Detroit faces state takeover threat

A declining tax base has left Detroit in a deep fiscal hole and at risk of a state takeover.

By Chris Isidore@CNNMoneyApril 4, 2012: 5:36 PM

NEW YORK (CNNMoney) — It’s crunch time for Detroit.

City and state officials are facing a Thursday deadline to save the city from the threat of looming financial insolvency or a takeover of city government by Michigan.

Fierce opposition from unions — in a city that remains a bastion of labor power — has so far stymied efforts to pass a rescue package.

A deal backed by Mayor Dave Bing and Michigan Gov. Rick Snyder, a Republican, would grant the city the power to void contracts and slash costs but not provide state funding or loans to bail the city out of its financial problems.

Without city council agreement on that deal, Snyder can by law appoint an “emergency manager” who will assume the powers of the mayor and council to run day-to-day operations. He has until Thursday to take such action.

The city council is under pressure from the public and city unions to reject the deal with the state. At the same time, it would lose its powers if Snyder goes ahead and names an emergency manager.

The council was meeting again Wednesday. Earlier in the week, the council moved to double the city’s corporate income tax to 2% as a way to raise badly-needed revenue.

Cool new cars

Years of decline in population and businesses and a shrinking of the tax base have pushed Detroit into a deep financial hole despite a recent resurgence in the U.S. auto industry.

Without more cost cutting, the city won’t be able to pay its bills come June. An estimate in January, the most recently available, was that the city would be down to $20.9 million in the bank by the end of this week.

An emergency manager would have authority to void contracts with both unions and vendors. He or she could also sell off various city assets, from the water department to valuable art in the city’s museum.

As the debates, negotiations and lawsuits raged this week, they did so without Bing, who was recently released from the hospital after serious intestinal surgery and won’t return to work for two weeks. Both Bing and Snyder say they want to avoid a state takeover, which in itself could be the first step toward the largest municipal bankruptcy in the nation’s history.

While Detroit’s own finances continue to struggle, the U.S. automakers based in or near the city have enjoyed a financial resurgence.

General Motors (GM, Fortune 500) reported a record profit in 2011. And a pick-up in auto sales and hiring has led to a nearly two-point drop in Michigan’s unemployment over the last 12 months, the biggest improvement of any state.

First Published: April 4, 2012: 2:27 PM ET


Berlin BMW Guggenheim Canceled Following Threats

by Brian Boucher 03/21/12

An urban public project by BMW and the Guggenheim, planned to open in Berlin May 24, has been canceled due to threats of protests, according to a report from Bloomberg.

The BMW Guggenheim Lab, which made a splash on Manhattan’s Lower East Side when it debuted there last summer with panel discussions, film screenings and the like, was called off “as a consequence of threats to the project,” the Lab said in a statement. Berlin was the second stop on a six-year, nine-city tour.

Left-wing activists issued calls online to urge protesters to “derail” the project, according to the daily Tagesspiegel newspaper.

Ironically for a project intended to “address issues of contemporary urban life,” according to press materials, the Lab was derailed because opponents claimed the project would accelerate the gentrification of Berlin’s Kreuzberg district, where it was to take place, according to Bloomberg.

No new location has yet been announced, and in fact the Lab’s website still indicates it is en route to Berlin.

With tech assets, can Austin become key player in automotive industry?

ByLaylan Copelin


Updated: 11:03 a.m. Sunday, March 11, 2012

Published: 8:59 p.m. Saturday, March 10, 2012

Austin officials – and Texas leaders, for that matter – are getting a touch of  car fever.

Not the desire to buy the latest models, but to help build them — or create  the next generation of high-tech vehicles.

A rebounding automotive industry has Texas lawmakers clearing the way for the  next competition for an assembly plant and Greater Austin Chamber of  Commerce officials intensifying their efforts to play a larger role in the  global automotive industry, especially as technology changes how consumers  think about vehicles.

“Cars are changing; the industry is changing,” said Adrianna Cruz,  vice president of global corporate recruitment at Opportunity Austin, the  chamber’s economic development arm.

“Even though traditional manufacturing is something we’re going to target,”  Cruz said, “Austin could also play a huge role as cars become smarter,  cleaner and safer.”

Cruz said Austin can leverage its technology base, the University of Texas’  research muscle and the city’s lifestyle to capture at least a piece of the  auto industry.

It doesn’t hurt that Texas already has a strong foothold in auto manufacturing  with plants in Arlington and San Antonio, easy access to Mexico’s  manufacturing base, and state leaders interested in expanding Texas’ role in  vehicle manufacturing.

Texas House Speaker Joe Straus — who hails from San Antonio, which landed  Toyota’s truck assembly plant in 2003 — has ordered lawmakers to be sure  Texas has no impediments to competing for future opportunities.

He said he took that step after a group of industry representatives, including  former state senator and General Motors executive John Montford, met with  him last summer.

Those ambitions lead to the question: Could Austin — or Texas — become the  next Detroit?

“The next Detroit? That’s pretty grandiose thinking,” said Kim Hill  with the Center for Automotive Research in Ann Arbor, Mich.

Even in the wake of competition from Southern auto plants, recession,  bankruptcy and bailouts, almost half of the nation’s automotive jobs remain  in Michigan, Indiana and Ohio, according to the Bureau of Labor Statistics.

Eleven of the 12 automakers, including the Big Three’s foreign competitors,  have major research and development centers in Michigan.

Many of the industry’s parts suppliers also have their corporate headquarters  in the Midwest.

“Much like Hollywood is to the film industry, Detroit will probably  always lead the nation’s auto industry,” said Greg Burkart, managing  director of the Detroit office of Duff & Phelps, an investment banking  firm that works closely with the automotive industry.

Connections to industry

That’s not to say Hill and Burkart don’t see Austin’s and Texas’ potential as  an automotive industry center.

“Attracting an assembly plant is a once-in-a-lifetime event,” Hill  said. “But the technology end is going to only get bigger and bigger.”

Burkart said “innovation clusters” such as Austin, Raleigh-Durham,  N.C., and Silicon Valley in California could develop their own highly  advanced automotive industries.

“And because many of these regions are highly desirable places to live  and work, Detroit, Germany, Japan and Korea may be forced to ‘come to them’  to remain competitive,” he said.

Vehicle sales in the U.S. shrank dramatically during the recession, from a  production high of 17 million vehicles in 2007 to a low of about 10 million  a couple of years later.

Several plants were shuttered in response, but this year vehicle sales are  projected to reach about 14 million, as auto executives wring as much as  they can from existing plants.

Expansion — at least for some manufacturers — is on the horizon. Foreign  production, in particular, might be shifted to the U.S. because of rising  sales and a weak dollar.

Hyundai’s popularity is straining the capacity of its Alabama and Georgia  plants, Hill said, and Audi is weighing opening a North American facility.

Honda and Toyota, once they’ve recovered, might expand operations in the  United States, Hill said.

Texas already has a large role in vehicle manufacturing. In 2010, the state  ranked sixth nationally for automotive manufacturing employment, according  to the Bureau of Labor Statistics, with plants building everything from cars  to trucks to military vehicles.

Amazing Abandoned Ruins

How amazing are modern day abandoned ruins?  They are so mysterious.  I feel like when you look at the pictures of places like this, the movement that should be taking place wants to come to the foreground of the picture.  The eeriness of these places appear to come straight out of a horror film.  I will get to experience some of this when I visit Detroit in a couple of weeks.  I wonder how it will feel in person?

Educate the People


In his book “Triumph of the City,” Edward Glaeser states,“While it may be wrong to attribute too much of these places’ problems to politics, political mismanagement was often a feature of Rust Belt decline.  Perhaps the most common error was thinking that these cities could build their way back to success with housing projects, grandiose office towers, or fanciful high-tech transit systems.  Those mistakes came out of the all-too-common error of confusing a city, which is really a mass of connected humanity, with its structures.

Reviving these cities requires shedding the old industrial model completely, like a snake soughing off its skin.  When a city reinvents itself successfully, the metamorphosis is often so complete that we forget that the place was once an industrial powerhouse.  As late as the 1950s, New York’s garment industry was the nation’s largest manufacturing cluster.  It employed 50 percent more workers than the auto industry did in Detroit.  America’s Industrial Revolution practically began in greater Boston, but now nobody associates smokestacks with that city.  These places have reinvented themselves by returning to their old, preindustrial roots of commerce, skills, and entrepreneurial innovation.

If Detroit and places like it are ever going to come back, they will do so by embracing the virtues of the great pre- and postindustrial cities: competition, connection, and human capital.  The Rust belt will be reborn only if it can break from its recent past, which has left it with a vast housing stock for which there is little demand, a single major industry that is dominated by a few major players, and problematic local politics.  Beneath these cities’ recent history lies an instructive older story of connection and creativity, which provide the basis for reinvention.  To understand Detroit’s predicament and its potential, we must compare the city’s great and tragic history with the story of other cities, like New York, that have successfully weathered industrial decline.”

A New Beginning

In the book “Triumph of the City,” by Edward Glaeser, he states that ” Detroit’s decline is extreme, but it’s hardly unique.  Eight of the ten largest U.S. cities in 1950 have lost at least a sixth of their poplulation since then.  Six of the sixteen of the largest cities in 1950 – Buffalo, Cleveland, Detroit, New Orleans, Pittsburgh, and St. Louis – have lost more than half their population since that year.  In Europe, cities like Liverpool, Glasgow, Rotterdam, Bremen, and Vilnius are all much smaller than they once were.  The age of the industrial city is over, at least in the West, and it will never return.  Some erstwhile manufacturing towns have manages to evolve from making goods to making ideas, but most continue their slow, inexorable declines.