Tag : finances

Last week the city of Detroit filed the largest municipal bankruptcy in American history. Cue the panic.

The media, internet, and social media exploded with predictable stories of the city’s imminent demise. There’s the shrinking population, which dwindled from a peak of nearly 2 million to 700,000 in 2012. Over and over again, we heard the the long list of other woes – mass joblessness, the sky-high murder rate, street lights that don’t work, unthinkably long waits for police and emergency services, huge numbers of vacant buildings, and neighborhoods that are all but abandoned.

Even Michigan’s own Michael Moore seemingly admitted defeat:


By Friday, a Michigan court ruled the bankruptcy unconstitutional, leaving the city’s future even more up for grabs.

The reality is that Detroit’s fiscal woes have been a long time in the making. They are the product of the city’s history finally catching up. They reflect much more than a revenue shortfall, or even incompetent and at times corrupt city politics. They are the product of a half century or more of white flight, the outmigration of industry, deindustrialization, sprawl, and the huge racial and class division between the city and the suburbs, all of which have been well-chronicled.

Detroit’s problems surely run deep. But beneath its fiscal problems, and all the hemming and hawing about them, lie the seeds of rebirth for the city and the broader metro region. Since the economic crisis, and perhaps somewhat before it, the first signs of recovery and revitalization, modest as they may be, are finally starting to surface.

Detroit’s problems surely run deep. But beneath its fiscal problems, lie the seeds of rebirth.

As I’ve written here on Cities, Detroit’s downtown urban core is seeing more investment, economic activity and an influx of talent than it has in decades. This revitalization is concentrated and spotty and it is far from inclusive, but it is certainly something positive, generating jobs, revenue and much-needed hope and optimism that provide a foundation to build upon.

The broader metropolitan region is home to huge assets – truly great research universities, world-class research, development and design capabilities, abundant musical and creative talent, a great global airport, and, after years of neglect, a massive effort to invest in and revitalize its downtown core.

Of course many of these assets are concentrated outside the city, in its suburbs and adjacent communities and metro areas such as Ann Arbor and Lansing. And for that reason, the real key to the city’s rebirth will depend on true regional cooperation. For too long the city and its suburbs have been beset by racial and class division, at times stoked by divisive politicians from both sides. The city’s looming bankruptcy provides the deep crisis that may at long last be the spur for the regional cooperation from the suburbs and outlying areas that long-run recovery requires.

Over the weekend, a number commentators have suggested there is a way forward beyond the city’s fiscal crisis. Here are a few of my own reasons why the bankruptcy may signal a turning point for the city and region:

A fiscal crisis and an economic crisis aren’t the same thing. Bankruptcy is a restart, not a defeat.

Detroit is not the first city on the verge bankruptcy, nor will it be the last. New York’s suffered near-bankruptcy in 1975 and has recovered in ways few could have imagined at the time. Orange County, California, also recovered after suffering the nation’s third-largest municipal bankruptcy to date in 1994.

Detroit has been in economic crisis for decades. But a fiscal crisis is a crisis of municipal budgets; It reflects a long history of decline and overspending. But it is not the same thing as an economic crisis. In fact, it is occurring at a point when the city and region’s economy actually looks to be turning upward. And it will likely help the city’s turnaround by cleaning out the fiscal mess.

The ingredients for long-run economic recovery are already present in the region. 

As a metropolitan region, Detroit has the assets needed to underpin economic recovery. While the decline of the auto industry left it reeling, the region has strengths that enable it to reposition for the knowledge economy. The broad region is home to more than 5 million people and produces nearly $200 billion in economic output.* Its economy is larger than New Zealand’s and not too much smaller than that of Hong Kong or Singapore. There are substantial concentrations of talent: about 34.5 percent of the entire metro area’s workers are members of the creative class, slightly above the national average. Its older suburbs like Birmingham, Royal Oak and Ferndale – which stand as textbook examples of mixed-used walkable communities – have concentrations of of talent and human capital that rival creative centers like San Francisco, Washington D.C., and Boston. The Greater Detroit region has also shown a persistent ability to attract global talent in the form of new immigrants – another big asset that differentiates it from many other economically hard hit metros.

“The lives of residents need just as much renovation as the skyscrapers and houses.”

The region has world-class cultural and educational institutions. Downtown there’s the Detroit Institute of Arts and Wayne State University. Much more has been concentrated in the suburbs. There’s the Cranbrook educational community in Bloomfield Hills, the great for art, architecture and design. Michigan State is in East Lansing; the University of Michigan in nearby Ann Arbor. In the last few years, Ann Arbor itself has boomed, with a high rate of startup activity and a top-tier ranking among small metros on my creativity index.

The size and scale of the region’s economy, the quality of knowledge institutions, its International airport, and openness to global talent put Detroit in a different category than other hard-pressed Rustbelt cities.

Bankruptcy is not likely to disrupt the flow of capital, technology and talent back to the urban center. 

Detroit’s urban center is seeing substantial reinvestment, spearheaded by private investors. Earlier this year I wrote about a report highlighting the revitalization of Detroit’s Greater Downtown Corridor, a 7.2 square mile region stretching north from the city’s old riverfront. The corridor includes the central business district; the trendy Corktown neighborhood; the Cass Corridor arts and cultural district; Midtown, home to Wayne State University; and Tech Town. As has been widely reported, Dan Gilbert, moved the headquarters of Quicken Loans from the suburbs to downtown in 2007. (Gilbert has invested about $1 billion dollars in Detroit real estate, including a major effort to revitalize parks and stimulate real place-making downtown). Smaller creative and tech firms are coming back to the city, many of them setting up shop at The M@dison, where venture funds, tech companies, a small Twitter office and an accelerator are located. The construction of new light rail along the corridor, with $100 million in local funding from non-governmental sources, promises to galvanize this revitalizing core and in time hopefully connect it the older, mixed use suburbs along the Woodward spine.

This area is more affluent, better educated, and more racially diverse than the rest of the city of Detroit, as I explained The Financial Times this past April:

More than 40 per cent of the young adults living there are university educated, according to a recent report, compared with 11 per cent for the city as a whole, 29 per cent for the state of Michigan and 31 per cent for the nation. The urban center is home to more than 600 new companies and draws 10.5m visitors to its leisure attractions each year.

This revitalization is powered by a new model of public-private partnership backed by local entrepreneurs, city-builders and philanthropic foundations, in tandem with community groups that are pumping billions of dollars into the urban center.

Bankruptcy is likely to have little, if any, effect on this flow of investment capital back to the core. As Detroit Venture Partners chief Josh Linkner told Venture Beat on Friday, “I’m proud to say Detroit is my hometown,” Linkner said. “It will still be my town tomorrow, the day after, and in the years to come.”

Bankruptcy can spur greater regional cooperation. 

The Detroit region has long been a case study in white flight and urban decline. In a perceptive blog post Friday, UK economist Jonathan Schifferes explained the role that the history of geographic inequality and urban-suburban divide in the Detroit area played in last week’s bankruptcy. He wrote, “Most accounts assume Detroit’s problems stem from severe de-industrialisation. This is entirely insufficient. The root cause of this is administrative geography: growing suburban wealth has mirrored urban decline.”

Earlier this year, I mapped the region’s highly uneven class geography.

detroit class map

For a time, it looked like the suburbs could essentially abandon the city, effectively replicating its functions outside it. But, today’s technology-intensive knowledge economy requires centrality and density. The suburbs can no longer prosper without the city. As I noted back in April:

One of the things that nearly killed downtown Detroit was the misguided notion that its function as a location for offices and headquarters could be transplanted to its suburbs. The region can no longer afford the outmoded and incorrect notion that it can build an alternative “downtown.”

Many of Detroit’s new generation of investors and city-builders moved their activities back to the city because they realize true regional prosperity can only come from a strong, revitalized core.

As journalist and Cities contributor Micheline Maynard pointed out Friday, this is an opportunity for Detroit’s boosters who live in the suburbs to step up. Suburbanites like to claim Detroit’s great assets: its arts and cultural institutions, its fabled music scene, its sports teams. But they haven’t wanted to pay for it. Without the city, the suburbs will have much harder time surviving and thriving.

Bankruptcy may well be the spur that may finally brings the suburbs to the table. The region can take the example of Minnesota’s Twin Cities, where seven counties have proactively shared tax bases since 1971, or the Pittsburgh-centered Allegheny Regional Asset District.

Bankruptcy shows the need for a broader, more inclusive model of urban revitalization. 

Longer-run recovery will also require addressing the widening divides revitalization is bringing to the city itself. Karen Dumas, the former press secretary for Detroit Mayor Dave Bing, wrote of this gap in an op-ed for the Detroit News last year:

On one hand, you see a “new” Detroit. Young, white, educated and employed are the characteristics of those who are taking a chance on the city.

They stand in stark contrast to native Detroiters — most of whom are African-Americans and many who are undereducated and unemployed — who have stayed and stuck it out over the years, through challenge and controversy. The native Detroiters, tired of the struggle and lack of change, see problems, while the new Detroiters — armed with energy and excitement — see possibilities.

Investment in the central business district is important, but it cannot succeed as essentially a gated city – a cluster of advantage and reinvestment walled off from adjacent areas of disadvantage, decline and despair. Bankruptcy makes it impossible to continue to ignore the widening gulf between the city’s haves and have-nots, its areas of concentrated advantage and concentrated disadvantage.

In a thoughtful email exchange with me on Friday, Maynard zeroed in on the responsibility Detroit’s revitalizers and boosters have for the broader city and its residents. “For everyone who wants to create a park downtown, there needs to be someone who’ll adopt a park in a neighborhood,” she wrote. “The lives of residents need just as much renovation as the skyscrapers and houses.”

The region is already taking some steps in this direction. The Kresge Foundation’s $150 million Detroit Future City initiative provides a broad strategic framework to strengthen and rebuild disadvantaged neighborhoods, create jobs and spur a new model of development across the city. As I noted back in April:

A new urban social compact is desperately needed to make this happen: to upgrade its underfunded schools and to train and connect more workers and residents to the new economy that is emerging downtown. The same kind of compact is needed in cities like New York, San Francisco, and even London which, while more affluent, suffer from the similar if not worse inequality.

Writing in the Washington Post, Dan Balz argued forcefully that Detroit’s bankruptcy reflects the absence of  any real federal urban policy.  It also shows us the limits of today’s urban revitalization strategies. Helping Detroit’s leaders – and all of us – see the need for a new generation of broader, more inclusive urban development strategies could be the long-lasting and most important legacy of Detroit’s fiscal plight.

Top Image: Reuters/Rebecca Cook.

*CorrectionThe original version of this story incorrectly stated the Detroit area’s economic output as $2 billion, instead of $200 billion.The story has been updated to correct this error.


richard florida

Richard Florida is Co-Founder and Editor at Large at The Atlantic Cities. He’s also a Senior Editor at The Atlantic, Director of the Martin Prosperity Institute at the University of Toronto’s Rotman School of Management, and Global Research Professor at New York University. He is a frequent speaker to communities, business and professional organizations, and founder of the Creative Class Group, whose current client list can be found here.


Michigan governor laments lowest point in city’s history after emergency manager fails to broker deal between city’s bondholders and pension funds.

Sinking under huge debts and decades of mismanagement, Detroit formally filed for bankruptcy on Thursday, becoming the biggest US city ever to take such a drastic measure.

Kevyn Orr, Detroit’s emergency manager, took the decision after failing to broker a deal between the city’s bondholders and its pension funds.

The filing sets a new record for municipal bankruptcies and dwarfs the previous record filings by Jefferson County, Alabama, and Stockton, California. No other city of Detroit’s size has ever gone bust.

Orr and the city’s creditors and pensioners will now begin a fraught legal  consultation period while a court determines whether the city is eligible for “chapter 9″ bankruptcy protection for its $18.5bn debts and liabilities.

In a letter posted with the filing, the Michigan governor Richard Snyder confirmed he had received Orr’s request to start the bankruptcy proceedings. He said it was “clear that the financial emergency in Detroit cannot be successfully addressed outside of such a filing, and it is the only reasonable alternative that is available.”

Snyder said he hoped the bankruptcy would be the beginning of the end of Detroit’s woes. “This decision comes in the wake of 60 years of decline in the city, a period in which reality was often ignored. I know that many will see this as a low point in the city’s history. If so, I think it will also be the foundation of the city’s future,” he wrote.

The governor painted a picture of a city in collapse. Citizens wait 58 minutes for the police to respond to calls, compared to a national average of 11 minutes.  Only a third of ambulances were in service in the first quarter of 2013. There are approximately 78,000 abandoned buildings in the city. The unemployment rate had nearly tripled since 2000 and the homicide rate was at its highest level in 40 years, he said. Detroit is unable to meet its most basic obligations to its residents, let alone its creditors.

“The citizens of Detroit need and deserve a clear road out of the cycle of ever-decreasing services,” Snyder wrote.

Orr had set out a restructuring plan in June for the city, which has been plagued by corruption and plummeting revenues for years. But pension groups and bondholders balked at the terms. This week, pension funds objecting to Orr’s plan sued to stop him from making the move.

At a press conference in Detroit on Thursday evening, Orr said the city’s debts were currently claiming 38 cents on every $1 it receives in revenue. That figure would rise to 65 cents by 2017. “This is the right thing to do,” he said of the bankruptcy filing.

The White House said it was monitoring the situation but stopped short of offering any federal aid. Spokeswoman Amy Brundage said: “While leaders on the ground in Michigan and the city’s creditors understand that they must find a solution to Detroit’s serious financial challenge, we remain committed to continuing our strong partnership with Detroit as it works to recover and revitalize and maintain its status as one of America’s great cities.”

Matt Fabian, the managing director of bond expert Municipal Market Advisors, said the filing had been widely anticipated. “Detroit’s story has been terrible for 50 years. This is just the latest terrible thing to happen.”

He said bankruptcy would allow Orr to renegotiate government contracts and other broad powers to impose draconian costs cuts. But he warned bankruptcy was not an easy path. “This will make it hard for the city to conduct day-to-day business. It will drain a lot of time, it could put people off moving businesses to Detroit and it could last for years,” he said.

Other major cities have teetered on the edge of bankruptcy, including New York in 1975, Cleveland in 1978 and Philadelphia in 1991. But all brokered deals rather than face the dire consequences of going bust. “Detroit has severe difficulties, but this would be an extraordinary event,” said James Spiotto, a chapter 9 expert and head of the bankruptcy unit at Chicago’s Chapman & Cutler, before the bankruptcy was confirmed.

If the filing is approved, Detroit’s cost of borrowing will soar and the city will struggle to raise cash, Spiotto warned. Meanwhile, officials would spend years battling in the court over who is owed what. “Chapter 9 is time-consuming, expensive and uncertain,” Spiotto said.

Orr has said bankruptcy was not his preferred option. But as talks foundered, his options narrowed. His original plan was to slash benefits to retirees, including pensions and healthcare, and cut already minimal services to the bone. Police and firefighters who retire before age 55, for example, would get no healthcare under one proposal. Bondholders would have received cents for every dollar in debt they hold.

Municipal bonds have traditionally been viewed as among the safest available investments. When Central Falls in Rhode Island went bust in 2011, the state passed a law giving bondholders priority over other creditors, including retirees. Detroit’s investors must now be wondering whether bankruptcy would give them a better deal.

Neither side was willing to sign up for Orr’s settlement.

This week, the city’s two pension boards – the General Retirement System and the Police and Fire Retirement System – sued Orr and Michigan governor Rick Snyder in an attempt to block a bankruptcy.

“It appears imminent the governor will grant the emergency manager the unconditional power to proceed under chapter 9, and the emergency manager will seek to have the city’s pension debts impaired unless the retirement systems and their participants accept the emergency manager’s unilateral imposition of significant impairments to their accrued financial benefits,” the lawsuit says.

Orr was appointed in March after Snyder declared a “financial emergency” in Detroit. A lawyer and University of Michigan alumnus, Orr helped steer Chrysler out of bankruptcy, but this is a dilemma of an altogether greater magnitude.

Even after years of decline, Detroit remains the US’s 18th most populous city. The city’s finances may have hit an all-time low but its business is bouncing back. The car firms that made the city are back in rude health, and downtown Detroit is being revitalized by new businesses.

Some local business leaders believe that the city has already hit rock bottom, and that a stronger Detroit is already emerging. Dan Gilbert, founder of the Quicken Loans lender, has rebuilt downtown and encouraged new businesses and old to move into the city. In a recent interview with the Guardian he said he is “finally going to do what needed to be done if not in the last several years then in the past decades. It’s essentially good news for the city because it means this period is coming to an end.”

But for Detroit’s poor, bankruptcy is likely to make life even harder in the short term. About 60% of Detroit’s children live in poverty. Orr had planned to bus creditors to some of the city’s poorest areas so they could see what was at stake. Armed security would have gone along for the ride.

“If they can see what it’s like for Detroiters, what they endure every day in this city, I think they’ll begin to understand what’s at stake,” Orr told the Detroit Free Press. The tour was canceled as bankers became worried about the PR impact of captains of finance touring the city’s poorest neighbourhoods.

Matt Kenyon 16042013

Illustration by Matt Kenyon

This is a story about intersectionality. It’s going to displease a few people who don’t know what intersectionality is, annoy a few people who do, and enrage a load of people who don’t use Twitter. But I checked with my privilege, and my privilege said it was OK. (Don’t know what “check your privilege” means? This might turn out to be a problem for you, too).

Last week, an argument on Twitter started in the manner characteristic of, possibly unique to, that medium. Someone called historian Mary Beard a racist. Helen Lewis, the deputy editor of the New Statesman, asked what made Beard a racist. A small but persistent Twitter intersectionality-core rounded on Lewis, accusing her of mindlessly defending the establishment against outsiders, effectively using her platform in the mainstream to defend racists within feminism from the critical voices whom feminism ought properly to champion and defend.

That precis doesn’t quite evoke the tone of the attack: another Twitter feminist defended Lewis later with: “It is never OK to call another woman a vicious rancid bitch.” The fact that this needs to be said, in an argument between one feminist and another, makes me chuckle, though of course I won’t be chuckling if (when) it is said to me.

A racist feminist just wouldn’t make sense. You can’t fight for equality on the basis of one innate characteristic without signing up to the precept that we’re all born equal. The problem was – and this happens quite a bit on Twitter – a mistake at the outset. Beard is not a racist. Lewis got annoyed and left Twitter, though only temporarily.

It could be taken as an unfortunate misunderstanding, except for the obvious pattern; Suzanne Moore left Twitter after essentially the same argument, though it started not with perceived racism but with a remark that was taken to be transphobic.

Times columnist Caitlin Moran got on the wrong side of intersectionality when she said she “didn’t do race“. This made her a racist; also the mindless beneficiary of middle-class privilege, said critics. I weighed in, and said that not all feminists had to represent every perspective of feminism all the time. And middle class? She was raised on benefits. She’s rich now, came the reply, plus she has a platform; ergo, she’s part of the white, middle-class, straight, able-bodied, cis(gender) hegemony. To remain a true and respectful feminist with those privileges (never mind check them, it will take you long enough just to count them), your work must essentially be an act of atonement to all the people who are more marginalised than you are. As a feminist, you are occupying the space of the marginalised; to do so thoughtlessly is an act of trespass.

What makes me doubt this idea is its striking similarity to a technique of the right, the hyper-individualisation of every argument. Unless you are penniless right now, this second, you can’t complain about inequality. Even more exclusively, unless you were born poor you can’t take the side of the poor. I dislike the argument because it’s anti-intellectual, dismissing reason and systems – all the tools of discursive progress – and attempting to replace them with the power of personal testimony.

But on a purely pragmatic level we can all see, presumably, what the real goal is in this ad hominem play: if only the authentically poor are welcome on the left, that considerably depletes our numbers. If only the truly marginalised can speak as feminists, that depletes our numbers too. And if people “with a platform” are disqualified for being part of the power structure, that leaves us without a platform. This criticism started on the right for a reason – because it withers the left. We should think a bit more strategically before we internalise it.

But then I heard Helen Belcher of Trans Media Watch speak at a public meeting this week. She said the media had three ways of portraying trans people: “The first is that they’re fraudulent. They’re not really who they say they are. We’d better humour them in their delusion. The second is trans as undeserving deviant. The number of times you get costs – usually inflated – set against the money you could have spent on kiddies. The third is trans as comedy.”

In other words, all the prejudice that has been disallowed by modern standards is now concentrated on this one, pretty small group. It is very extreme, these days, to refer to gay people as deviant, but still allowable to make this insinuation about transsexuals. It is apparently permissible, in our mean-spirited age, to talk about how much disabled people cost the state, but I can’t imagine it would be OK to laugh at them. Transsexuals are dealing with a prejudice way out of proportion to their number, facing not only the people who hate the idea of transsexuality but all the people who wish they were still allowed openly to hate gays, openly to laugh at the disabled – hell, probably a few who wish they could still openly despise women.

Women of colour, likewise, when they call white feminists “colour-blind”, are not saying every conversation about misogyny must start and end at the point where it bisects racism, rather that battles white feminists assume to be over have merely been shifted elsewhere (when the Equal Opportunities Commission existed, they did some research and found that 80% of black and ethnic minority women had been asked at their last job interview – illegally, needless to say – whether they intended to get pregnant). And that’s the better reason to “check your privilege” – not from some restrictive idea about how authentic you are, or whether you’ve endured the hardship to qualify as a progressive voice, but because not all prejudice is extinguished – some of it is just displaced. If someone else is taking the flak you would have got, in eras past, that flak is still your problem.

Twitter: @zoesqwilliams