highlight this. First Kurt Schlichter says that “Conservatives Should Point and Laugh As Detroit Dies.”

The agonizing death of Detroit is cause for celebration. It’s the first of the liberal-run big cities and states to fall, and we should welcome its collapse with glee.

Yeah, liberals, eventually you do run out of other people’s money.

The blue state model is a terminal disease, and Detroit is its poster child. Only this is one telethon where we should pledge that we won’t pay a single dime to keep the progressive party going a single minute longer.

Detroit represents the epitome of the blue state, Democrat machine liberalism that Barack Obama represents. Well, not one damn cent for Barry’s Kids.

Don’t hold back, tell us how you really feel. John Fund at the National Review is nowhere near vicious, but he does paint a target on Detroit’s art, basically arguing that the city should be forced to sell off its assets to satisfy creditors:

What no one wants to do, apparently, is sell the city’s assets. The city has largely unused parks and waterfront property that could be opened to economic development. The Detroit Historical Museum has a collection of 62 vehicles, including an 1870 Phaeton carriage and John Dodge’s 1919 coupe, that is worth millions. But the biggest sacred cow is the Detroit Institute of Art (DIA), one of the nation’s oldest and most valuable art museums. It has pieces by Vincent van Gogh, Henri Matisse, Andy Warhol, and Rembrandt. The Institute also owns William Randolph Hearst’s armor collection and the original puppet from the children’s TV show Howdy Doody.

The Detroit Free Press asked New York and Michigan art dealers to evaluate just a few of the 60,000 items in the Institute’s collection. The experts said the 38 pieces they looked over would fetch a minimum of $2.5 billion on the market, with each of several pieces worth $100 million or more. That would go a long way toward relieving the city’s long-term debt burden of $17 billion.

Let me get this straight. Instead of Detroit being $17 billion in debt, let’s sell off everything left that makes Detroit viable and end up still $14.5 billion in debt and still bankrupt. (Though only a few items were evaluated, they were clearly the handful of most valuable ones. Howdy Doody ain’t Van Gogh). Oh, yeah, that will help – if your definition of help is bailing out banks who loaned money to a city everyone has known is a basket case for many, many years. If those banks expected the art to be sold, they should have made the city pledge it as collateral.

Fund is right that Detroit does need to make tough choices about assets. I’ve made that argument myself. But the goal should be to create at a minimum a sustainably functional government and ensure the bankruptcy of the city of Detroit doesn’t undermine the broader region and state. Selling off secondary assets (and yes, Howdy Doody may be a good candidate) is worth pursuing if there’s cost/benefit. But saying that Detroit should sell off its regional cultural crown jewels is little more than an attempt to inflict counter-productive penance, to force humiliation upon the city. And it would also be completely unlike say a corporate Chapter 11 restructuring, which is designed to produce a viable firm on the other end and thus the most valuable assets are often retained.

Of course, Detroit’s own residents make it easy to act this way. A group of protestors referred to the bankruptcy filing as a “declaration of war,” saying that outsiders aren’t entitled to any say or even get the money back they loaned the the city, saying instead “the banks owe us.”

Still, have some compassion. It’s understandable Detroit’s residents are in pain and lashing out. Clearly they have tough medicine they haven’t reconciled themselves to taking. But there are better ways to respond to it. Andrew Biggs at the American Enterprise Institute took a more moderate path, suggesting that while a plain reading of Michigan’s constitution suggests it wouldn’t protect pensions in bankruptcy, there’s still reason to give pensioners some preferential treatment (thought not being made 100% whole, saying:

Does this mean that retired city workers should take the same haircut as municipal bond holders? I really don’t think so. Anyone loaning money to the city of Detroit was knowingly taking the risk that the city might not repay; that’s why bonds issued by Detroit paid a higher yield than Treasury securities, which are assumed to be riskless. As with any risk investment, sometimes it pays off, sometimes it doesn’t.

City employees, on the other hand, exchanged services today — along with employee contributions to their pension plan — for benefits to be delivered in the future. Sure, employees should consider the financial stability of their employer in its ability to deliver what is promised, but city employees seem to be a qualitatively different group than municipal bond holders.

This seems more rational type analysis and isn’t rooted in mean-spiritedness.

Though eager to point out how Democratic policies and corrupt Democratic politicians helped propel Detroit headlong in bankruptcy (which is certainly a valid political claim to make), having a vengeful streak only shows Republicans behaving in a ways that’s as hard hearted as Democrats say they are.

Tuesday, July 23rd, 2013

What Detroit’s Bankruptcy Teaches America

As has long been expected, the city of Detroit has officially filed for bankruptcy.  While many will point to the sui generis nature of the city as a one-industry town with extreme racial polarization and other unique problems, Detroit’s bankruptcy in fact offers several lessons for other states and municipalities across America.

The Day of Reckoning Can Take Much Longer Than We Think to Come

What’s most surprising about Detroit’s bankruptcy is not that it happened, but how long it took to get there.  In authorizing the bankruptcy filing Gov. Rick Snyder talked about “60 years of decline.” He’s not joking. It’s been widely known that Detroit has been in trouble for a very long time.

Time Magazine ran a 1961 story called “Decline in Detroit.”  Jane Jacobs described its lack of vitality in her 1961 classic “The Death and Life of Great American Cities”:

Researchers hunting the secrets of the social structure in a dull-gray district of Detroit came to the unexpected conclusion there was no social structure….Virtually all of Detroit is as weak on vitality and diversity as the Bronx. It is ring superimposed upon ring of gray belts. Even Detroit’s downtown itself cannot produce a respectable amount of diversity. It is dispirited and dull, and almost deserted by seven o’clock of an evening….Detroit today is composed of seemingly endless miles of low density failure.

Moving from urban planning to economics. She wrote in 1969’s “The Economy of Cities”:

This was the prosperous and diversifying economy from which the automobile industry emerged two decades later to produce the last of the important Detroit exports and, as it turned out, to bring the city’s economic development to a dead end.

These are both well known, but the record of troubles in Detroit even predates this, going back at least to Life Magazine’s 1942 article “Detroit Is Dynamite” which gave a prescient warning to the city just a year before 1943’s race riot.

For a city as uniquely troubled as Detroit to remain in serious decline for such an extended period of time before going bankrupt is a testament to the sheer resilience of cities. It also suggests that those predicting eminent doom for their own city unless it changes its ways are likely to end up as false prophets.

Indeed, Detroit’s day of reckoning may not even yet be fully here given that various challenges to the bankruptcy filing are expected.  The fact that Detroit has limped along for so long suggests that cities may be able to survive nearly definitely as “zombie municipalities” similar to zombie banks.  Though this may possibly end in a Greek style crisis at some point, a very lengthy existence as the undead would seem to be possible.

Decline Poisons Civic Culture and Sunders the Commonwealth

Detroit also illustrates that once decline starts it sets in motion a toxic civic dynamic that makes the tough choices needed to turn things around nearly impossible. Just as growth begets growth, decline begets decline, and part of the reason is social dynamics.

This comes about because in a city in decline — such as in late imperial Rome — people start thinking only about themselves and no longer come to see themselves as part of a greater enterprise or commonwealth. The city and suburbs, blacks and whites, taxpayers and unions no longer see their fortunes as linked. Rather than rising and falling together, it’s every man for himself.

When the pie is growing, it’s easy to come to an agreement over how to divide it because everybody can get a bigger slice at the same time. But when the pie is stagnant or shrinking, zero-sum thinking takes over.  To make a sacrifice is seen to in effect allow someone else to profit at your expense. Perhaps these dynamics were present latently before, but tough times bring out the real civic character.

In Detroit’s case  everyone from public employee unions who refuse to give up any of their benefits (and will no doubt fight to deny the bankruptcy filing) to suburban towns that would rather pretend the city does not exist have played a role in setting the disaster.   With nobody willing to sacrifice for the greater good, prisoner’s dilemma logic results happen. You can see this playing out in nearly any troubled American city. By contrast, it seems to be healthier places like Denver that have managed to build stronger regional civic consensus. It’s simply easier in those places.

Instead, Detroit chased conventional wisdom approaches and fad of the month type endeavors ranging from constructing the fortress-like Renaissance Center to the People Mover to former Gov. Jennifer Granholm’s “Cool Cities” program, none of which did anything but generate hype. What they all had in common is a transfusion of subsidies to the city (and taking on debt) rather than building a consensus around addressing the real issues.

America Doesn’t Learn Lessons From the Past

The last thing Detroit teaches us is that America too often doesn’t learn from its mistakes.  Detroit’s troubles have been evident for quite some time, yet it’s hard to see that many other post industrial cities have managed to carve out a different path.  Rather, they pretended that Detroit’s fall was somehow unique due to its auto industry dependence – and managed to ignore other failed cities as well – while embarking on the same turnaround strategy via conventional wisdom and silver bullets.

They have even managed to ignore failures much closer to home. Booming new suburbs can look just 5-10 miles down the road to see yesterday’s hot spot now turned into a festering mess of dead and dying malls, declining schools, increasing poverty, and falling home prices. Yet most of them are simply replicating the same pattern that is destined to fail financially over the long term in any region without either severe building restrictions or very high population growth.

Sadly, none of these augur favorably for change.  Detroit may continue to garner special international attention as a train wreck people can’t stop watching, but less spectacular slow motion civic failures seem likely to remain commonplace unless somebody finds a way to overcome these forces.

Further Reading on Detroit

I have been chronicling the story of Detroit for quite a while on this blog and the postings on Detroit have generated more readership than those for any other city. This shows the profound hold the city has on the world’s attention. Here are a few previous articles you might be interested in if you haven’t read them yet:

The Reasons Behind Detroit’s Decline (by Pete Saunders)
Yes There Are Grocery Stores in Detroit (by Jim Griffioen)
Detroit: Urban Laboratory and New American Frontier
The Other Side of Detroit

This post originally appeared in New Geography on July 20, 2013.

Saturday, July 20th, 2013

Detroit – Why Hast Thou Forsaken Me? by Pete Saunders

[ In this post, Detroit native Pete Saunders pulls no punches in assigning the ultimate blame for Detroit's demise. You can read more of his work at his web site Corner Side Yard - Aaron. ]

Thou wouldst fain destroy the temple! If thou be Jesus, Son of the Father, now from the Cross descend thou, that we behold it and believe on thee when we behold it. If thou art King over Israel, save thyself then!

God, My Father, why has thou forsaken me? All those who were my friends, all have now forsaken me. And he that hate me do now prevail against me, and he whom I cherished, he hath betrayed me.

Lyric excerpts from the Fifth and Fourth and Words, respectively, of the Seven Last Words of Christ orchestral work by Joseph Haydn.

I’m pissed.

Ever since the announcement late Thursday that the City of Detroit was indeed going to file for Chapter 9 municipal bankruptcy protection, the Internet has been overflowing with commentary on the matter. The commentary has come from all places and taken on by all comers – from the political left and right; from hard news and general interest sources. And all usually with the same scripted and lazy tripe about how Detroit reached its nadir:

  • Single-minded dependence on a collapsing auto industry doomed Detroit.
  • An inability to diversify economically doomed Detroit.
  • Public mismanagement and political corruption doomed Detroit.
  • An inability to effectively deal with its racial matters doomed Detroit.
  • The dramatic and total loss of its tax base doomed Detroit.

That’s it, people, they seem to reason. The Motor City’s fall from grace is as simple as that. You do the things Detroit did, and you get what Detroit got. You defer decisions just as Detroit did, and you too will suffer the consequences. The speed with which the various articles on Detroit came out proved to me that many writers anticipated the announcement with at least a twinge of glee.

As I’ve written before, Detroit’s narrative serves everyone else as the nation’s whipping boy, and that came through in the last couple of days:

You can find Detroit in Cleveland, St. Louis, Buffalo, Milwaukee, Baltimore and Philadelphia. You can find it in Indianapolis, Minneapolis, Cincinnati, Columbus and Louisville. You can find it in Atlanta, Miami, Houston, Dallas and Phoenix. You can even find it in Las Vegas, Seattle, San Francisco and Portland. And yes, you can definitely find it in New York, Chicago, Los Angeles and Washington, DC. You can find elements of the Detroit Dystopia Meme™ in every major city in the country. Yet Detroit is the only one that owns it and shoulders the burden for all of them.

But let’s leave that aside. I’m pissed because no one seems to acknowledge the central reason Detroit is filing for bankruptcy now. It has endured abandonment – white flight abandonment – on an absolutely epic scale. Before there was auto industry collapse, before there was a lack of economic diversity, before there was mismanagement and corruption, there was abandonment. People skirt and dance around the issue when they talk about the loss of Detroit’s tax base. What Detroit lost was its white people. The chart above illustrates how Detroit’s unique experience when compared to similar cities.

Detroit is what happens when the city is abandoned. And frankly, there is a part of me that views those that abandoned Detroit with the same anger reserved for hit-and-run drivers – they were the cause of the accident, they left the scene of the crime, and they left behind others to clean up the mess and deal with the pain. What’s worse, so many observers seem to want to implicate those left behind – in Detroit’s case a large African-American majority community – for not cleaning up the mess or easing the pain. Their inflicted pain which they’ve made ours.

White abandonment of Detroit did not start with the 1973 election of Coleman Young as mayor, or even the 1967 riots, yet those two events accelerated the process. And indeed, Detroit had a very unique set of circumstances that caused it to veer down a troubled path. The very first piece featured in this blog was about the land use and governing decisions that were made more than one hundred years ago in Detroit that literally set the city’s decline in stone. I identified eight key factors:

  • Poor neighborhood identification, or more broadly a poorly developed civic consciousness.
  • A housing stock of poor quality, cheap and disposable, particularly outside of the city’s traditional core.
  • A poorly developed and maintained public realm.
  • A downtown that was allowed to become weak.
  • Freeway expansion.
  • Lack of or loss of a viable transit network.
  • A local government organization type that lacked accountability at the resident/customer level.
  • An industrial landscape that was allowed to constrain the city’s core.

Conor Friedersdorf of the Atlantic wrote perhaps one of the best recent articles I saw on Detroit when he acknowledged that even a half-century ago, journalists were predicting a dire future for the D. Take this quote Conor found from The Reporter, published October 31, 1957:

The auto industry created modern Detroit simply as its dormitory and workshop, attracted polyglot millions to it, used it, and now threatens to abandon it. Civic consciousness played little part in the lives of the masses of Irish, German, Poles and Italians who flocked to Detroit in search of a Ford or Dodge or Packard pay check, and who settled there in islands of their own – any more than it played a part in the managements of Ford or Dodge or Packard themselves, or in the crowd of Negroes who also descended upon the city during the boom years of the Second World War… Indeed, it is remarkable that any sense of civic responsibility at all should have been generated in so rootless and transient a community.

What can a city do when it finds its patron industry and its middle class moving out, leaving it a relic of extremes?… But urban deterioration offers at least one advantage. Once a city core has become as run-down as Detroit’s you can start to rebuild fairly cheaply.

Yes, that is from 1957.

The chart at the top of this article was done for an article I did more than a year ago, looking at U.S. Census data for several peer cities over the last seven decennial censuses. In it, I concluded that Detroit’s experience of abandonment was entirely unique:

Between 1950 and 1970, the decline in Detroit’s white population was on the low end of the spectrum of cities on this list, but it was in the ballpark. Prior to 1970, Detroit and St. Louis were the white flight laggards. After 1970, the bottom fell out and Detroit stood alone. While there certainly are economic reasons white residents may have had for moving, this graph may lend credence to the twin theories of Motor City white flight – the 1967 riots and the 1973 election of Mayor Coleman Young.

I’m not trying to persuade anyone of the invalidity of their decision to move from Detroit. There were good reasons and not so good reasons. I’m only trying to describe its impact relative to other cities. And where exactly are those white residents who left over the last 60 years? Certainly many have passed on. Some are currently in the Detroit suburbs or elsewhere in Michigan. Some are part of that great Detroit Diaspora that took them to New York, Washington, Charlotte, Atlanta, Houston, Phoenix, Los Angeles, Seattle and Portland. There are clearly at least 1.5 million reasons why white residents left Detroit.

But the fact is, had Detroit experienced white flight at the same combined rate as the other cities on this list, and not experienced any other changes, there would be nearly 350,000 more white residents today. Maybe 140,000 more households. Maybe more stable neighborhoods.

Can you imagine that? An additional 350,000 residents means Detroit would still be a city with more than one million people. It would likely be viewed in the same way that a Philadelphia or Baltimore is now – challenged but recovering – instead of the urban dystopia it’s widely seen as today. What impact would that have had on the city’s economy? On the metro area’s economy? On the state’s economy? Or simply the city’s national perception?

I’ve mentioned here on several occasions that the reason I chose the planning profession is because I grew up in Detroit during the 1970’s. I looked around and saw a city with an inferiority complex and saw people leaving in droves. My naïve and childish thinking was, “instead of leaving the city, why don’t people stay and work to make it better?”

Silly of me. Abandonment is the American way.

Nonetheless, I view Detroit’s bankruptcy announcement positively. It acknowledges that its troubles are far deeper than most realize. It can be the springboard for fiscal recovery, a re-imagining of the city and an actual and complete revitalization. Detroit indeed is in uncharted waters, and its abandonment means that in many respects it could be viewed as a frontier city once again. I would not be surprised if, after restructuring and reorganization, after recapturing its innovative spirit, the city could see growth almost like it did at the beginning of the twentieth century, mimicking what, say, Las Vegas has done for the last 40 years. Even at this dark moment, Detroit has assets that are the envy of other cities.

But let no one forget that it is abandonment that brought Detroit to this point.

This post originally appeared in Corner Side Yard on July 20, 2013.

Monday, July 15th, 2013

Public Safety Is Job #1

I participated in an interesting message board debate a few weeks ago. We were discussing the steep collapse in the urban core (Center Township) population of Indianapolis, a drop comparable to Detroit’s. It lost another 14.5% during the 2000s and even the downtown itself only added less than 1000 people at time with other downtowns were growing more sharply.

Most people were quick to blame schools. I agreed the schools were a problem but suggested crime was a bigger one. Besides which, nobody has yet demonstrated a real turnaround in urban schools, while multiple places have been able to achieve stunning improvements in crime.

What most took me aback was not the debate over which order to rank the two, but rather than many people effectively argued Indianapolis doesn’t even have a crime problem. “It’s not that dangerous” seemed to be the tone, and people talked about how they personally did not feel unsafe or threatened despite living in the city and that suburbanites simply sensationalized urban crime.

I disagree with that in the strongest possible way. While no doubt things can be sensationalized and you aren’t likely to get killed walking down the street, Indianapolis does have a serious crime problem. Almost immediately after our debate died out, someone was shot and killed in the middle of downtown on the 4th of July. And after that there was a series of five murders in one week.

While many cities have seen a drop in murders this year, Indianapolis murders are up 35% and the city is on track for upwards of 150 this year. To put that in perspective, New York City has experienced a stunning drop in murders this year (after a record low last year), and is tracking towards somewhere around 300 murders for the year. NYC has a 10 times the population of Indianapolis but only twice as many murders. When you consider that much of Indianapolis’ population is in outer “suburban” areas that were annexed and have very few murders, the urban core murder rate must be far, far higher than NYC.

Indianapolis Public Safety Director Troy Riggs says the city isn’t more dangerous and points at declines in violent crime overall (query: has it fallen by 80% in the last 20 years, like it did in New York City?). This is exactly the same spin that Rahm Emanuel has been giving to explain away Chicago’s high murder rate.

The people trapped in these neighborhoods tell a different tale. In some Chicago neighborhoods mothers won’t let their kids stand by the window even if they are home because of the risk of getting shot. Someone in Indy similarly said, “I hear gunshots and police sirens every night. I’ve taught my kids how to roll out of bed and get underneath it when it starts happening.”

Make no mistake, the top reason to reduce crime is to keep people from becoming its victims or having to live their lives in terror in neighborhoods like this. But beyond that crime is simply fatal to the urban fabric. Just as one data point, some researchers found that every murder committed causes a city to lose 70 people. Chicago actually would have gained population instead of losing it if its murder rate were the same as New York. Clearly crime is high among the factors driving people out of the central city who have the means to leave, and keeping those who might be willing to move into to it away.

Additionally, given the impressive record of crime reduction in New York and many other places, including Los Angeles (which has also made huge strides in improving police-community relations from its Detective Mark Fuhrman days), it’s also clear that progress can be made.

I’m not sure that there’s a ready answer for schools. My hypothesis has been that it will be families returning to the city that turns around the schools, not a turnaround in the schools bringing families back. But crime is clearly different. Yes, gentrification will “improve” the crime situation. But NYC and LA have seen dramatic crime reductions even in their toughest neighborhoods, ones that have not seen gentrification.

Crime problems can be solved if there’s the will to do so. That will is ultimately lacking in too many places. There’s a fatalistic attitude towards crime too often, and few politicians have the stomach for the spending it will take or the blowback many crime reduction efforts will clearly generate.

But by contrast look at something like fire protection. It’s well known that if you don’t put out a fire in a timely fashion, your entire city can burn down – including rich people’s neighborhoods – something that has happened again and again throughout history. Hence no city, no matter how poorly run in other areas, ultimately allows its fire protection to fall below minimum standard. For example, even in Detroit, while the fire department has seen major cuts, has tons of broken down equipment, has to deal with a stunningly high percentage of arson fires, etc, there is still a baseline level of fire protection for the city, something that was documented in the recent documentary about the Detroit Fire Department called “BURN.”

That fire protection is generally the best provided public service has been known for a long time. For example, in 1972′s “Report From Engine Company 82,” Dennis Smith (admittedly a fire fighter) had this to say:

The people in the South Bronx know that when the corner alarm box is pulled the firemen always come. If you pick up a telephone receiver in this town you may, or may not, get a dial tone. If you get on a subway you may, or may not, get stuck in a tunnel for an hour. The wall socket in your apartment may, or may not, contain electricity. The city’s air may, or may not, be killing you. The only real sure thing in this town is that the firemen come when you pull the handle on that red box.

Failing to put out fires in a timely fashion is simply unacceptable in a city, while we’ve grown used to tolerating large amounts of crime. Places like New York City have decided that they for one will not accept high crime rates, and have relentlessly attacked it, making stunning progress.

I think we need to acknowledge that macrotrends played a big role in this. Mayors like Giuliani and Daley got big credit for turning around their cities, when in fact many big cities all came back at the same time, suggesting common outside forces played a big role. (Saskia Sassen does a great job of documenting this macrochange in “The Global City.”) The peaking of the crack cocaine epidemic likewise helped incredibly. I’m sure there are many other such common factors.

Yet it doesn’t seem unreasonable to attribute at least something to policing and policy changes. Both NYC and LA saw major changes under the leadership of William Bratton. (Chicago, which tried different methods, has not seen similar results, though has had improvements in the last 20 years). It seems to me a lot of people would rather die than give any credit to Giuliani, Bloomberg, the NYPD, Bratton, Kelly, Broken Windows, etc. Myron Magnet wrote of this, “Some people can’t – or won’t – see what’s in front of their own eyes.”

There is certainly plenty of scope to debate or critique various police tactics (e.g, stop and frisk). I myself am very troubled by the increasing militarization of the police, for example. This is a debate that needs to be had and reforms made where necessary. And the police definitely need to be held accountable when they do wrong, something that requires significant, vigilant oversight.

Yet to me the current crop of NYC mayoral candidates give off a soft on crime air. If the next mayor decides to opportunistically score cheap political points at the expense of NYPD, not just that mayor, but the entire city, may come to regret it. Sadly, too many people no longer remember what it was like even in Manhattan not that long ago. (For a sample to refresh your memory, read this). For example, the New York Times in 2004 asked “Is New York Losing Its Street Smarts?,” citing a woman who thought it was a joke at first when she got mugged.

The Millennial urban dweller who has never experienced anything but urban Disneyland is sadly unlikely to understand what is at stake. And indeed even if NYC takes its foot off the gas on crime, things are extremely unlikely to go back to what they were (thankfully). But even a modest uptick in crime can have a chilling effect, and the crime genie can be fiendishly difficult to put back in the bottle once it’s loose. Just ask Rahm Emanuel. Despite his crime stat rhetoric, he knows the score. He meets the families of the victims and I’m sure desperately wants to end the killings.

As for Indianapolis, it’s hard to argue it has really been serious about crime. Before doing a job search for Public Safety Director, the city council specially raised the salary of the job – to $125,000 a year. That’s for a person overseeing both police and fire with a budget of $525 million. Unsurprisingly, they’ve been unable to recruit somebody with the experience befitting the 13th largest municipality in the United States. The previous occupant came from White Plains, NY. (His contract was not renewed). The current one came from Corpus Christi, TX.

I’m not saying Troy Riggs is no good, merely that this is a huge step up for him. He certainly deserves a fair shot to do the job, which he’s been on less than a year. But Indy is in a sort of lose-lose position. Either they hired another guy who’s a bust. Or if he succeeds he’ll be “gone in 60 seconds” to someplace where they’ll pay him a real salary.

I’ve long argued that Indianapolis public sector pay is too low to do a proper national job search for any key position in city government. But it’s tough to change when locals don’t agree. See, for example, Paul Ogden, who strongly feels differently. But it’s the same elsewhere. Detroit had a recent controversy over the pay of its police chief too.

Call me crazy, but I don’t know anyone in the private sector managing a $525 million budget that’s safety critical who only makes $125K/yr. If that salary was raised by just $25-50K, the field of potential recruits would increase enormously. Skimping on policing is the epitome of penny wise, pound foolish – and it’s the city’s citizens, disproportionately the poor ones, who pay the price.

At the end of the day it’s simply a matter of priorities. You could buy a lot of policing for the cost of even one of the $500 million stadiums that dot the American landscape. You can be sure that if a major fire ever again did wipe out a good chunk of a city, state and local government will do whatever and spend whatever it takes to make sure it doesn’t happen again. One hurricane in New York and Bloomberg puts $20 billion in improvements on the table for better withstanding future storms. Yet crime and other ills have effectively destroyed big chunks of our cities, and we’ve just let it happen.

I find that urbanists seem to rarely talk about public safety unless it’s about some controversial incident with the police. I think that’s a mistake. Most cities in America aren’t seeing the strong investment flows and growth of a New York, San Francisco, or Seattle. Outside of a “green zone” downtown many places are still in decline. There’s nothing more important to restoring confidence in those places – and put and end to the ongoing human tragedy in too many of their neighborhoods – than fighting crime. Public safety really is Job #1.

Tuesday, July 9th, 2013

Is Detroit the Next Berlin? by Justin Fox

[ Given the emergence of an artist movement in Detroit, the comparisons to Berlin are obvious. However, in this piece that ran over in Techonomy last year, Justin Fox argues the comparison is invalid. I'm glad to be able to repost it. And I'd also suggest that you might want to check out more of the material from Techonomy Detroit - Aaron. ]

After the fall of the Wall in 1989, Berlin had very cheap housing and industrial space, some in spectacularly grand old buildings. Years of division—with repressive communist rule on one side of town and isolation and economic stagnation on the other—had left the city depressed and underpopulated. Reunification initially only made things worse, as uncompetitive Eastern-side state-owned factories closed en masse.

This translated into, among other things, apartment rents much lower than in any other major Western European city. The low rents and post-industrial landscape drew artists and other bohemian sorts. Then low rents plus a burgeoning cultural scene drew young college grads who couldn’t find good jobs anywhere (German unemployment was high in the 1990s). They could get by in groovy, low-cost Berlin. This influx eventually translated into economic revival. Now Berlin is a boomtown, and everybody’s complaining about the skyrocketing rents.

Detroit’s roughly the same size as Berlin (measured by metro area population). It’s got a lot of cheap real estate, some of it spectacularly grand. It’s got abandoned factories. It’s got great cultural history (mainly on the music front). So … let the young bohemians come and the boom begin, right?

Uh … no. I’m moderating a panel at the Techonomy Detroit conference titled “Is Detroit the Next Berlin?” but I just don’t buy it. Sure, I’m rooting for Detroit’s revival. And the revival seems real, although still in its early stages. Studying and learning from the struggles and successes of other cities (as WDET did with its series on the Detroit-Berlin Connection) is never a bad idea. But the notion that Berlin could be a model for Detroit strikes this outsider as wrongheaded and a bit dangerous. It is an aspiration bound to be thwarted. Here’s what makes Berlin so different from Detroit (and vice versa):

1) Berlin is a political and cultural capital. The economic impact of becoming the capital of a reunited Germany in 1990 was actually a disappointment for Berlin at first, as some government agencies stayed away, and corporations did, too. But the reality of becoming the capital city of a major economic power, and the construction boom that went with that, eventually had a big impact. Berlin also was quickly able to regain its pre-World-War II status as the country’s artistic and cultural capital—thanks in part to massive federal subsidies. So it became Germany’s New York (minus finance and media) plus its Washington, D.C. (minus the huge defense and homeland-security industry). With super-cheap rents. That’s a lot of magnetic power, and by the late 1990s Berlin had become the default destination for creative, ambitious, educated young Germans. Detroit has none of these dynamics going for it except the real estate. Bringing in a few curious artists is great, but expecting a mass inflow of hipsters from all over America is crazy. It would already be a huge victory if lots of creative, ambitious, educated young Michiganders began moving to the city.

2) Berlin reunified. Detroit never had a Wall, but it’s been riven by its own division over the past half century, a stark racial and political separation between the city and the rest of the metropolitan area. There’s clearly been progress made in recent years, with new stadiums and other development downtown, and an apparent shift—born of shared economic desperation—toward more of a we’re-all-in-this-together regional attitude. But the divide is undeniably still there, and it means that even a successful revitalization will of necessity have to take a much different, less-centralized shape than in Berlin. Three quarters of metro Berlin’s 4.4 million people live within the city limits. In Detroit it’s the other way around; more than 80% of the 4.3 million inhabitants of the metro area live outside Detroit proper. Finding ways to tie city and suburbs together remains one of the area’s biggest challenges.

3) Berlin has good public transit. Yeah, its air connections have long been something of a joke, but that should improve dramatically with the opening next year of a new airport. The city is also linked by high-speed rail to the rest of the country’s major cities. Detroit’s got a great airport, but beyond that it’s built quite literally around the automobile. The millennials who would have to begin flocking to Detroit to make a Berlin scenario real don’t seem to like cars much. There’s no easy way around this: Detroit simply can’t afford to build a mass-transit infrastructure right now, and a Berlin-style, youth-oriented metropolis is almost inconceivable without such an infrastructure.

4) Detroit knows business. Yes, the city’s main business has been through a really tough time lately, but metro Detroit is full of private sector expertise—not just in automobiles—and seems to be growing a new entrepreneurial class. Berlin has a startup scene now, but that’s been driven mostly by newcomers. When its long, slow return to prosperity began it was a city of bureaucrats, former communists, and the long-term unemployed. Detroit has a huge advantage over Berlin here, an advantage that should be exploited and emphasized.

5) Detroit has better immigrants. Sure, now Berlin is attracting jet-setters from all over—and has attracted hard-working immigrants from Turkey and Eastern Europe for years. But Detroit, and U.S. cities in general, have two big advantages over their continental European counterparts in attracting ambitious, entrepreneurial newcomers from other countries: (1) we speak the global language, English, and (2) despite occasional problems we have a deserved reputation as a nation where newcomers can thrive. The Detroit area has of course already benefited from its status as destination No. 1 in the U.S. for immigrants from Arab countries, and any realistic comeback scenario for the area and the city proper has to include a big role for overseas immigrants.

There’s an echo here of the competing visions of urbanists Richard Florida and Joel Kotkin. Florida is of course the progenitor of the idea that a new, urban “creative class” is the key economic driver of our time—and that cities (like Berlin) that can attract young creatives will thrive. Kotkin argues that this simply won’t work for most American cities, and that messy, immigrant-filled, strip-mall sprawl is an equally vibrant and more realistic model. Florida, who married a Detroiter, has been talking up the creative-class link to the city’s revival. Kotkin, in a recent newspaper profile of Florida, scoffed that “There’s not enough yuppies on the planet to save Detroit.”

In the case of the Detroit area, they’re both right. Locavore restaurants and design studios aren’t going to bring back the regional economy. That’s going to require other, more mass-scale kinds of business success, and possibly some big-time government investment. At the same time, returning the city of Detroit to its rightful position as economic and cultural heart of the region—which seems like an essential prerequisite to any truly sustainable revival of metro Detroit—will take exactly the kind of building-by-building, restaurants-and-galleries-and-cool-little-creative-businesses entrepreneurship that Florida loves so much. Detroit is not the next Berlin. But it may still get a little bit of that Berlin spirit.

Justin Fox appeared at Techonomy Detroit in a session entitled ”Is Detroit the Next Berlin?” For complete coverage of the September 12, 2012, conference, click here.

This post originally appeared in Techonomy on September 11, 2012.

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