Nov. 4 (Bloomberg) -- Milwaukee, Cleveland, Philadelphia, Washington and even Leipzig, Germany, show that bankrupt Detroit isn’t hopeless -- although using hope and Detroit in the same sentence requires a leap of faith.
The Motor City’s numbers suggest irreversible decay: Each day, an average of 15 vacant buildings flood, often after thieves steal pipes. A July report said the city was mailing water bills to more than 30,000 uninhabited properties. Detroit pays $62 to process each paycheck for its 9,560 employees, compared with an average of $18 for U.S. public employers. Overshadowing it all is $18 billion in long-term obligations.
“It’s going to take some pretty draconian efforts to solve, especially if no one is going to send a huge armored truck there with a bunch of cash in the back,” said Robert Daddow, deputy county executive for neighboring Oakland County.
Detroit isn’t one big disaster. It’s a cluster of smaller disasters similar to those other cities have tackled and whose solutions may show a practical way forward for Michigan’s crumbling giant of auto manufacturing.
Milwaukee’s focus on neighborhood crime is already being tested in Detroit. Cleveland demolishes abandoned properties more efficiently. Philadelphia used zoning to rejuvenate slums. A control board mended Washington’s finances and Leipzig shows how 2.5 billion government euros ($3.4 billion) can rebuild a city that shrank 20 percent after reunification in 1990.
The crisis in Detroit, which is seeking Chapter 9 bankruptcy, may be more complex: It must simultaneously restructure its debt and pension obligations, persuade residents not to leave, pay its debts and devise a new way of government for a post-industrial age. Yet there is a model close to home: the auto companies whose rise, fall and resurgence created the modern city.
Few predicted in 2008 that Detroit-based General Motors Co. and Chrysler Group LLC in suburban Auburn Hills would so quickly roar back from bankruptcy to profitability. The federal government provided $80 billion, and domestic auto sales are on pace for their best year since 2007.
Detroit must reverse 60 years of decline with scant hopes of a federal bailout. Even without a shower of money, though, the city can look to its peers to begin tackling its challenges.
Last year, Detroit’s violent-crime rate of 2,123 per 100,000 residents was 64 percent higher than that of Milwaukee, another Midwestern industrial city, according to FBI data.
All Milwaukee’s crime, including violence and property offenses, has dropped 19 percent compared with 2007, the year before Edward Flynn became police chief and started making officers walk high-crime neighborhoods, wasting less time in cars chasing minor disturbances. He called the program Building Neighborhood Trust.
“The neighborhood knows who the bad guys are,” he said.
A police liaison is welcome in Milwaukee’s Cooper Park, said resident Kathleen Roney.
“The neighborhood is more cohesive, vigilant, and overall improved,” Roney said in an e-mail. “In a city where crime is high, it’s nice to have a contact person we can count on.”
The Manhattan Institute for Policy Research, which studies urban life from a market perspective, is helping replicate the Milwaukee model in Detroit. A yearlong project in the Grandmont Rosedale neighborhood meant a 26 percent drop in home invasions, said Michael Allegretti, vice president for programs for the New York based research organization.
“We need a Grandmont Rosedale project in 50 areas of the city,” said John Mogk, a law professor at Wayne State University specializing in urban policy. “It would cost you $5 million, which is 0.2 percent of the city’s budget.”
Then there is the simple question of what do with all Detroit’s unused and vacant area. The city has an estimated 150,000 vacant parcels and more than 70,000 unused buildings scattered across 139 square miles, according to Detroit Future City, a nonprofit project that created a blueprint for recovery. About 60 percent of 12,000 fires each year are in vacant buildings, and property-tax revenue has fallen almost 20 percent in five years, according to a report prepared for its creditors.
To better remove blight, Detroit could follow Cleveland, where the Cuyahoga County Land Bank has authority to aggressively acquire, sell or demolish homes. Land banks obtain properties from foreclosures or abandonment, and they have the power to assemble them for future development or sell them.
Cleveland properties aren’t allowed to sit vacant and pile up back taxes before they’re referred for foreclosure. It takes no more than six months for the Cuyahoga Land Bank to scoop up the most run-down houses, said Gus Frangos, its president. The land bank is a private, nonprofit corporation that’s funded by a portion of delinquent tax payments.
The Cuyahoga Land Bank demolished about 2,000 homes in four years and helped rehabilitate 700 others, Frangos said.
In Detroit, eight city, state and county entities hold 66,000 vacant parcels, about half the total, many as a result of delinquent taxes.
Detroit has a land bank, but there is little coordination with Wayne County’s treasurer, who auctions tax-foreclosed properties. The Detroit Land Bank, which opened in 2010, has only about 400 parcels, according to director Juanita Jones.
“We should have the ability to move properties more quickly into land banks,” said Wayne County deputy treasurer David Szymanski.
The city also can promulgate new land-use rules to foster development, an idea demonstrated by Philadelphia, which in 1991 itself teetered on the edge of bankruptcy. Take, for instance, once-blighted Frankford Avenue.
Sandy Salzman says that even though she promoted the idea, she doubted the thoroughfare in the New Kensington and Fishtown neighborhoods would become an art corridor when it was proposed in 2000.
“It didn’t even have a coffee shop,” said Salzman, director of the New Kensington Community Development Corp. “Now we have a ton of coffee shops. We have art galleries.”
The transformation will get additional support from the first zoning changes in half a century, which make it easier to convert abandoned industrial areas to residential or commercial uses, urban gardens and farms or allow artists to have a shop next to their homes, said Eva Gladstein, who was the executive director of the commission that developed the changes. The city rolled out a full revamp of zoning rules last year.
On Frankford Avenue, shoppers have supplanted prostitutes and drug dealers. A former railroad yard is a school. Parks and basketball courts with special drainage are part of a model program to cut storm-water runoff, and residential developments are returning, Salzman said.
In New Kensington, properties that were worthless in 1995 are now selling for $50,000 to $100,000, Salzman said. In the Fishtown area, homes are selling for $400,000. In the third quarter, house prices in the Kensington/Frankford area were 45 percent higher than a decade ago, according to an Oct. 24 study from the University of Pennsylvania’s Fells Institute of Government.
Philadelphia’s population is approaching 1.6 million after falling as low as 1.4 million in the late 1990s, according to the Census. It’s the fifth-largest U.S. city.
Detroit’s long-term health will be determined by zoning that recognizes new land uses, expedites projects and encourages investment, said Dan Kinkead, director of the Detroit Future City Program Management Office. The city’s population hovers around 700,000, down from a peak of 1.85 million in 1950.
The Future City plan, which calls for stabilizing the population decline by 2030, relies on many of the same changes helping Philadelphia neighborhoods, Kinkead said.
“The city’s ability to do things is restricted,’” he said.
Detroit’s government has been defined by its inability to provide services, or even to keep accurate account of its failing finances. The nation’s capital once was in similar straits. In 1995, Washington had a cumulative budget deficit of $500 million, and, according to a city report, a noninvestment-grade bond rating -- like the Caa3 that Moody’s Investors Service assigns Detroit.
Congress, which the Constitution puts in charge of the federal district, handed Washington’s finances to a five-member body and created a chief financial officer to take over spending from the mayor and city council.
Natwar Gandhi, the officer who has been riding herd since 2000, said he stopped any department that tried to spend more than projected revenue.
The district has built a $1.5 billion surplus and its debt is investment grade with the three largest rating companies, Gandhi said. The key is his independence, appointed by the mayor and city council for a five-year term with veto power over all financial decisions. He can be removed only if the mayor and two-thirds of city council agree.
“I can disagree with the mayor and still keep my job,” he said.
Though state-appointed Emergency Manager Kevyn Orr now runs Detroit, the city will elect a mayor tomorrow whose powers will remain undetermined until Orr’s departure. The new leader offers a fresh chance to impose financial discipline on the city.
However much Detroit can do on its own, Leipzig, in eastern Germany, shows the power of a national urban policy. Like Detroit, Leipzig was an industrial center that shriveled. After reunification, it lost 20 percent of is population from 1990 to 1998, shriveling to 437,000 that year. Many moved to western cities. Suburbs sprawled thanks to government subsidies for commuters, unemployment and lack of modern housing.
Now, the home of one of the world’s oldest universities, and the place where J.S. Bach composed his choruses is Germany’s fastest-growing city, with 520,000 residents, said Oliver Weigel, its former director of planning. Last year Leipzig gained 11,000 residents, a 2 percent gain, said Weigel, who is now an official with the Federal Ministry of Transport, Building and Urban Development.
A 2000 city plan enabled by federal and state money created privately built housing, demolished 9,200 buildings and spurred development. Polluted former industrial sites were scrubbed, green spaces carved out, an open mine was turned into lake with beaches. Arts and entertainment flourished, some of it thanks to government subsidies.
Helping the revival in the city are thousands of jobs at automotive plants for Bayerische Motoren Werke AG and Porsche AG, and at the DHL Logistics GmbH logistics hub in Leipzig.
In all, about 2.5 billion euros in government money was spent since 1997 on Leipzig’s infrastructure, housing, train station, museum, a new subway and the Leipzig University campus, according to a 2007 report by Jorg Ploger, senior researcher at the Institute for Regional and Urban Development in Dortmund.
“Leipzig is simply beautiful,” said Maria Gathmann, 33, a bank employee and singer who’s lived in the city all her life. “Not too big, not too small, with a lot of green, a lot of culture, nice restaurant and bars.”
Weigel said Detroit needs a similar infusion of federal and state money, an intervention that runs counter to U.S. attitudes toward cities. Germany, he said, will not allow cities to go bankrupt.
President Barack Obama has promised $320 million to Detroit, mostly through existing federal programs. At least $500 million in new aid isn’t unreasonable, said Mogk, the Detroit law professor. In return, the city should present to Obama a five-year plan for economic recovery.
“You’re talking about turning around a major American city,” Mogk said. “It can’t rebuild itself anytime soon unless it has major financial assistance to fund its growth agenda.”
He added, “It might serve as a centerpiece for what could be done in other cities.”
Weigel, who visited Detroit two years ago, said, “I never, ever saw a city with problems like this. You have to have some kind of mechanisms to assist cities. You don’t have what we have, a joint urban funding program run by the federal government, state and municipal governments.”
He added, “Leipzig is over the peak now. It’s made it. We have to take care of other cities now.”
To contact the editor responsible for this story: Mark Tannenbaum at email@example.com