10 years ago Detroit filed for bankruptcy. It makes a comeback but there are hurdles
This past week the city of Detroit celebrated its rebound from one of its darkest financial moments. Ten years ago, Detroit was drowning in $18 billion in debt and it made history when it became the largest municipality in the country to file for bankruptcy. The Motor City has made significant progress in the past decade but it still faces some daunting potholes on the road to recovery.
"You were terrified to go to downtown Detroit before. Now it's the coolest place around"
At a recent ribbon-cutting, it was all sunshine and warm smiles as officials gathered to celebrate a revitalized historic landmark, Detroit's refurbished Book Tower and Book Building.
The Italian Renaissance-style structures, abandoned since 2009, have a new life now as a combination of hotel rooms, upscale apartments and shops.
Dan Gilbert, the Michigan billionaire businessman who was the project developer, delivered what's become with the renovations a Motor City mantra: "Detroit is coming back."
"Our goal is to provide the spark that will ignite other businesses, both small and large, as well as developers to get involved, attracting further investment and talent to come here and be part of this," Gilbert says.
Gilbert moved his corporate headquarters in Michigan from a western suburb to downtown Detroit a few years before the city filed for bankruptcy. After it shed about $7 billion in debt and exited bankruptcy, he and others began pouring new investment into the city.
It was especially apparent in the downtown area as a number of trendy restaurants and upscale apartments reinvigorated neglected streets.
The changes amazed even jaded Detroit natives, like rock star Alice Cooper. In a visit just a few months before the COVID-19 pandemic erupted, Cooper remembered how the previously barren and boarded-up center of the city used to resemble one of his ghoulish stage shows.
"You were terrified to go to downtown Detroit before. Now it's the coolest place around," Cooper said. "I kind of went yeah, downtown Detroit needs a shot in the butt."
Detroit is on stronger financial footing with a budget surplus
Decades of government mismanagement and population decline drove Detroit to the financial brink.
Even when the city emerged from bankruptcy, the state of Michigan maintained its oversight of Detroit's monetary policy, at least until the mayor and City Council produced three straight balanced budgets.
Now Detroit has a budget surplus. Mayor Mike Duggan says even though COVID-19 forced some restaurants to close and left office buildings vacant as employees worked from home, the city has no need to use federal pandemic relief funds to plug any deficits.
"Which means we can take the American Rescue Plan money and use it to build affordable housing, use it to build parks, use it to upgrade our resident's skills. And Wall Street just upgraded our credit rating again," Duggan says.
Credit agencies rank Detroit just a shade below investment-grade status and many analysts praise the city's efforts to erase thousands of blighted buildings dotting Detroit's neighborhoods.
City officials also issued $100 million in bonds recently to be used primarily for rehabilitating or demolishing abandoned houses.
Still Randy Layman, an analyst with S&P Global Rating says there is reason to remain cautious. He says Detroit remains very reliant on the shifting fortunes of its manufacturing base to provide any long-term economic growth.
"There's still high poverty rates and low income in the city. That just creates practical and political challenges to raising revenue," Layman says.
Disparity remains between Detroit's flourishing downtown and impoverished neighborhoods
The disparity between Detroit's flourishing downtown and impoverished neighborhoods still fuels discontent. The city has worked to assuage concerns by launching dozens of programs to help beautify some blighted areas away from Detroit's central core. Other programs are designed to attract new homeowners and renovate existing houses, all efforts to increase both tax revenue and property values.
Some Detroiters say, however, they wonder if the city worries as much about them.
Long-time resident Duane Johnson says he watched the city sell vacant properties at cut-rate prices, but that did not help him or others he knows who stayed in Detroit through the bankruptcy process.
"It's like a curse," Johnson says. "Rent goes up. They are developing those new apartments or rehabbing that new house for people who make the higher income. And it's pushing people out."
Add that fear of displacement to an ongoing fear about crime.
Since the bankruptcy, the city has repaired thousands of broken streetlights and improved slow police and emergency service response times.
Yet Detroit continues to have one of the highest per capita violent crime rates in the country. Johnson says while there's a very visible police and private security presence downtown, he can't feel that on his block.
"In the inner city they react to crime. So after you are victimized is when they show up. But in downtown their job is to prevent it from happening in the first place. So that's the difference," Johnson says.
Many retirees continue to struggle after the pension cuts a decade ago
Some other residents say the impact of Detroit's bankruptcy still has them reeling 10 years later. Pensions of city government retirees were cut as part of the steps used to eliminate Detroit's debt.
Bankruptcy attorneys called it a financial "haircut," one that could have been much more severe if state officials had not reached a deal with foundations and private donors to fund part of the pensions for a decade.
It meant at least a4.5% reduction in pension payments for workers under the General Retirement System, which was separate from police and fire department retirees.
The so-called "grand bargain" agreement was designed to keep the city from covering its debt by selling valuable works from the Detroit Institute of Arts.
It's not something retirees like former city administrator Cecily McClellan remembers fondly.
"We call the grand bargain grand theft," she says.
Detroit's ready to resume making the pension payments out of its own budget. It set aside hundreds of millions of dollars over the past 10 years to help cover the cost but McClellan says retirees like her were handed a double financial whammy that they never expected.
In addition to the initial drop in pension funds, she lost thousands of dollars earned from a city annuity fund when bankruptcy attorneys decided it had paid out excessive interest and demanded it back.
While some retirees returned the money in a lump sum, others, like McClellan, decided to make monthly payments.
"They snuck up on us. They charged us interest on the money that was being clawed back. So now it's 10 years into the plan and we still owe over two-thirds of what we owed originally," she says.
Other retirees found they had too little money after bankruptcy to stay retired.
While workers in the Police and Fire Retirement System were spared big pension cuts, the bankruptcy reduced their cost-of-living increases. Former Detroit fire battalion chief George Orzech says uniformed city workers effectively lost most of their health care coverage and those who weren't old enough to qualify for Medicare, faced some tough decisions.
"I mean I've been injured. When I got hired in '77 I got blown out of a building looking for a babysitter, for God's sake. Couldn't walk for 100 days. Who's gonna pay for that?"
Orzech says his wife had a small health coverage plan that helped until he was eligible for Medicare at age 65 but other former firefighting colleagues, including some of his siblings, weren't as fortunate.
"There's not a day that doesn't go by I don't think about it. But it's 10 years ago now. I was able to at least come away with a pension and I'm walking and fairly healthy. But there's a lot of people that aren't like that," Orzech says.
The Michigan legislature recently appropriated funding to help beef-up the small amount of health care coverage Detroit police and fire retirees do receive.
Detroit Mayor Mike Duggan has also talked about negotiating larger pension payments for current and retired city workers. That could occur only after the bankruptcy's decade-long prohibition against collective bargaining ends next year.
So while the "Detroit is back" mantra may still be an aspiration for the Motor City, one thing is certain--the city's financial health is far better than it was during its bankruptcy days of a decade ago.
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