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Bankrupt Detroit's downtown renaissance creates trickle of hope

Two vacant and boarded up apartment buildings sit across from a liquor store near downtown Detroit, Michigan July 21, 2013. REUTERS/ Rebecca
Two vacant and boarded up apartment buildings sit across from a liquor store near downtown Detroit, Michigan July 21, 2013. REUTERS/ Rebecca

By Nick Carey and Paul Lienert

DETROIT (Reuters) - Detroit's bankruptcy filing last Thursday - the largest in American municipal history - completed a six-decade slide for a one-time industrial powerhouse. Today the city bears an uncomfortable resemblance to a failed state: unable to light or police the streets, educate children, stop arson, or provide emergency care to the dying.

There is, however, a mini-renaissance occurring in the downtown core. It is here that Detroit might just be carving out a new identity, this one driven not by cars but by computers. The Internet-focused businesses springing up have attracted thousands of young, well-educated, tech-savvy "urban pioneers."

Amid the ruins of a city that has lost nearly two-thirds of its population since the peak of 1.8 million in 1950, a younger generation with no recollection of Detroit's glory days is settling into condos and lofts in the downtown and midtown areas. Here, say local optimists, lies potential hope.

Today Detroit is "a tale of two cities," said Edsel Ford II, a great-grandson of Henry Ford and local philanthropist. Images of urban blight are inescapable, but there also is an "exciting, thriving metropolis" downtown. "That's the Detroit I know," he said. "And that's the Detroit that's got to stand up and help the Detroit that's going through trouble."

In this view, if state-appointed emergency manager Kevyn Orr can bolster public safety and basic services, then the gains downtown could spread to other areas.

"We need jobs for people in the neighborhoods," said David Enger, director of a joint effort by 10 foundations committing more than $100 million to Detroit entrepreneurs. "But they can't be just any jobs - we need jobs for people with less of an employment record and a low skill base."

A big question is whether Orr can convince federal bankruptcy court to impose steep cuts on payments owed to creditors - including retired city pensioners represented by powerful unions. Their opposition to Orr's plans is certain to make the bankruptcy case long and expensive.

One thing that seems highly unlikely is any major new financial support from either the federal or Michigan state governments, if only because they will be reluctant to create a precedent. "If they bail out Detroit, other municipalities in trouble could argue that they should be bailed out too," said bankruptcy attorney Douglas Bernstein, of Plunkett Cooney in the Detroit suburb of Bloomfield Hills.

Orr said he can't plan on the basis there will be such help. "We are not expecting the cavalry to come charging in," he told Fox News Sunday. "We have to fix it because we dug the hole."

SPECTACULAR RISE

It wasn't always like this. In the half-century from 1900, Detroit's population increased six-fold as it attracted hundreds of thousands of people, many of them job-seekers from the rural South.

But in the 1970s, the city's Big Three automakers lost their dominance of an increasingly global business. America's auto manufacturing base, with new investments by foreign companies from Japan, Korea and Germany, shifted from Detroit to the South.

Meanwhile, the devastating 1967 race riot - the latest in a series stretching back more than a century to the U.S. Civil War - accelerated "white flight" and sparked an exodus of the black middle class to the suburbs.

With both residents and businesses fleeing the city, Detroit's tax base has eroded. Income taxes fell to $233 million in 2012 from $328 million in 2002.

Political corruption set in, and the city made pension and health care benefits promises to its workers that it didn't have the money to keep. Problems were exacerbated by under-investment in infrastructure and basic services, and the city government in many ways stopped functioning.

BANKRUPTCY A BEGINNING?

Before any metamorphosis of the Motor City can gain traction, the city will have to navigate through the Chapter 9 bankruptcy process.

The state law that created the emergency manager position grants Orr broad powers to tackle the city's $18.5 billion in long-term debt, repair its finances and position it for recovery.

In public statements before the bankruptcy filing, Orr had indicated bankruptcy would give him maximum leverage over creditors and enable him to free up money to begin new investment in infrastructure and public services.

That would help to build on the boomlet downtown, where residential occupancy rates stand above 95 percent, driven by an influx of companies and entrepreneurs. Plans for construction of a 3.3-mile light rail line along Woodward Avenue, the city's main artery, and a new bridge across the Detroit River to Canada, are seen as encouraging signs. Both projects have state funding.

Timothy Bryan, CEO of healthcare software developer GalaxE.Solutions, opened an office downtown three years ago. His firm employs 150 people here and plans to expand to 500 within the next two years in what he described as a "cost-effective" city where the rent is low and nearby universities, such as Detroit's Wayne State University and the University of Michigan in Ann Arbor, churn out well-educated graduates willing to work for much less because of the low cost of living. Local IT firms say they tend to pay software engineers as little as half the going rate in California's Silicon Valley.

"There is an opportunity to grow IT in downtown Detroit, and we think this is a very, very good place to invest our time and money," said Bryan.

Some of the younger workers who have moved here, or moved back, say downtown Detroit is a cool place to live because of the city's gritty urban cachet and they feel that they can stand out here more than in cities like New York and Los Angeles. New restaurants such as Slow's, a hip barbecue joint in the city's Corktown neighborhood, and a Whole Foods Market upscale supermarket, have sprung up to meet increasing demand.

"I feel for the first time in my life I am making a real difference by coming back to Detroit," said Sarah Brithinee, 26, chief executive of Wedit, which rents out digital cameras for wedding parties and edits the footage into videos. She returned to her hometown in 2011.

The biggest firm to move here is Quicken Loans, the online mortgage firm, whose co-founder and Detroit area native Dan Gilbert has bought up and leased a large number of office buildings, moved more than 9,000 employees downtown and set up a venture capital unit and business incubator for more than a dozen IT firms. The filing is not a surprise to Gilbert's team: "We did this knowing that a bankruptcy was inevitable" said Matt Cullen, CEO of Rock Ventures, the holding company for Gilbert's large portfolio of firms.

HEART ATTACK

A 15-minute drive and a world away from the Detroit that Edsel Ford II knows so well are the places like Brightmoor, one of the city's poorest neighborhoods, that illustrate the immensity of the tasks ahead.

Those among the 23,000 people of Brightmoor who pay taxes get little in return. Police are scarce despite the high rate of violent crime. Fires devastate because the hydrants don't work, and the fire department investigates only about one in five suspicious fires, according to city statistics.

"If you were to have a heart attack in my office, there's no way I'd call for an ambulance because you'd die," said Kirk Mayes, executive director of the Brightmoor Alliance, a local community group. "I'd load you in my car, speed to the hospital and hope we don't get a ticket on the highway."

One of the biggest problems for Orr and his team is that Detroit is geographically huge given its population of only 700,000. It is 139 square miles - big enough to encompass Manhattan, Boston and San Francisco combined - and downtown Detroit only represents about 5 percent of that, or roughly seven square miles.

It is not lost on residents of the city's poor black neighborhoods that they have yet to see the benefits of the downtown rebound. While Detroit's official unemployment rate is just over 10 percent, the actual rate is believed much higher because many people have given up looking for work.

"The city's African American community has been left out," said Reverend D. Alexander Bullock, a black pastor and local leader of Reverend Jesse Jackson's Rainbow Push Coalition. "It's great that downtown is doing well, but there has been significant under-investment in Detroit's neighborhoods."

(Editing by Martin Howell and Claudia Parsons)

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