How To Fix Detroit


So following my piece on Detroit’s bankruptcy, including my editorial in the National Post, I got a lot of email with a very reasonable question:  “You complain about the problems, but you have no solutions!”.

That is true, at least so far.  So, it is now time to turn to the future, and come up with solutions to make the city of Detroit great again, and to allow its people to thrive.

Let us begin by understanding that this is a problem that took 2/3 of a century or more to culminate in filing Chapter 9 bankruptcy.  So there are no quick solutions.  This is a generational battle.

Next, let us stop being naive.  I have heard a bunch of platitudes like “Detroit will be back!”.  Sorry, but there is no inherent reason why Detroit should recover.  We should make sure it will recover, but with continued incompetent leadership, it will fail. I will give you a perfect real life example:  Flint, Mi, about 60 miles to the north of Detroit.  They have been saying they will return to prosperity for 30 years…and their situation simply worsens and worsens, to the point now that it is unlikely Flint will ever be more than a monument to the Rust Belt cities of America.

So, putting aside such silliness, how do we actually solve Detroit’s problems?

First, there is a short term hurdle.  Detroit is approximately $18 billion in debt, and has no way to pay for it.  It is buried under pensions and other obligations that cannot be met. Much of this will be determined by the bankruptcy court, based on legal regulations and bylaws.  But a couple points.  First, Detroit should try not to sell off valuable assets that could help Detroit recover in the long term.  Short term debts should not be paid by long term treasures.  The best example is the Detroit Institute of Arts, which contains one of the country’s greatest collections of art and historical pieces.  Many creditors want to raid the D.I.A. to pay off bond holders.  There may be a few pieces in the collection that may make sense to sell off, but for the most part, this should be a protected asset, the basis of a future cultural center in a city that needs to recover.

Other assets probably should have long been sold off, or at least, leased for significant cash value.  Belle Isle, a lovely island in the Detroit River, could be a mecca of residential, commercial, and other mixed use business.  Instead, under city control it is a wasteland, benefiting virtually no one.  Another asset?  The Detroit Public Water system, which supplies most of the water and sewer services for much of the metropolitan area.  This must be divested, and removed out of the city’s control.

Second, you must fix the broken system that remains in Detroit, left by years of neglect and incompetence.  This will, sadly, cost money, but you must invest to get return.  There are various estimates of what it will cost to fix the essential infrastructure, clear abandoned buildings, fix the roads, etc.  But the most recent estimates are anywhere from $1-2 billion.  This is the one piece of the puzzle where the Federal government may have a small role.

The tough part of this will be choosing what parts of the city simply must be let go.  This process started long ago out of necessity, but not must take on a more logical process.  For example, in 2008, Detroit had 317 active parks. It now has just 107 — and 50 of those parks are set to close, although civic donations are keeping them open through the summer.  Some of these parks should be given away, while others consolidated, in order to make best use of limited funds.

Another example is Detroit’s antiquated payroll department.  As I said in my previous piece, it has the highest cost per employee in the country, or $62 per check, to process Detroit payroll expenses. It has multiple payroll systems that are not integrated with each other. Much of this processing should be privatized…the average private payroll company only charges about $10 per paycheck.  Yes, there are 150 employees in this department, and tough cuts are going to have to be made.  This is the reality; a tough reality.

Some of these problems are much more complicated however,  Look at emergency services (including police, Fire, and ambulances).  They simply don’t have the money to cover the bulk of the city. On an average day, only 10 to 14 of the city’s 38 ambulances are working. The average Detroit fire station is 80 years old, and maintenance costs often exceed $1 million each year.  Approximately 40 percent of Detroit’s street lights do not work.

It takes an average of nearly an hour for Detroit police to respond to any emergency, whether it be a routine call or an active emergency.  The average nationwide?  11 minutes.  A systematic overhaul of the police department is necessary to focus resources where needed.  However, this gets into a much bigger problem…

Third, the city needs to reorganize; and I am not talking about the bureaucracy.  I am actually talking about the bricks and mortar, littering the city, much of it falling apart from disuse.  If you drive through the city, you can go from neighborhood to neighborhood where only a few houses stand, where dozens or hundreds used to exist.  The city is trying to provide emergency coverage in these areas, and cannot reasonably ever attain the type of coverage necessary for a city.  It is more like living in rural America than in a metropolis.

Mayor Bing actually proposed a radical (some would say ‘insane’) proposal to bulldoze up to one quarter of the City, centralize businesses and residents, and focus on the people in a way that made sense.

Now, this plan has huge problems. One, it takes money.  Second, it would be a massive use of eminent domain, as you forcibly transfer residents from their current home into an equivalent home in a centralized neighborhood.  There would be numerous lawsuits, protests, etc.  But on the other hand, Detroit may not have any choice.  The alternative may be to leave individuals where they are, but tell them they are on their own…without sufficient emergency services in their area.

So this would be a massive undertaking.  But what are the benefits, if it could be done?  First, emergency services would be less costly, and much easier to maintain.  It would drive down costs.  Infrastructure costs would plummet.  But the additional benefit would be turning large swaths of the city into green space, agricultural use, or other potential uses.  You could turn Detroit into one of the greenest cities in America.  One proposal had a contiguous park along the border of downtown, that would be along the same lines of Central Park.  Detroit currently is one of the grayest, dirtiest looking cities you will ever see; this could transform that image.

The burdensome pension system also must be dealt with.  This will be painful; many of the residents of the city are former employees.  To be sure, pensioners should be the last creditors to face the axe; but they cannot be spared.  The pension system currently allows long term employees to retire at almost 100% salary.  No system can survive such payouts, especially with a dwindling population and shrinking workforce. The pensioners will have to take a hit, the same way those at GM and Chrysler did.  Of course, the unions will fight this tooth and nail, because pensions are the bedrock of their value to their members.  But there simply is not the money to pay for it; it is a numbers game, and that is a game the unions will ultimately lose.

The final piece of the puzzle may be the hardest, because in some ways, it will take self governance out of the hands of the residents of Detroit.  The city council and city government must be fundamentally reformed.  And if one thing has been proven, the current regime is unwilling to make those reforms.

Gov. Rick Snyder will have the tough duty to tell the residents that the State of Michigan will do what is best for the residents of the city of Detroit.  All vestiges of the government of the past half century need to be washed away…as well as the remnants of decades of corruption and incompetence.

To Snyder’s credit, as well as Emergency Manager Kevyn Orr, they are confronting this problem head on.  Orr is in talks with the Ford Foundation and New York University’s new Marron Institute on Cities and the Urban Environment, among others, for recommendations to improve the city’s governance structure and operations.  These kind of intellectual exercises are exactly what Detroit needs to rethink its future.

These are the choices left to Detroit.  They have a large budget deficit, enormous long term debts, and no way to pay for them. Detroit is at the statutory limit in its ability to tax, so even if that was a viable solution (and it is not), that avenue is not open to them.

Detroit must make fundamental changes to its pension system and bureaucracy.  There is no other answer available to them.  They can try to leverage what assets they have, but those are few and far between, and certainly not enough to fill the hole they have dug.  Even the immense wealth of the Detroit Institute of Arts would hardly make a dent in that debt.

Once the city emerges out of bankruptcy, its citizens must focus on the immediate needs of the city:  emergency services must be re-established, the city’s regulations and tax structures must be made more business friendly, and a street by street analysis of long term sustainability must go forward.

Some on the right have proposed a ‘Hong Kong style’ economic reform plan, with pro-business tax rates and enterprise zones. I favor such reforms, but I am not sure that would be a ‘magic bullet’ in a city like Detroit, which fundamentally depends heavily on manufacturing and import/exports.  Detroit must maximize its advantages.  It is the major thoroughfare from the U.S. to Canada.  The metropolitan area is ripe with intellectual and financial capital, and if the city once again welcomed its rich neighbors, money could flow into the city, and help spur investment and growth.  The city still has a large manufacturing base that can be rejuvenated, if the unions are willing to adapt; I realize that is a leap of faith, but it must happen.  Detroit should become a hub of manufacturing innovation and trade.  But to happen, the city must enter the 21st century.

Detroit can emerge from the ashes.  But it must choose to make the hard decisions.  Those choices do not get any easier with the passage of time.  Many chances to save Detroit have been missed.  This time, there is no time nor chances left.

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