Editors Note: This story was published in April 2012. To view the 2013 update on Detroit’s financial crisis, click here.
If you’ve been at least semi-conscious of Michigan news for the past few months, you’re probably aware some heavy stuff is going down in Detroit: something about the city going bankrupt, or getting taken over by the state? Well, sort of. Last November, Detroit Mayor Dave Bing announced that the city’s financial situation was so grim that it would essentially run out of money by April (i.e., now). That prompted months of negotiations and a political drama that—long story short—culminated earlier this month in a deal between the State of Michigan and the city whereby the state would now be involved (at least financially) in running Detroit. It’s called a “consent agreement,” and while it’s not the same thing as Detroit getting an emergency manager (the much-criticized, state-appointed financial tsars that are now running the show in three Michigan cities), what all of this will mean for Detroit and the state more widely is still unclear.
Confused yet? Well, so were we. So this week we met up with John Gallagher, one of the city’s big thinkers on this topic, to get a 101 on Detroit’s financial crisis. John is an east sider and 25-year Detroit Free Press veteran, and in 2010, he published one of the great new treatises about Detroit’s problems and possible paths forward (Reimagining Detroit, Wayne State University Press, 2010). If you take time to read only one article about Detroit this month, make it this one.
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Found Michigan: So, for people who haven’t necessarily been following the blow-by-blow of what’s happening in Detroit, paint us a little backdrop.
John: Well, the key to understanding what’s happening in Detroit as well as all these Rustbelt cities—Cleveland, Detroit, St. Louis, Gary, Flint, all of them—is that we blame white flight and deindustrialization, but essentially what happened after World War II is that all American cities spread out. Sunbelt cities were able to capture that growth through annexation. In 1950, Houston, Texas, for example, was roughly the same size as Detroit: Houston was 160 square miles, Detroit, 139. But today Houston is 600 square miles because it captured all that suburban growth—they annexed all their suburbs as they grew. Detroit and Cleveland and all the other older cities, however, were not allowed to do that for a variety of legal and political reasons. And so even though metro Detroit became much larger geographically, the city itself was trapped behind these rigid municipal boundaries, and the tax base went away to the suburbs. So today the tax base of metropolitan Detroit includes just a tiny part in the city and the vast majority is in the suburbs.
FM: And so that imbalance essentially starved the city.
John: Right, and so as a result you had city revenues—which were mainly based on tax base—inexorably going down while expenses inexorably went up. This became a problem as early as the 1960s; it became obvious in the ’70s and it’s been a crisis more or less ever since. Detroit has tried to deal with it over the years by creating a city income tax, having the highest property tax rates, having a utility tax—which most people probably don’t even realize they pay—borrowing very heavily—I mean, hundreds of millions of dollars of debt that they borrowed to meet current obligations—and it still can’t pay its bills. And now it’s to the point where it’s become this crisis where it’s got to be dealt with.
FM: So that’s where this consent agreement between the state and the city comes in.
John: Right, but the problem is that whether we have a consent agreement or an emergency manager or bankruptcy, all these solutions are a sort of “balance sheet” approach to the problem. They say, You have this much revenue down here, this many expenses up here, you’ve gotta cut your expenses to match revenues, and so you can cut here, and here, and here. So it’s kind of an accounting-trick answer that doesn’t get at the structural problem that the tax base has gone away. It’s not enough to say that a consent agreement or emergency manager is going to cut the budget and everything’s going to be okay, because everything’s not going to be okay. They’ll cut the budget and get through the next couple years, but the structural problem remains.
FM: So if I hear you correctly, then, the whole idea with this approach is that balancing the books will inherently make the city a better place to live. A city with a healthy budget is a healthy city?
John: Right, but it might actually be a worse place to live, because you balance the books by making cuts. Sure, you’ve balanced the books, but if you cut police, park maintenance, code enforcement and other things, you’ve made the city a worse place.
“The key to understanding what’s happening in Detroit as well as all these Rustbelt cities—Cleveland, Detroit, St. Louis, Gary, Flint, all of them—is that we blame white flight and deindustrialization, but essentially what happened after World War II is that all American cities spread out. Today the tax base of metropolitan Detroit includes just a tiny part in the city and the vast majority is in the suburbs.”
FM: And so let’s talk more specfiically about what this consent agreement does. How is it different than having an emergency financial manager?
John: Well, a city in this kind of distress has several options, one of which is “municipal bankruptcy”—where essentially a judge becomes the decider on who gets paid and who doesn’t. Another is an emergency manager imposed by the state. And we have to remember that under American law, the state is supreme over cities. We went through this whole debate in Detroit about how the state has no right to take us over—but constitutionally, the state has every right. It can create cities, dissolve cities, and so on. Anyway, an emergency manager, in general, is a financial dictator imposed by the state, who can, depending on how the law is written, have anywhere from total power to somewhat limited power. And then, finally, you have a consent agreement—what the city of Detroit approved—which creates a financial review board with certain powers to review and advise and/or override decisions made by city officials. So there will still be a mayor, there will still be a city council, they’ll still be setting policy, but the new review panel will have considerable power and we’ll have to see in practice how that works out.
FM: And how is that working out so far?
John: Well, the big question right now is what does it do with union contracts. Detroit is a very strong union city, going back decades. And the main opposition to the consent agreement was from municipal unions that fear—rightly so—that more people are going to lose their jobs and their pay and benefits are going to be slashed. So that’s going to be an issue that has to be tussled out. Municipal unions have made a good number of concessions over the years—I mean, we should not think they’re sitting fat and happy. They’ve had something like a month of furlough every year, as well as pay cuts and payless days, that they’ve been putting up with for a long, long time. As well as job cuts. In 1970, Detroit had something like 30,000 municipal employees; now we have about 11,000 and it’s going down. So the unions fear this is, once again, sort of an abyss of job cuts and pay cuts and benefit cuts—which is probably true. So that’s the immediate hurdle, but then the bigger question is how much good does this consent agreement do—can it get the books in shape and improve services in the city of Detroit?
FM: And I mean, in Detroit, we’re talking about really basic services, right?
John: Yeah, things like street lighting. It’s been estimated that 20 percent of the street lights are out at any one time. Some of the neighborhoods on the east side where I live—you drive around at midnight, in these neighborhoods with no homes left, and street lights aren’t on. It’s pretty ghostly. So can you get streetlights to work, 911 response time better? All that sort of stuff. You know, what we’re essentially talking about here is whether—in an underfunded and therefore understaffed and politically dysfunctional city—services can improve. And if it doesn’t happen, especially on the financial side, does that mean you appoint a financial manager down the road? We’ll see.
FM: You know, the unspoken assumption here seems to be that the city can’t run its own show—that it’s mismanaging its finances. And Detroit has had its fair share of that over the last couple decades—there’s no hiding that. But is that really the issue now?
John: No. You know, people complain about corruption, mismanagement, greedy municipal unions—all that may be present in our city or other cities now or in the past. But that’s not the structural reason why we’re in trouble—the structural reason is that we moved the tax base out to the suburbs and didn’t do anything to adjust. So you know, people blame this on Kwame Kilpatrack—the corruption and everything—but again that’s not the answer.
FM: So is this consent agreement just smoke and mirrors then?
John: I don’t think it’s smoke and mirrors. They do have to do some short-term nipping and tucking to get a handle on the basic finances of the city. But they also have to understand that it’s going to take a long-term vision for what you want the city to be and how to get there. You know, historically, in America, we were brilliant at inventing government in the 1780s. We set up the world’s first working democracy, which is still going strong 250 years later. But we suck at reinventing government today. We’re using these 19th-century models to fix 20th- and 21st-century problems. And so what do you do? You’ve gotta do something. And we’re not very good at it.
“It’s been estimated that 20 percent of the street lights are out at any one time. Some of the neighborhoods on the east side where I live—you drive around at midnight, in these neighborhoods with no homes left, and street lights aren’t on. It’s pretty ghostly.”
FM: Well, while we’re on this topic of big visions, in your book you talk a lot about this idea of “shrinking the city:” that Detroit, because it’s lost so much of its population and therefore tax base, can no longer serve its entire city limits—but that it could if it was smaller and more dense. That was an idea that Mayor Dave Bing was really big on when he came into office. Do you think these really concrete, desperate financial issues that have come to a head in the past few months make it impossible to talk about these kinds of bigger visions?
John: Yeah, it’s the whole joke about how when you’re up to your ass in alligators, it’s hard to remember you wanted to drain the swamp. I think the city got overwhelmed by the immediate fiscal concern. Bing also didn’t understand how politically tricky it is to shrink a city. By “shrinking a city,” we mean moving some neighborhoods and moving people out. Bing started out saying, “Oh, we’re going to offer incentives and move people out of neighborhoods and shut neighborhoods down.” And then almost immediately he had to abandon that because it was so politically toxic. But we do need a long-term vision. And most of that’s coming from foundations, academics, non-profit neighborhoods groups—those are the kinds of groups that are doing the visioning exercise, rather than the city.
FM: And so now the state counts itself among those groups. But just how interested do you think the state really is in rebuilding Detroit—like, how committed are they long term?
John: Well, I think the governor is committed to making a difference in the city. I don’t think the Republican-dominated legislature is particularly interested. I think a lot of Republican legislators think of Detroit as a social and cultural cesspool where it would be better to just wall it off and throw away the key. So I wouldn’t expect a lot of financial help from the legislature.
FM: Which sort of begs the question: What can the governor and the city really do without the legislature funding it?
John: Well, that’s a good question, and this gets to what you actually do under this consent agreement. Are we just going to lay off more city workers or are we actually going to make investments that help the city grow? And the answer is, we have to see how this works out—how smart the people are that they appoint—and go from there. I mean, you can make a big difference in cities. Look at New York City in the 1970s: It was the murder capital of the world and it was bankrupt. And now the murder rate is like a fifth of what it was 30 years ago. It’s once again the Big Apple. So you can turn cities around. Manchester, England, which is in my next book, was a city that had lost all its industry in the 1960s, and was completely on the ropes. The IRA set off a bomb in mid-nineties that blew up a good portion of downtown Manchester. And yet because of a lot of smart, savvy leadership, they turned their city around.
“It’s the whole joke about how when you’re up to your ass in alligators, it’s hard to remember you wanted to drain the swamp. I think the city got overwhelmed by the immediate fiscal concern. Bing also didn’t understand how politically tricky it is to shrink a city. By ‘shrinking a city,’ we mean moving some neighborhoods and moving people out. And then almost immediately he had to abandon that because it was so politically toxic. But we do need a long-term vision.”
FM: Well, speaking of leadership, there seems to be no shortage of state legislators right now who are pretty clear about the fact that Detroit’s not getting another dime. But is that realistic? Can you have a functional state without a functional Detroit? I mean, what happens if Detroit fails?
John: Well, we know from a whole bunch of studies that metropolitan areas are our economic engines. And Detroit—being the biggest city between Chicago and Philadelphia—if Detroit doesn’t make it, then this area loses what amounts to its main geographic economic engine. And then you’d basically have this blank spot on the map, economically. I mean, the notion that you can insulate yourself from Detroit’s problems is just not true. A sinking Detroit is going to take down everybody.
FM: How so?
John: Well, if metros are the economic engines, and this area ceases to have the types of workforces that can contribute economically, or to be an area that helps people develop skills, or promotes entrepreneurial activity, or that has a lively downtown that young people want to come to, then the city just becomes less of an economic engine for the region. Young people don’t want to move to rural or semi-rural exurbia; they want to move to a downtown, they want to move to Chicago, San Francisco, Boston, New York. We’ve got a smaller number moving to Detroit. If you don’t have that—those creative young people with their energy coming in—the city becomes less and less interesting. It’s harder to recruit top-level talent. Detroit becomes a place that nobody wants to go to. Just witness what happened in the last 40 years when Detroit went downhill. We lost population, the state lost population—we used to have 19 representatives in Congress, now we’re down to 14 or something. We lose political clout and all that’s largely due to the whole Detroit-centric collection of issues. And so these people who think we’re going to ignore Detroit and we’ll be fine—I don’t think they understand how the world works.
FM: You know it’s hard not to get depressed by all this…
John: Yeah. I’ve been here 25 years now and I think this is the most interesting time ever in the city. I mean, some really good things are happening—unquestionably, really good things are happening. But the level of poverty, political dysfunction, breakdown of city government—that’s the worst it’s ever been.
FM: And yet in your book Reimagining Detroit you’re talking about all these big, idealistic ways in which Detroit could reinvent itself—urban farming and shrinking the city, all that stuff. It all seems so optimistic.
John: Well, it’s funny—people say I’m very optimistic in my book, and yet at the end of my book, I say the most likely outcome for Detroit is further deterioration. I think what I see is that some things are working in various places in Detroit and in other cities—therefore urban reinvention is possible, therefore we should work toward that. So I’m a little surprised when people say I’m optimistic because I think I see the city’s problems as much as anybody. Look—in 1900, Detroit was 30 or 40 square miles. Its economy was based on manufacturing stoves and railroad cars, and the farming and timber industries. It was a city of 300,000 people. Fifty years later it was a city of 2 million people—the world capital of car production, covering 139 square miles. Fifty years after that, it has lost half its population, the car industry has moved away, it’s the symbol of urban blight. Fifty years from now it’ll be something else. So what kind of city do we want? We’re in the process of reimagining that right now.
There’s a great quote from this Detroit storyteller, Ivory Williams: He tells this story about this guy who walks out in the street and there’s a little bird lying on its back with its feet up in the air. And the guy says, “What are you doing?” And the bird says, “I’m holding the sky up, because the sky is falling.” And the guy says, “Well little bird, don’t you realize how silly that is? What good are you really going to do lying on your back with your feet up in the air?” And the little bird says, “One does what one can.” And that’s where we’re at in Detroit right now.
John Gallagher is a 25-year veteran of the Detroit Free Press and the author of Reimagining Detroit: Opportunities for Redefining an American City (Wayne State University Press, 2010).