Six things Detroit has going for it

Posted on July 22, 2013

Make no mistake Detroit’s bankruptcy will be angry and contentious. This largest U.S. municipal bankruptcy is uncharted territory for the state, city residents, bond holders and unions. By comparison, resolution of the city’s finances is likely to make the sanitized 2009 General Motors and Chrysler bankruptcies look like a walk in the park. Is Detroit’s bankruptcy a Sputnik moment?

Obscured by the prevailing gloom, Detroit possesses the essential elements of a turnaround. If built upon and wisely managed, Detroit will experience the kind of renaissance that has made a retooled Pittsburgh so attractive and vibrant. Here are some of the building blocks:

Bridge to Canada

A year ago Michigan’s governor and Canadian leaders agreed to build a $1 billion second bridge between Windsor and Detroit. The project is so central to Canadian commerce that they are funding the American construction costs, to be repaid from bridge tolls. Preliminary work on the Windsor side is under way and the bridge is expected to operational in 2020.

Analysts say the bridge will create 48,000 jobs, 8,000 of which will be permanent in southeastern Michigan. Unknown to many, the Windsor crossing is the busiest trade gateway in North America, accounting for one quarter of U.S.-Canada trade. The bridge will connect with US I-75 in depressed southeast Detroit.

Manufacturing

In his recent 130-page report to creditors, Detroit emergency manager Kevyn Orr identified the calamitous decline in employment and the tax base as big contributors in the city’s financial collapse. Only 279,000 Detroiters are working and of these, only 90,000 are employed in the higher-wage auto sector.

While manufacturing is unlikely to return to its glory days, the sector does have huge potential. Chrysler, which last week was identified by Crain’s Detroit Business as the region’s third-fastest growing company, employs 4,600 workers at its Jefferson Avenue assembly plant on Detroit’s east side. The 283-acre facility produces the popular Jeep Cherokee and recently hired over 1,000 new United Auto Workers employees, many of them Detroit residents.

Land

The blighted, under-populated land that is so emblematic of Detroit’s decline is unquestionably a valuable future asset.

Adjacent to the Detroit River on the east side, entrepreneur John Hantz is clearing away abandoned houses and building the world’s biggest urban tree farm. Having obtained city approval last year, Hantz intends to plant 15,000 trees on 140 acres of land just south of the Chrysler assembly plant.

While Hantz won’t say, I have no doubt that his is a speculative investment. The trees are likely to be harvested far before maturity and the land sold off for a handsome profit.

Wise city leadership will use tax incentives to lure investors, small manufacturers and residents into Detroit’s vast 139 square miles of territory, an area so large that it could absorb Manhattan, San Francisco and Boston.

Downtown sports and entertainment

While vast stretches of Detroit proper have been hollowed out, that is not the case with the downtown core or the metropolitan area. Detroit’s population has fallen to under 700,000 but 4.7 million people live in southeastern Michigan. Detroit’s successful sports franchises draw from this large base that is based downtown.

Baseball and hockey impresario Mike Illitch is planning a $650 million arena complex in the downtown not far from his wildly successful Fox Theatre entertainment venue. The relatively new baseball and football facilities across the street are impressive money makers.

Another sports entrepreneur, Dan Gilbert, has moved the headquarters of his Quicken Loans downtown from the suburbs. Over the past 18 months Gilbert has spent a fortune buying up dozens of underused downtown high rises. He foresees huge returns on his investments.

Recreation

Belle Isle at the southeastern edge of the city is one of America’s largest urban parks. Comprising nearly 1,000 acres and situated in the Detroit River with magnificent views of downtown Detroit and Windsor, the park was laid out in the 1880s by Frederick Law Olmsted, the designer of New York’s Central Park.

As Detroit’s financial crisis deepened over the past decade Belle Isle was neglected and became unsafe, often a haven for drug dealers. Last year Michigan offered to turn Belle Isle into a state park with the city retaining ownership. This was rejected by a belligerent city council.

Managed properly Belle Isle will become a major tourist attraction.

Health care, education and training

Southeastern Michigan is blessed with superb medical facilities. The Detroit Medical Center is situated downtown and Ann Arbor’s University of Michigan Hospital is only an hour’s drive away.

So too with education. Southeastern Michigan has a plethora of outstanding universities, principally the University of Michigan and Wayne State University, which is downtown.

What is critical now is an effective partnership to provide training and classroom instruction to Detroit’s badly underserved population. The city’s schools have failed just as much as its local government. Detroit’s young people need access to skills so that they have a stake in the city’s future.

What we’ve seen in Detroit is the collapse of a governing model dominated by big labor and crony capitalists. Corruption became endemic. Some wrongdoers like disgraced Mayor Kwame Kilpatrick are in prison.

Emergency manager Kevyn Orr’s June 14 Report to Creditors is sobering reading. Evil people didn’t create dysfunction; they merely assumed that financial problems could be put off until tomorrow. It was easier to give in than resist union demands for rigid work rules and retirement packages that couldn’t be afforded.

City retirees, says Orr’s report, have pensions far more generous than in the private sector with 80% to 100% of health costs covered, plus life insurance, dental and vision benefits. Orr says Detroit would soon be devoting 65% of tax revenue to health and retirement benefits.

Dysfunction gradually pervaded city services. Forget the one-hour response time for serious crimes, for lesser problems the police told callers they wouldn’t come at all. There was seldom a penalty for avoiding taxes and only 53% of property owners pay their taxes.

Orr last month told creditors, “we’re tapped out.” He appealed for concessions to avoid bankruptcy but got instead lawsuits and rejection. Bankruptcy became inevitable.

Gov. Rick Snyder says in the period ahead a major challenge is establishing a dialogue with Detroit’s citizens. It is essential that this occurs and that, once the anger is vented, cooperation and shared sacrifice prevail.

At the city limits the signs say “Detroit, Founded 1701.” That makes Detroit one of America’s oldest cities. A century later, after fire destroyed the French settlement, the city adopted as its motto, “We hope for better things, it will arise from the ashes.”

May it do so again.