In 64 A.D., Rome burned for six days while Nero watched from his gardens. When the fire subsided, Nero ordered the re-igniting of the flames that burned for another three days. Nero offered no solution, but rather planned to blame the Christians.
Several months ago, I wrote an article entitled “Should We Bailout the City of Detroit?” in response to Detroit Councilwoman JoAnn Watson’s suggestion that the Obama Administration deliver financial support to the beleaguered city in response for its overwhelming support for President Obama’s re-election. The article neither promoted Watson’s ideas nor rejected them. However, it outlined pros and cons for federal intervention, leaving it to readers to decide.
Detroit’s fiscal and economic woes reflect a confluence of issues unlike any to confront a major US city dating back to the Great Depression.
Detroit vs. Houston
Houston economic collapse in the 1980s coincided with plummeting energy prices, the Savings & Loans crisis and real estate speculation. The city was hit with a wave of downsizing that claimed over one out of eight jobs — over 200,000 in number — in just a few years. Those losses increased commercial real estate vacancy, exacerbating failing conditions.
Houston, however, benefited from a relatively healthy physical infrastructure that contrasts with Detroit’s aging buildings, roads, etc. The focus business-minded Mayor Bob Lanier placed on upgrading Houston’s infrastructure came at a very different time in terms of infrastructure financing. Unlike the nation’s current high-deficit/high-debt fiscal position that stymies infrastructure development, the late 1980s provided Lanier and the city of Houston sufficient access to state and federal funds to modernize roads, bridges, sewer systems, and other key elements of the city’s infrastructure.
Situated in an attractive tax environment in the State of Texas, Houston would find it considerably more equipped to recruit and cultivate small businesses. And through Lanier’s leadership, the city reinvented itself to be less intrusive for business development relative to licenses, permits, zoning, etc. This ultimately established the city as one of the top three in business growth by the mid-1990s. Detroit’s regulatory environment is more rigid, having been shaped largely from environmental concerns that followed its history of automotive manufacturing. Further, Houston’s turnaround would eventually benefit from a resurgence of its energy sector that itself is widely recognized as a national security matter.
Houston embraced “creative destruction” that leveraged depressed real estate prices as a way of attracting businesses and professionals. In contrast, Detroit’s housing stock is disproportionately in disrepair and these conditions are scattered across a wide geographic footprint. In Houston, often abandoned were not 80+ year old properties, known by rotting wood, mold, and other structural decay, but newly-constructed houses and office spaces erected as real estate of a oil-rich decade of the 1970s. The city suffers from not only from whole tracts of dilapidated housing, but also from [arguably more challenging] countless numbers of boarded-up, fire-damaged, and abandoned houses perched between occupied and functioning properties.
“Why would I want to buy a pair of shoes for $1,100 when I could get two houses for $1,000 and still have $100 left over.”
Source: Un-named Chinese investor
Prices have been deflated for years, but external factors limit the kind of fast-paced growth experienced in Houston. Chinese investors are now buying-up houses at depressed prices. However, this presents yet another problem. What will be the future of predominantly African American citizens of Detroit? Will they be gentrified as has taken place in Chicago? Will they become disconnected with services as in Cincinnati? Will they be on the outside looking in on the return of small business and corporations as in Harlem? If Detroit follows the recovery pathways taken by other cities, local residents will not escape these uncertainties.
Detroit vs. New York City
New York City’s recent crisis, brought about by Wall Street’s collapse, intertwined the economic urgency of the two. At the time of the 2008 meltdown, 25% of wages earned in New York City were tied to the securities industry. As such, a Wall Street bailout was in many respects a municipal bailout.
The magnitude of economic crises that gripped New York City and continue to frustrate Detroit is perhaps the end of similarities of the two cities. The erosion of Detroit’s auto industry leaves the city in an unenviable position of national irrelevance to many. Perhaps race overlays class in this discussion. African Americans, by-and-large understand the significance of Detroit historically and culturally. The city will be ever connected to the great migration of blacks that fled the jim crow south. It is not uncommon for African Americans, particularly in the Midwest and on the East Coast, to have relatives that reside in the troubled city. Also, as the home of music producer Barry Gordy and Motown, inventor Elijah McCoy, Nobel Peace Prize laureate Ralph Bunche, actor James Earl Jones, and many more iconic figures, so much of black culture is defined in a Detroit context.
And yet, those not as sensitive to these attachments readily dismiss this legacy as a casualty of government mis-management, industrial evolution, and even black culture itself (according to Don Lemon). Juxtaposing apathy and hostility directed at Detroit, are vested views of New York City that can be found in every American city and perhaps every region of the world. Whether agreeing or disagreeing with the Bush-Obama bailout, New York City enjoyed widely-held sentiments that deemed the city’s crisis as a national/international crisis. Where Detroit lacks a national urgency, whether real or perceived, New York City’s urgency was understood by many, instinctively.
Detroit’s employment market lacks a close proximity to an economy that strategically impacts the rest of the nation. This played out in the heated debates that swelled over the issue of financial assistance for the Big 3 auto makers. The rallying cry in support of assistance reached into claims that countless direct and indirect vendors would be harmed without the Big 3 receiving funding. Wall Street (and by definition, New York City) needed only to remind the public that their 401Ks were tied to fate of Goldman Sachs and Citigroup. While I opposed the Wall Street bailout, it is not a mystery as to why so many supported it.
For middle America, two words encapsulate Detroit’s biggest obstacle — “So what“. In a representative democracy, as long as citizens and taxpayers are uttering these words, Congressional officials will utter the same.
The passage of several months has this discussion front-and-center with state officials and the United States Congress. Senator Ron Johnson [R-WI] put his hat into the ring with a scathing opposition to a Detroit bailout, citing budgetary and other concerns. Such a categorical dismissal is indicative of sentiments in Washington circles that are indifferent to issues facing Detroit.
Senator Carl Levin [D-MI] recommends that Detroit pursue financial assistance through existing federal programs. Levin’s suggestion appears reasonable on the surface. But it reeks of indifference. Why? Because the Senator knows well that programs such as The Empowerment Zone are gone. He knows that sequester means across-the-board cutbacks. He further knows that federal funds are extended on a competitive basis. And Levin is aware that competitive grants — the most advantageous form of federal financing — come by way of matching funds. Municipalities facing fiscal/economic challenges also find local government and corporate resources far too limited for an effective bid. These approaches require significant time and they are inherently risky to pursue. Levin’s approach is tantamount to asking 50 drowning people, “Do you want a ship to come to you or 1 line to be thrown?“
The History of Federally-Sponsored Bailouts
While Washington appears to be aligned in its opposition of a Detroit bailout, the ProPublica resources (below) provide an excellent chronology U.S. Government emergency supports extended to municipalities and corporations. These interventions have come in myriad forms from grants, to loans, and to equity investment. Among other things, the data show a number of corporate bailouts that did not yield profitable outcomes for taxpayers.
Whether or not Detroit receives assistance remains to be seen. What we can know, however, is that a number of arguments against a bailout are fallacious at-best and irresponsible at-worst. And that goes for using the mis-management of former Mayor Kwame Kilpatrick as the sole source of Detroit’s long-standing/structural troubles or as the lever to punish Detroit citizens for the foreseeable future. In a number of U.S. Government financial interventions — including the Savings & Loan bailout — we find mismanagement and criminal activity.
Detroit will not be the last city to face hardships. We can be certain that some of these future hardships will be met with federal bailouts in one form or another. The legacy of Washington’s response to Detroit will confront an inescapable question, “Did demographics and the city’s union ties play a role in the level of disregard we are seeing in Washington today?” We can only hope that the well-being poor black families in inner-city Detroit is as pressing as the viability of mining communities in Appalachia or family farms in Kansas.
In addition, a bailout alone is not the answer. Recipients of financial assistance cannot do business by way of old models. A culture of fiscal transparency, operational efficiency, and outcomes orientation must govern the use of every dollar. Creative partnerships must extend to faith-based organizations, educational institutions, and other regional assets. Entitlements to mediocre organizations cannot siphon the life out of resources directed at Detroit. The nation, already in the vice-grips of a jobless recovery and budgetary challenges demands it.
For legislators, our response to Detroit cannot simply be “No help from Washington“. We cannot turn our heads while sending Detroit on a competitive financing treadmill. A vibrant Detroit is a boost to our nation’s fledgling economy. Rome is burning. This is the time for leaders, not Neros.
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