How Do State & Local Leaders Confront & Respond to Significant Population Declines?

eBlog, 04/21/17

Good Morning! In this a.m.’s eBlog, we consider the unique fiscal challenge confronting Detroit: how does it deal with the fiscal challenges—challenges also confronting cities such as Cleveland, Philadelphia, Toledo, Dayton, Baltimore, and Philadelphia—which are experiencing significant population declines? What to do with vacant lots which no longer bring in property tax revenues—but enhance criminal proclivities?  

Fiscal & Physical Municipal Balancing. While Detroit has emerged fiscally from the nation’s largest ever municipal bankruptcy, it continues to be fiscally and governmentally bedeviled by the governance challenge of such a significant population contraction—it is, after all, a city of about 132 square miles, dotting with neighborhoods which have become splotches of vacant lots and abandoned homes: post-bankrupt Detroit, with neighborhoods that have been gradually emptying out, in a physical sense, is a shadow of its former self, with a population nearly 60% smaller than it was in 1950, but with a stock of some 40,000 abandoned homes and vacant lots—space which brings in no property taxes, but can breed crime and safety costs for the city: between 1978 and 2007, Detroit lost 67% of its business establishments and 80% of its manufacturing base. This untoward, as it were, “ungrowth” has come even as the city has spent $100 million more, on average, than its revenues since 2008: Census figures inform us that more than one in three of the city’s citizens fall below the poverty level—ranking the Motor City, along with Cleveland, Dayton, Toledo, Philadelphia, and Baltimore, as cities realizing major depopulation. Thus, while downtown Detroit today is gleaming towers along a vibrant waterfront, one need not drive far from the internationally acclaimed Detroit Institute of Arts to witness neighborhoods which are nearly abandoned as residents continue to move to the suburbs. Thus, with some of the fiscal issues effectively addressed under the city’s approved plan of debt adjustment, Detroit is commencing a number of initiatives to try to address what might be deemed its physical devastation—a challenge, in some ways, more complex than its finances: How does an emptier city restore blighted neighborhoods and link the islands of neighborhoods which have been left? Or, mayhap better put: how does the city re-envision and rebuild?

Here it seems the city is focused on four key initiatives: draw new families into the city (look at Chicago and how Mayor Emanuel succeeded); convert vacant lots from crime havens to community gardens; convert vast empty spaces to urban farms; devise a strategy to fill empty store fronts; and, again as did Mayor Emanuel, create a strategy to bring back young families with children to live in the city.

Already, Detroit’s downtown core is a new world from my first visit when the National League of Cities convened its annual meeting there in the 1980’s—a time when at the front desk of the hotel I was staying, the attendant told me that even though I could see the convention site from the hotel, it would be a grave risk to life and limb to even think about taking the bus or walking—a situation unchanged on a similar day, Detroit’s very first day in chapter 9 bankruptcy, when I had proposed setting out to walk to the Governor Rick Snyder’s Detroit office to meet just-appointed Emergency Manager Kevyn Orr. Today, the revived downtown has attracted young people, often in redeveloped historic buildings; but that emerging vibrancy does not include housing options for people at different stages of life. Thus, the city is making an effort to offer more differentiated housing options, including townhouses, apartments, carriage homes and more—as well as housing for seniors. Or, as Melissa Dittmer, director of architecture and design for Bedrock LLC, the company leading the development, notes with regard to an initiative just outside of downtown: “For so long, Detroit had a low-self-confidence issue and was willing to take just about” any residential development: “Now the city of Detroit has crossed a threshold. We can do better.”

Outside of the downtown area, one sample neighborhood, Fitzgerald, today has 131 vacant houses and 242 vacant lots; but the city’s Director of Housing and Revitalization, Arthur Jemison, notes these lots need not be filled with houses; instead, the city is moving to invest more than $4 million into the neighborhood to renovate 115 homes, landscape 192 vacant lots, and create a park with a bicycle path, or, as Mr. Jemison notes: “We can’t possibly rebuild every vacant lot with new construction…What we can do is rehabilitate a whole lot of houses, and we can have an intentional landscape scene. The landscape is important, because frankly, if it’s done and managed well, it’s inexpensive and people like it.”

But the comprehensive effort also recognizes the city does not need additional housing stock: it needs less; so it has unearthed a program, RecoveryPark Farms, to construct greenhouses on a 60-acre plot, a plot which until recently represented two dozen blighted blocks on Detroit’s east side. This unique project has diverse goals: it eliminates breeding territory for crime, eliminates blight, and creates opportunities for the unemployed, especially ex-offenders and recovering addicts. The program’s CEO Gary Wozniak, who spent more than three years in federal prison, notes farming offers a career with a lower bar for hiring and gives immediate feedback because “plants grow relatively quickly, so people can start to feel really good about building skill sets. Plus, Detroit has a lot of land.” Already, its harvests are purchased by some of Detroit’s top restaurants on a year-round basis, or, as CEO Wozniak put it: “What we’re doing is commercial-scale agriculture in an urban environment.”

On Detroit’s first day of bankruptcy, the walk from my downtown hotel to the Governor’s uptown office almost seem to resemble post-war Berlin: empty, abandoned buildings and storefronts. Thus, another post-bankruptcy challenge has been how to fill the vacant storefronts along Detroit’s half-abandoned commercial corridors—and, here, a partnership between the City of Detroit and other economic-development organizations, Motor City Match, works to create links between selected landlords and new small businesses, with a goal of converting blighted commercial districts to make them both more livable and more effective at providing job opportunities for residents—or, as Michael Forsyth, Director of small-business services at the Detroit Economic Growth Corp., notes: Motor City Match “helps get businesses from ideas to open.” The program awards $500,000 in grants every quarter, assisting businesses in completing a business plan, finding a place to open, and renovating office space: its CEO, Patrick Beal, CEO of the Detroit Training Center, received $100,000 during the first round of the program and matched it with a $100,000 loan. Now, with the help of Motor City Match, the company has trained more than 5,000 Detroiters in construction, heavy-equipment operation and other skills.

Finally, again as with Mayor Emanuel, the City respects the importance of children—meaning it must focus on public safety, and schools—governance challenges of the first order, especially as we have been long-writing, the parallel financial insolvency of the Detroit public schools. Thus, Ethan Lowenstein, the Director of the Southeast Michigan Stewardship Coalition, is working with educators and local organizations in the region to help young people address environmental challenges in their communities, noting that families with children “leave because they don’t see the strength in their community and they don’t feel recognized as someone who has knowledge.” Mr. Lowenstein is seeking to reverse the city’s depopulation trend by working with the Detroit Public Schools. At two schools he works with in southwest Detroit, he says, students were on a walk around their community and noticed tires were being illegally dumped. The schools helped the students and worked with community members to identify areas with illegally dumped tires, and eventually the tires were recycled into doormats.  

In recovery from chapter 9 bankruptcy, sometimes the fiscal part can seem easy compared to the human dimension.

Challenges in Rebounding from Insolvency or Municipal Bankruptcy

eBlog, 02/27/17

Good Morning! In this a.m.’s eBlog, we consider new development plans for the insolvent, state-taken over Atlantic City, before turning to the post-chapter 9 municipal bankruptcy electoral challenges in Detroit—where the son of a former Mayor is challenging the current Mayor—and where the post-bankrupt city is seeking to confront its exceptional public pension obligations in a city with an upside down population imbalance of retirees to taxpayers.

Spinning the Fiscal Turnstile in Atlantic City? Since New Jersey’s Casino Reinvestment Development Authority (CRDA) developed its Tourism District master plan for Atlantic City five years ago, five casino have closed—casinos with assessed values of $11 billion. Those closures appeared to be the key fiscal destabilizers which plunged the city into near municipal bankruptcy and a state takeover. Now the Authority, which handles redevelopment projects and zoning in the Tourism District (The rest of Atlantic City is under the city’s zoning jurisdiction—albeit a city today taken over by the state, and where the Development Authority was given authority by the state over the Tourism District in 2011) has approved spending $2 million for refurbishing. Robert Mulcahy, the Chairman of the authority’s board of directors, states: “The master plan is done to streamline zoning, help eliminate red tape, encourage proper development in the appropriate district, and stimulate investment in commercial, entertainment, housing, and mixed-use properties…This provides a vision to what we want to do.” The proposed land-use regulations’ twenty-five objectives include providing a zoning scheme to stimulate development and maintain public confidence in the casino gaming industry as a unique tool of the city’s urban redevelopment. The new zones would allow for mixed use near the waterfront, and retail development around the Atlantic City Expressway and its waterfront under the state agency blueprint intended to make it easier for companies to turn old industrial buildings into commercial and waterfront areas, to build amusement rides off the Boardwalk, maybe even incentivize craft brewers and distillers to open businesses.  

CRDA Director Lance Landgraf noted: “The city last changed the zoning along the Boardwalk when casinos came in.” Similarly, Atlantic City Mayor Don Guardian, who is a CRDA board member, noted: “If we talked 10 years ago about the Southeast Inlet, I think most people saw it as a Miami Beach with a bunch of high-rises that would go from Revel to Brigantine Inlet…Times have changed. People are now looking for mixed-use type of things, which is certainly what is important.” According to the proposed plan, the new tourism district would be intended to maximize recreational and entertainment opportunities, including the growing craft beer trend. Smaller breweries and distilleries have expressed interest in operating in the city, according to the draft plan, which notes it “seeks to reinvigorate the Atlantic City experience by enhancing the Boardwalk, beach and nearby streets through extensive entertainment and event programming; creating an improved street-level experience on major thoroughfares; offering new and dynamic retail offerings and increasing cleanliness and safety.”

Post Chapter 9 Leadership.  Coleman Young II, a state Senator in Michigan representing Detroit, sitting beneath a photograph of his late father and former Detroit Mayor Coleman Young, has officially launched his challenge against current Detroit Mayor Mike Duggan, claiming the Motor City needs a leader who focuses on helping residents who are struggling with unemployment and other hardships, and criticizing Mayor Duggan for what he called a lack of attention to Detroit’s neighborhoods, noting: “We need change, and that is why I am running for mayor: I will do whatever it takes—blood, sweat, tears, and toil—and I will fight to the very end to make sure that justice is done for the City of Detroit…In announcing his challenge, Sen. Young recalled his father’s focus on jobs when he served as Detroit’s first black mayor: “I want to put people back to work just like my father, the honorable Coleman Alexander Young did…He is turning over in his grave right now!”

Interestingly, Sen. Young’s challenge came just days after last week’s formal State of the City address by Mayor Duggan—an address in which he focused on putting Detroiters to work and investing in neighborhoods—announcing a new city program, Detroit at Work, which is focused on training Detroit residents for available jobs—a speech which candidate Young, in his speech, deemed a “joke,” stating: “I think it’s kind of funny he waits for four years and now starts talking about the neighborhoods…As far as I’m concerned, he’s just somebody that’s in the way and needs to go. It’s time for change. It’s time for reform.” (Detroit’s primary will be in August; the election is Nov. 7th.)

Rebound? Whomever is elected next November in Detroit will confront lingering challenges from Detroit’s largest municipal bankruptcy in U.S. history. That July 19th filing in 2013, which then Emergency Manager Kevyn Orr described  as “the Olympics of restructuring,” had been critical to ensuring continuity of essential services and critical to rebuilding an economy for the city—an economy besieged after decades of population decline (dropping from 1,849,568 in 1951 to 713,777 by 2010), leaving the city to confront an estimated 40,000 abandoned lots and structures and the loss of 67 percent of its business establishments and 80 percent of its manufacturing base. The city had spent $100 million more, on average, than its revenues since 2008. According to the census, 36 percent of its citizens were below the poverty level, and, the year prior to the city’s bankruptcy filing, Detroit reported the highest violent crime rate for any U.S. city with a population over 200,000. Thus, as the city’s first post-bankruptcy Mayor, Mayor Duggan has faced a city with vast abandoned properties.

Interestingly, Steve Tobocman, the Director of Global Detroit, an economic-development nonprofit which focuses on maximizing the potential of immigrants and the international community, said that enacting municipal policies which welcome foreign-born residents could be a critical strategy to reverse the population loss: “No American city has been able to rebound from population loss without getting serious about immigration growth…In 1980, 29 of the 50 largest cities lost population. Most of the cities that lost population have since reversed course due to an influx of immigrants. No American city has been able to rebound from population loss without getting serious about immigration growth.” Now that avenue could be closing with President Trump’s efforts to curtail immigration, especially from Mexico and the Middle East, leading Mr. Tobocman to note he had no reason to anticipate any help from Washington, D.C. in helping rebuild Detroit’s population, or energizing its economy, with immigrants. Rather, he warns, he is apprehensive that other policy promises, particularly the proposed border wall with Mexico, actively threaten Michigan’s economy: “Mexico is our second-largest trading partner after Canada…Metro Detroit is the largest metro area trading with Mexico. One hundred thousand jobs are supported by our trade with Mexico.”

Upside Down Fiscal Challenge. A key challenge to Detroit, because of the inverted fiscal pyramid creating by its population decline, is there are far fewer paying into to Detroit’s public pension system, against far more receiving post-retirement pensions, sort of an upside down fiscal dilemma—and one which, increasingly, confronts the city’s fiscal future. Now Mayor (and Candidate) Duggan has announced a plan he believes will help Detroit to city meet its 2024 balloon payment on its public pension obligation, or, as Detroit Chief Financial Officer John Hill puts it, a plan designed to be more than adequate to address the looming future payment of more than $100 million owed beginning in 2024: “What the mayor is proposing is that we take money now and put into a pension protection fund and then use that money in 2024 and beyond to help make some of those payments: So part of the money would come from the budget, and the other would come from the fund,” describing the provisions in Detroit’s plan of debt adjustment for down payments to the city’s pension obligation in Mayor Duggan’s $1 billion general fund budget for the 2017-18 fiscal year the Mayor presented to the Detroit City Council at the end of last week. Mr. Hill said that the payment plan would give the city budget longer to catch up to the $132 million it would have to pay going forward, describing it as “really a way for us to proactively address the future pension obligation payment and not wait to deal with it down the road.”

However, there appears to be a fiscal fly in the ointment: last year, in his 2016 State of the City speech, Mayor Duggan said that consultants who advised the city through its chapter 9 municipal bankruptcy had miscalculated the city’s pension deficit by $490 million—actuarial estimates at the time which projected a payment of $111 million in 2024—a figure subsequently increased by the actuary to $194.4 million—leading Mayor Duggan to assert that the payment had been “concealed” from him by former Detroit emergency manager Kevyn Orr during the city’s bankruptcy, with, according to the Mayor, Mr. Orr’s team using overly optimistic assumptions which made Detroit’s future pension payout obligations appear artificially low. The revised estimates have since forced the city to address the large future payment, beginning in FY2016, when the city set aside $20 million and another $10 million to start its pension trust fund, with the payment coming in addition to the $20 million contribution to the legacy plans the city is mandated to make under Detroit’s plan of debt adjustment. Now Mayor Duggan is proposing Detroit set aside an additional $50 million from a general fund surplus and another $10 million into the trust fund this year: the city projects it will have $90 million in the trust at the end of FY2017. In the following fiscal years, the city is proposing to add another $15 million to the fund, $20 million in FY2019, $45 million in FY2020, $50 million in FY2021, $55 million in FY2022, and $60 million for FY2023. Or, as Detroit Finance Director John Naglick describes it: “All total, we propose that the City would deposit $335 million into the trust fund through the end of FY23, with interest, the fund is projected to grow to $377 million.” Mr. Naglick adds that Detroit expects that the general fund would be required to contribute a total of $143.2 million beginning in FY2024: “We propose to make that payment by pulling $78.5 million out of the trust and appropriating $64.7 million from the general fund that year.” CFO Hill noted that by addressing the 2024 obligation payment with the plan, Detroit would remain on track to exit state oversight as projected, stating: “We believe that after we have executed three balanced budgets and met a number of other requirements that the Detroit Review Commission could vote to waive their oversight…We believe that one of the factors that they are going to want to see to support that waiver is that we have proactively dealt with the pension obligations in 2024.” There could, however, be a flaw in the ointment: Mayor Duggan warned last week that Detroit may decide to sue Mr. Orr’s law firm, Jones Day, if the city finds that Mr. Orr had an obligation to keep the city informed on the pension payments.