Interview

What the Hell is Happening in Detroit?

It’s hard to believe a year has gone by since our last sit-down with John Gallagher, veteran Free Pressreporter and our favorite big thinker when it comes to the state of Detroit. For sure, it’s been an eventful year: Since last spring, Detroit became the largest city to declare bankruptcy in American history; elected its first white mayor in four decades; and is trying out new tools in its plucky fight to reinvent itself, against all odds. Luckily, if you’ve tuned out for the past year or have had a hard time putting it all together, there’s no one quite like John to put it all in perspective. And if you want to know how we got here, our 2012 and 2013 interviews with John will bring you up to speed. But for now, in 2014, here’s Johnny.

Found Michigan: So a city going bankrupt obviously sounds like a really bad thing. But at least, in theory, this is supposed to help the city out, right?

John: Well, in theory, like any bankruptcy, it allows a city or corporation to shed some debt and straighten out its finances. But in the case of a city, it’s somewhat different: There’s no possibility of liquidating a city like you would liquidate a company. When we get done with this, there still has to be a city that operates and delivers municipal services to people. So the goal of this Chapter 9 bankruptcy is to reorganize the city’s finances, come out with a realistic amount of revenue and a realistic amount of services that can be delivered based on that revenue, and shed some of the debt that’s weighing down the city. I mean, if you add up the debt payments Detroit was making to bondholders plus its legacy costs like health care, you’re probably approaching—if not over—50 percent of the city’s revenue. That obviously doesn’t leave enough money for services. And so that’s the position we have to get out of.

FM: And so how is this all going down? Like, who has the power to decide the winners and losers in this bankruptcy case?

John: Well, this all gets sorted out in court, and the judge is given a lot of power in federal bankruptcy cases. Kevyn Orr, representing the city as the emergency manager, presents a plan, and that’s sort of the script that everyone works off of. The creditors, and there are over 100,000 of them listed—they can object to the plan. Will the pensioners, for instance, try to fight the cuts that Kevyn Orr has proposed to the two city pension funds? Or will they accept the 30 percent cuts he’s proposing as the best deal out there? The bondholders on Wall Street, likewise, can accept the 20 or 30 cents on the dollar that Orr is offering them; or they can try to litigate and try to force liquidation of the Detroit Institute of Arts, for example. But it’s pretty clear that the judge is going to give the benefit of the doubt to the city in this case. The creditors, especially the bondholders and the insurance companies that insure the bondholders, are jumping up and down over not getting everything they were promised. But the judge has indicated that he’s not going to strip the city bare just to make bondholders whole.

If everyone doesn’t agree to the terms, the judge also has the power to do what’s called a “cram down.” This is a scenario where if he gets one class of creditors, such as the pension funds, to sign on to Kevyn Orr’s plan, then he can “cram down” the plan on everybody else. I think we’re likely to see something like that. I think we’ll probably see one or two classes of creditors agree to Kevyn Orr’s terms, and then everybody else will be forced to accept it. And while the appeals could go on for a long time, I expect the case will wrap up sometime late this summer.

FM: And Detroit, of course, has a lot of structural problems that go beyond balancing the books. Is there a plan for what happens after the bankruptcy case is settled?

John: Well, that’s the big question. I think the most that we can forecast in the future is that city services may improve somewhat based on the bankruptcy. I think that we’ll get some more street lights on; police and fire will get some more resources. But, you’re right—Detroit still has a lot of underlying problems. What will the economic base for the city be, now that the auto industry is not what it once was? What are we going to do with all this vacant land once we do all the blight removal? We don’t have answers to those questions yet.

FM: So do you think it’s going to require a big, organized, Marshall-Plan-style effort, or do you think a project here and a project there, and the momentum that creates, will eventually lead to a good outcome?

John: Well, if you look at the history of how cities grow, you’ll see they often grow in unexpected ways. If you go back to, say, 1890, Detroit was a city of around 300,000 people that was known for some shipbuilding and railroad car manufacturing, and as a banking center for the timber industry. And at that time, if you said, in 20 years, the city is going to triple its population and be the center of an entire new industry, no one would have believed it. So cities grow in unexpected ways, and that may happen in Detroit again. It could be that this digital entrepreneur economy that we’re trying to foster could really take off. Maybe we’re not going to be Silicon Valley, but it could be something really significant. But absent that, we do have to come up with some sort of plan, and that’s where things like the Detroit Future City plan could become really important.

“It’s pretty clear that the judge is going to give the benefit of the doubt to the city in this case. The creditors, especially the bondholders and the insurance companies that insure the bondholders, are jumping up and down over not getting everything they were promised. But the judge has indicated that he’s not going to strip the city bare just to make bondholders whole.”

FM: And what is the Detroit Future City plan, and what’s in it?

John: Well, when Dave Bing became mayor four years ago or so, he acknowledged the open secret that Detroit’s population was continuing to decline, that we had a lot of neighborhoods that are virtually empty, and that we had to rationalize how we delivered services. The basic idea is that you can’t afford to spend the full slate of services on a neighborhood that’s only got one house left. So he started something called Detroit Works to try to deal with this problem, and what eventually emerged was the Detroit Future City plan. This was put together by a whole team of urban planning experts from Detroit and around the country, and it’s basically a 350-page vision for how to redevelop the city.

Some of it deals with concentrating resources, like job training or blight removal, in the areas where they’re going to do the most good. But really what Detroit Future City has become known for are its ideas about what to do with all the vacant land. Somewhere between 15 and 30 percent of the city is now vacant, and the reality is that we’re probably not going to redevelop that anytime soon. But we can make those areas productive, on either a long-term or interim basis. Now, that could be urban agriculture, or reforestation, or wildlife corridors, recreation corridors, greenways, or any number of things. But the idea is that we need to have a thoughtful approach to vacant land, understanding that it may stay vacant for a very long time.

The question is, of course, what’s going to happen to the Detroit Future City plan? Interestingly, there is an implementation office that has been created. It’s got about 10 or 11 people, and they’re working on a series of pilot projects. And Mayor Duggan has adopted Detroit Future City, and his office is already talking about how to implement some of these pilot projects. There’s also talk about fusing the ideas of Detroit Future City with the city’s master plan. So I think we’ll be hearing a lot more about it in the years to come.

FM: Well, speaking of Mayor Mike Duggan, aside from the bankruptcy, his election as mayor has been one of the more compelling stories of the past year.

John: Yeah, I mean, if you haven’t been in Detroit for a few years, and you want to know how we got the first white mayor in 40 years, here’s how it happened. Mike Duggan was a suburbanite who moved into the city about two years ago to run for mayor. Now, through some weird mistake on either his part or his campaign staff’s part, he filed his nominating petitions too early and he was knocked off the ballot. And initially, he said ‘that was that.’ But his supporters urged him to do a write-in campaign and he won the primary soundly, by something like 2-1. Now, this wasn’t without a certain amount of drama. Detroit politics are like politics in a lot of places; they get pretty weird and nasty at times. And during the primary race, in an effort to stop Mike Duggan, there was a barber with a similar name, Mike Dugeon, who also campaigned as a write-in candidate. So Mike Duggan had to do a pretty intense educational campaign so his voters would know how they should write in his name and all that sort of stuff. I don’t know if you’d call that high drama or farce, but Mike Duggan won the primary and then won the election pretty handily. So we have our first white mayor in 40 years.

FM: And what are people’s reactions to him so far?

John: Well, on the racial part of it, I think people are ready for a fix in Detroit. He could be a Martian and as long as he could do the job, we’d elect him. But Mike Duggan has sort of marketed himself as a turnaround specialist. Most notably, he was head of the Detroit Medical Center and helped turn that institution around. He was also a county prosecutor. To give you an idea of what kind of guy he is, there was an interesting story about one of the first things he did as mayor. He was driving downtown to city hall, and he noticed people standing in line for city buses, long after the buses should have come. So he immediately hired a new Department of Transportation director. And it was sort of a General-Patton-type move: You know, he comes in, and one major can’t take the objective so he fires him and gets another one. So there have been some sharp elbows, but he’s recruited a lot of people who seem pretty competent, and they’re working a lot of long hours to turn around services as quickly as they can. I think people are pretty encouraged so far. There seems to be something happening and there’s not this same sense of the mayor being overwhelmed by the city’s problems. He probably benefits from having Kevyn Orr in there right now, even though he doesn’t like to admit it. But, in fact, Kevyn Orr is doing a lot of the heavy lifting in terms of wiping out the debt, which will benefit Duggan a lot in the long run.

FM: So I know there are a bunch of other issues that you’ve been following. One of the biggest is how the bankruptcy is threatening the collection at the Detroit Institute of Arts. What’s the latest on that?

“Somewhere between 15 and 30 percent of the city is now vacant, and the reality is that we’re probably not going to redevelop that anytime soon. But we can make those areas productive, on either a long-term or interim basis. Now, that could be urban agriculture, or reforestation, or wildlife corridors, recreation corridors, greenways, or any number of things. But the idea is that we need to have a thoughtful approach to vacant land, understanding that it may stay vacant for a very long time.”

John: Well, the DIA’s collection, sort of because of an accident of history, is owned by the City of Detroit. And since the art collection is obviously very, very valuable, some of the creditors were saying, why not sell some of the art to satisfy your creditors? And in a corporate bankruptcy, I think there’s no doubt that would happen. If you had a corporation that had a lot of artwork on the wall of the boardroom, for example, that would all be sold to satisfy creditors. It’s different in a municipal bankruptcy because you can’t just dismantle a city to satisfy creditors. The idea is that you have something left when it’s all over. So a debate has arisen over whether the art is held in the public trust and cannot be sold; or, if it can be sold, is there any way to protect it so it won’t be sold. So Judge Gerald Rosen, at the request of the bankruptcy judge, has been mediating what we’ve called the “Grand Bargain.” Basically, the Kresge Foundation, Knight Foundation, Ford Foundation as well as private donors and the State of Michigan would contribute to a fund that would be used to shore up pension funds, and as a result, the DIA would be spun-off and the non-profit that now operates the DIA on behalf of the city would own the collection. It’s still unclear if this is going to happen. If the pensioners don’t agree to it, the whole thing falls apart. And the State has to come through with the money that Governor Snyder has proposed giving to this fund. At any rate, some of the Wall Street creditors will try to go after the DIA anyway, and that could go on for years.

But this kind of thing is completely unprecedented. There have only been a handful of municipal bankruptcies across the country, and there’s never been a big city like Detroit that has filed for bankruptcy. So we’re making this up every single day. And the notion that private foundations would give huge amounts of money to shore up public pensions and thereby protect an art museum is completely unprecedented. I think it demonstrates both the creativity that’s going into settling this bankruptcy on positive terms, and also the generosity and public spiritedness of a lot of people in Detroit who are going to step forward to do the right thing.

FM: And another thing your paper has reported on recently that I found really surprising is that Detroit, a city that’s one-quarter vacant, is actually experiencing a housing shortage. What’s up with that?

John: Yeah, it’s strange. We went from a glut of housing to a shortage of housing in some neighborhoods like Midtown, downtown and Corktown very, very quickly. And I think it shows how quickly things can turn around. You know, once you start the engine or get that spark, things can be self-generating. So what happened is that downtown and Midtown became very trendy places, and for a whole variety of reasons, demand for apartments has just skyrocketed in the past few years. Right now, in those places, it’s hard to find a new place to live. New product is being added, but obviously it takes awhile to build new apartment buildings. I think we’ll be adding several hundred to a thousand new units over the next couple of years, and it appears downtown and Midtown have passed a tipping point where you’re going to see new development there for years to come.

FM: And do you think that shortage will cause people to look at living in other neighborhoods, and we’ll start to see some turnarounds in other places as well?

John: Well, there’s still a lot of vacant land, even in places like Midtown. You don’t have to go very far from the Woodward corridor before you find lots of vacancy. I mean, we’re talking about just a couple blocks, in many cases. But whether it spins off to the broader city is a big question, and this gets to the equity issue. You know, is what’s happening in downtown and Midtown with mostly white, well-educated folks going to help at all with the mostly poor, mostly black population of the rest of the city? I don’t think you can count on a downtown development strategy to help the neighborhoods. Downtown strategies are great, but you also need a neighborhood strategy. Not to mention an employment strategy, a blight removal strategy, a strategy for schools and a transit strategy that can benefit everybody. To take a really concrete example, right now we’re developing the M-1 rail and that’ll be great. But if all it does is go along Woodward from Jefferson to New Center, it’s not going to help the rest of the city.

So it’s no secret that downtown and Midtown are doing really, really well and they’re much better places today than they were 15 years ago for people of a certain station in life. There are many more restaurants, coffee shops, art galleries; there’s more street life. But all those developments mainly benefit professionals with a certain amount of disposable income. And so the question is, how do we move beyond that? There are a lot of community groups doing really good work in the neighborhoods, but we’re a long way from being where we need to be. Poverty rates are still very high. Crime rates are ridiculous. Schools are still problematic. Blight is increasing. I mean, all the bad stuff is still happening. So we’re asking all the right questions, and we’ve got people working on the problems. It’s just that we’re at the front end of doing any good.

Veteran journalist John Gallagher has been covering urban and economic development for the Detroit Free Presssince 1987. He’s also the author of two great books on Detroit: Revolution Detroit: Strategies for Urban Reinvention (Wayne State University Press, 2013) and Reimagining Detroit: Opportunities for Redefining an American City (Wayne State University Press, 2010). Interview by Lou Blouin.

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