Detroit

Three Pathways to Revitalization

Lewis D. Solomon

• Publisher: Routledge
• Year: 2018
• Print ISBN:
  9781412851961
• eBook ISBN:
  9781351522458
• Topic: Economics
• Subtopic: Development Economics
• Index: Economics

As America's most dysfunctional big city, Detroit faces urban decay, population losses, fractured neighborhoods with impoverished households, an uneducated, unskilled workforce, too few jobs, a shrinking tax base, budgetary shortfalls, and inadequate public schools. Looking to the city's future, Lewis D. Solomon focuses on pathways to revitalizing Detroit, while offering a cautiously optimistic viewpoint.

Solomon urges an economic development strategy, one anchored in Detroit balancing its municipal and public school district's budgets, improving the academic performance of its public schools, rebuilding its tax base, and looking to the private sector to create jobs. He advocates an overlapping, tripartite political economy, one that builds on the foundation of an appropriately sized public sector and a for-profit private sector, with the latter fueling economic growth. Although he acknowledges that Detroit faces a long road to implementation, Solomon sketches a vision of a revitalized economic sector based on two key assets: vacant land and an unskilled labor force.

The book is divided into four distinct parts. The first provides background and context, with a brief overview of the city's numerous challenges. The second examines Detroit's immediate efforts to overcome its fiscal crisis. It proposes ways Detroit can be put on the path to financial stability and sustainability. The third considers how Detroit can implement a new approach to job creation, one focused on the for-profit private sector, not the public sector. In the fourth and final part, Solomon argues that residents should pursue a strategy based on the actions of individuals and community groups rather than looking to large-scale projects.

II

Surmounting Detroit’s Fiscal Crisis and Revamping Its Municipal Public Sector and Public School District

Detroit’s public sector faces three Herculean tasks, each of which presents an obstacle to its revitalization. First, as discussed in chapter 3, the city must regain its fiscal sanity. Detroit must ensure that its revenues match (if not exceed) its expenditures, while providing essential public services, such as public safety. At the same time, as analyzed in chapter 4, Detroit must rightsize its public services to match its sprawling but shrinking population. Third, as considered in chapter 5, to retain and attract residents, Detroit must not only assure the financial viability of its public schools but also significantly improve their academic performance.

The year 2009 marked an important turning point in beginning to meet these three challenges. In January 2009, the Michigan governor appointed an emergency financial manager for the beleaguered Detroit Public School (DPS) district. Thereafter, the DPS system began to turn around financially and provide children with a sound knowledge base for their future success. As analyzed in chapter 5, it appears probable that the district will continue on the path to financial viability. At present, it is possible that the academic performance of K–12 students will improve, as well as the high school graduation rate. These are difficult tasks resting, in part, on parents taking a greater interest in their children’s education and the opposition of the teachers’ union to academic changes.

Also in 2009, a political reawakening occurred in city hall, starting with Detroit’s new mayor, David (Dave) Bing (D), and city council president, Charles Pugh (D). Bing, a basketball legend and business leader (the owner of The Bing Group, a now defunct steel distribution company), became a politician.¹ Promising change and a new approach to governing, Bing won a special election in May 2009 to fill the balance of an unexpired mayoral term—following municipal scandals and eventual criminal indictments, and a general election in November 2009—for a four-year term beginning in January 2010. Bing came into office with a city council majority that shared his penchant for competence and a change-minded agenda.²

Until it was too late, however, Bing and his team often spurned the efforts of several more realistic council members to craft a more aggressive response to Detroit’s growing financial crisis, by dramatically reining in spending. City officials had allowed budget deficits to accumulate by more than $100 million annually between 2005 and 2010, adding some $500 million in new debt during this period to pay Detroit’s bills, ultimately burying the city in more than $5 billion of debt.³ In fairness, bringing municipal finances under control by reshaping the city’s labor-management relationship proved a difficult, if not impossible, task. As developed in chapter 3, with the appointment of an emergency manager in March 2013, it appears probable that the city will be on the road to financial viability and may avoid bankruptcy. However, the specter of bankruptcy looms on the horizon for Detroit, particularly in view of falling municipal revenues.

Bing also sought to achieve an equally tough objective: concentrating public services in the city’s more densely populated, more viable neighborhoods. Here Bing floated a blueprint for future land use that evidenced leadership, regardless of the political consequences. However, as examined in chapter 4, his drive to reshape the city to focus the delivery of needed services for a good quality of life and avoid drastic across-the-board cuts that would drive out more residents petered out in the effort to avoid insolvency. A 2011 short-term action plan, implemented in three demonstration areas, only achieved modest gains. The 2012 long-term plan, the Detroit Strategic Framework Plan, succeeded in addressing and overcoming a legacy of suspicion and distrust involving planning efforts and gaining a consensus that Detroit as a smaller place could be a better place. Beyond these achievements, the plan will likely sit on the shelf, with low odds for comprehensive implementation, at least for the foreseeable future. Also, the plan suffered from a notable deficiency: the lack of any type of funding mechanism. However, The Kresge Foundation pledged $100 million over the next five years to assist in implementing the plan.

3

Struggling to Deal with Detroit’s Fiscal Crisis

In April 2012, Detroit and Michigan entered into a strategy for dealing with the city’s fiscal mismanagement and its ever-deepening financial troubles. With the municipality swimming in red ink and facing the looming specter of insolvency, the city and the state entered into a Financial Stability Agreement. Prior to mid-2012—despite shedding public-sector jobs, cutting pay, trimming benefits, and curbing services—the city could never reduce its operations to match its shrinking tax base, in large measure, because of municipal employee unions’ intransigency. This chapter analyzes budgetary events leading up to the agreement and its impact, particularly with respect to the city’s unionized employees. However, the agreement proved inadequate. It is probable that the March 2013 appointment of an emergency manager will put Detroit on the path to financial solvency—fixing the city’s budget by balancing revenue with expenses, while enabling the municipality to provide essential public services to its residents, although bankruptcy remains a possibility.

The Approaching Financial Storm

Mayor Bing spent his first three years in office largely focused on Detroit’s financial crisis and restructuring municipal public services. Stabilizing the city’s financial health and restoring fiscal sanity by increasing revenues, where possible, and bringing spending under control, served as his highest priorities, along with establishing (and maintaining) a safe and secure city and facilitating the creation of private-sector jobs.

Although Bing inherited a city in a distressed financial condition, after years of mismanagement and an extended period of fiscal imbalance, he failed to turn around Detroit’s persistent financial problems. He did not act decisively to stop the slide into insolvency by eliminating its structural budget deficits. He never persuaded a city council majority to implement an aggressive financial and operational restructuring plan.

Bing, a good person, kept trying to do the right thing, but he faced recalcitrant city employee unions and could not keep his appointees from spending beyond their departmental budgets. For his first two years in office, he also was unable to keep his management team, which often seemed adrift, together. There were scores of departures of top-level aides, making building momentum difficult. The in-fighting led to what one journalist described as a “back-stabbing free-for-all.”⁴ In the context of a battle of personalities, Bing consolidated power in a few top aides. He rarely listened to those outside his tight, frequently changing group of advisers.

A large measure of stability returned in June 2011, when Bing brought back Kirk J. Lewis as his chief of staff.⁵ Several months before, in March 2011, Lewis left city hall, when Bing objected to Lewis’s candidacy as emergency manager of the Detroit Public School District. When he returned, Lewis ran city hall’s day-to-day operations, with major department heads reporting directly through him to the mayor. He also sought to improve Bing’s frayed relations with the city council, gradually forged a viable leadership team, and urged the mayor to be more visible in the community.

Despite the chaos in his management team from 2009 to mid-2011, Bing made some progress on the financial front. Bing inherited an accumulated $332 ($331.9) million budget deficit as of June 30, 2009, that he reduced to $197 ($196.6) million by the end of June two years later,⁶ only to see it balloon to about $265 million in mid-2012. To decrease the city’s accumulated deficit, Bing increased its revenues, borrowed money, and reduced expenses.

To bolster revenues, in June 2011 Bing obtained $20 million from an escrow fund related to Detroit Edison’s (a subsidiary of DTE Energy) purchase of electricity generated by a resource recovery project at Detroit’s municipal trash incinerator, after the Michigan Public Service Commission approved the escrow release. The fund had been held in escrow for years, following the sale of a city incinerator. The city also received $55 million in delinquent property tax receipts from Wayne County.⁷ In the face of declining income and property taxes, these revenue gains, however, proved inadequate.

In the midst of unrealistic revenue estimates, Bing resorted to the municipality’s habit of borrowing to cover expenses. To buy time to tighten the city’s operations and squeeze payroll costs, in November 2009 Detroit borrowed some $94 million in one-year tax anticipation notes to meet the continued revenue shortfall.⁸ Then, in 2010, the city obtained $250 million by issuing fiscal stabilization bonds, backed by future state revenue-sharing payments.⁹ However, borrowing money could not get Detroit out of its fiscal crisis.

On the critical expenditure side, Bing, with the city council’s help, reduced expenses. During Bing’s first three years in office (2009 to mid-2012), the city decreased its workforce from some 13,400 to about 10,000 employees. In 2009, he imposed a 10 percent wage cut through twenty-six unpaid furlough days on the city’s nonunionized executive and legislative branch and local court employees. In October 2010, Bing, with the city council’s agreement, instituted a 10 percent pay cut, again through twenty-six unpaid furlough days, and implemented certain health insurance concessions, among other cost savings, on virtually all other city employees, except for police officers and firefighters.¹⁰

The 2010 and 2011 Budget Battles

During Mayor Bing’s first two years in office, Detroit faced an ongoing difficulty in balancing its revenues and expenditures that resulted in a continued structural budget deficit. At the same time, Bing experienced a rocky, if not tumultuous, relationship with the city council’s realistic reform wing, which favored a more aggressive response to Detroit’s financial condition.

Believing that government has a core responsibility to help people by providing services and meeting constituents’ needs,¹¹ Bing tangled with the city council in 2010 and 2011, when council members called for even deeper budget cuts than he wanted to make. The council voted to override the mayor’s budget in both years before reaching compromises—with Bing threatening service shutdowns each time, if the council did not restore funds to the budget. However, engaging in petty politicking, both the city council and the mayor fought over millions of dollars, even tens of millions of dollars, not the hundreds of millions of dollars required to prevent insolvency and restore fiscal sanity to Detroit. City leaders could not face the scale of Detroit’s financial problems.

In 2010, the council gave in and restored $17.8 million to Bing’s 2010–11 proposed budget that had already cut $100 million from the city’s general fund by trimming spending in most departments by 4 to 16 percent. Instead of an additional $31.8 million in cuts as proposed by the council, the deal restored: (1) $4.6 million of the $6.7 million the council cut from the Police Department’s budget, which would have resulted in laying off some one hundred police officers; (2) $1.8 million of the $3 million proposed trimming from the Fire Department’s budget; (3) $5.5 million of $9.2 million the council cut from the General Services Department’s funds for park maintenance and grass mowing, thereby saving seventy-seven city parks from closing; (4) some $2.6 million in funds to preserve the jobs of 33 out of 180 emergency medical service workers.¹²

Bing engaged in another budget battle with the city council in 2011. Although Bing and the council seemed at a budget impasse, the showdown resulted in a compromise that avoided devastating public services, at least temporarily. For the 2011–12 fiscal year, Bing’s proposed budget had already reduced expenses by $200 million through, among other cuts, suspending for one year the $65 million annual loss recovery payment to the public employees’ pension system. Believing that th...

Table of contents

• Cover
• Half Title
• Title Page
• Copyright Page
• Dedication
• Table of Contents
• Introduction
• I Some Background and Context on Detroit
• II Surmounting Detroit’s Fiscal Crisis and Revamping Its Municipal Public Sector and Public School District
• III Economic Growth and Job Creation Fueled by the Private Sector
• IV A Vision of and Obstacles to the Creation of an Alternative Political Economy Sector
• Index