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


Start-up City, USA

Detroit isn’t a blank canvas. Instead, it’s a complex scene that has everything an entrepreneur needs to start his dream company, Josh Linkner writes.


INSIDE/OUTSIDE: A project by The Detroit Institute of Arts that takes its collection to the streets as part of a celebration of its 125th anniversary.

“Detroit is a blank canvas.”

I cringe every time I hear this phrase, even though it’s used by people who mean well.

To say something that references “emptiness” regarding a city founded in 1701 is both unfair and inaccurate, as it implies that there’s nothing here—or worse—that there’s nothing worth talking about here.

By suggesting this, the speaker disregards momentum building around the Detroit 2.0 movement, which is in full swing. Dan Gilbert, my partner in Detroit Venture Partners, has purchased nearly three million square feet of commercial real estate, setting off a trigger reaction for private investment downtown, where sports, business, technology, and the arts converge. Over the next few years, we’ll witness the positive effects of our city’s revitalization from within, as fallout from this tipping point of innovation.

Rather than refer to Detroit as a blank canvas, perhaps it makes more sense to call it an unfinished one. There are already splatters of paint on the board demonstrating promise, as well as blunders that need to be fixed. However, there is still enough white space left for someone to come in and make a mark, which will leave a lasting impression on the painting. People innovating and using creativity to win are making some of the most impactful brush strokes; the end result is a more beautiful painting for us all to enjoy.

Entrepreneurship requires you to get in the trenches. It’s true that Detroit’s trenches are more war-torn than others you might find. That being said, there’s a strong case to be made for starting a business here, stemming precisely from these long-standing challenges and problems. The following elements are like buckets of paint, a toolkit of brushes, or even a paint-by-number guide: they make it easier for someone to add to the canvas.

Talent: This area is chock full of people who are hungry for an opportunity. New graduates make up the first camp—those born and bred in the region are educated in a local network of world-class universities, leaving ready to enter the business world. The current market has forced many of these graduates to launch their careers elsewhere, causing a “brain drain,” but this trend can be stopped by providing jobs locally. Unfortunately for the economy, there’s a large group of professionals who are out of work. Engineers, laborers, techies, sales associates, managers, consultants and a whole host of others now need jobs, many of whom have years of business experience under their belt. For a savvy business owner, this second group provides a capable workforce. Why pay more to fight over average talent when you could have your choice of hirable, less expensive A-listers?

Space: With more than 130 square miles and too many vacancies to count within its borders, Detroit boasts land. Lots of it. No other major city would have empty skyscrapers available for purchase, let alone for pennies on the square foot. Similarly, no other major city would have vacant lots, begging for parks, gardens and public art pieces, let alone with herds of new downtown residents awaiting them. Just as a brush needs a painter to bring it into action, so too does this land require someone to make use of it.

“Small” Town: Although Detroit is one of the largest American cities, it retains an attitude of a “big city, small town.” When someone starts a business in New York or Los Angeles, it’s easy to get lost in the shuffle. Here, new businesses stand out and we take notice, welcoming newbies with open arms and celebrating their entrepreneurial fire. Because of this, it’s often easier to get face time with head honchos here than it would be elsewhere, which makes your business’s goals more quickly attainable.

Something Bigger: It’s rare to be in the right place at the right time, but when you are, the sparks just seem to ignite out of thin air. At this moment, Detroit seems to be “right,” as it’s experiencing a truly fresh start through revitalization. It’s not just an up-and-coming downtown center that’s drawing talent; it’s the chance to help change the landscape of a region that is in dire need of it and the opportunity to make a long-lasting impact. Being a part of something bigger than oneself is special and adds another layer of importance to anything your company does. Instill a sense of purpose—and pride—in your employees by being a part of something meaningful. Put passion first, and dollars will follow.

Yes, Detroit is in a sense wide open, awaiting those who want to take advantage of opportunities for growth. Yes, the city has much room for improvement in a variety of areas, many of which have long been ignored. No, that doesn’t mean it’s a blank canvas, and it definitely doesn’t mean we should refer to it as such. Instead, we need to realize we have the once-in-a-lifetime chance to make a noticeable brushstroke on a canvas whose final version affects us all. Let’s seize it.

Josh Linkner is a five-time entrepreneur, venture capitalist, professor, and New York Times best-selling author of Disciplined Dreaming—A Proven System to Drive Breakthrough Creativity.  You can read more at @JoshLinkner

Retooling the Manufacturing Community through Technology

This article was sent to me by a fellow student, and I feel it explains exactly how I hope this project will aid in recovering the economy of Detroit, and ultimately revive the city into a new digitally driven manufacturing hub.

In the article Bruce Katz states “Economy shaping is going to require a new kind of placemaking.  Placemaking has been focused around quality places and liveable places, which is very important to attract and retain talented workers.  But the urban planning field has been too narrowly focused on placemaking.”

The goal of my project is not to create some new great place for people to come and go as they please. The project is designed to engage people in a fundamentally different way. It is going to draw them in not through the beauty of the architecture, but through the substance it provides. The innovation, the creativity, the aura are the essential elements that keep people coming back. The idea is not to create a place that is flashy and is the talk of the town for a couple of years until the next big thing comes along. The idea is to create something that truly progresses the norm. Something that transcends current comprehension and opens up new doors that no one knows exists.

For this reason, the project is located in building that currently exist, buildings that have been neglected for thirty years.  The project adapts these building to create spaces and architecture that does more than provide a place for people to come.  It provides a place for people to learn, to collaborate, to adapt and to transcend themselves into new discoveries.

The future of Detroit does not lie in new casinos or sporting complexes.  The future of Detroit lies within its people and their ability to adapt to the ever changing world.  The future of Detroit lies within its economy and its ability to adapt to new technologies and industries.  The future of Detroit lies within its people to create something truly transcending.

Bruce Katz: Better Economic Structure Will Save the City


“Monument to Joe Louis,” Detroit’s iconic sculpture. Photo: Dogs New Clothes/Flickr

Bruce Katz sees the future of our cities a little differently than his fellow urbanists.

Katz, the founding director of the Brookings Metropolitan Policy Program, believes optimizing economic structure, not urban form, is the key to revitalizing depressed cities and strengthening thriving ones. It’s a departure from the thinking of many colleagues, who believe revitalization based on pretty buildings and the service sector will attract business.

The way Katz sees it, cities have gotten their forms down pretty well. Most of them have done a good job optimizing density, emphasizing greenspace and generally making things more attractive. But economic development has too often focused on what Katz calls “Starbucks and stadia.”

There is a legitimate case for service-sector communities, he argues, but it is far wiser to embrace tech, manufacturing and exports. This would bring more shared and sustainable growth as cities shift from consumption- and service-reliant economies toward economies built on innovation and production. You’re suggesting cities take a fundamentally different approach to urban development than has been the norm. Who’s actually doing it?

Bruce Katz: New York. If you look at New York right now, what Mayor [Michael] Bloomberg focused on for the last decade was building stadiums for use in the Olympics. That has changed to focus on the applied sciences and attract Cornell [University] and other institutions to build and diversify New York’s economy from the service and financial sectors of the economy. What other cities are embracing this model?

Katz: In other cities and regions, such as northeast Ohio, they are focused on retooling the industrial sector for the green economy because they are a powerhouse for manufacturing. This builds on their history, including the automotive industry. Seattle has the potential to be a hub of big, clean information technology due to the firms already in the region, such as Microsoft. Has the recession played a role in this?

Katz: Since the recession cities are now moving away from the service and real estate sectors and starting to look toward the tradable economy for sustained growth. These are the wealth-generating sectors that drive everything else. Without them you do not have a functioning retail or housing sector. We are trying to work with cities on identifying their strengths and how they focus on moving their economies toward this model of development. During the last 30 years cities have focused on creating places and on the urban form. Is what you’re suggesting so different an approach?

Katz: Yes, but urban form is critical to this. Economy shaping is going require a new kind of placemaking. Placemaking has been focused around quality places and liveable places, which is very important to attract and retain talented workers. But the urban planning field has been too narrowly focused on placemaking. Meaning?

Katz: You can’t just focus on housing and transit in the core of a city, you need to focus on the physical needs of manufacturing, development and the needs that go along with them. That will clearly have a huge effect not only on the city but regional level. How so?

Katz: On the city level, it will create what we call innovation districts. If you take the major research institutions and tech clusters that are being created, how do you take them and arrange them in a purposeful way with mixed use housing and amenities that attract talent but work for industry? Boston is doing this and Barcelona is clearly doing this. San Francisco and Detroit are doing this also. These cities are creating places that let all of these sectors work in a derivative way and form starting at the economic level. By doing this the form follows these sectors that drive wealth. San Francisco and Detroit are two vastly different cities in two different regions, culturally and economically, especially with regard to tech…

Katz: I am actually very bullish on Detroit. If you look at the Woodward corridor downtown to midtown, what you see is the growth of some tech-oriented industries with Quicken Loans and Compuware and Henry Ford Medical and Wayne State. What you have are some major institutions being the platform of both residential growth, which is happening, but also the growth of business incubators. I think the core of Detroit, with focused public and private sector investment, could be very different. You also have the added bonus of seeing Canada from Detroit. Having our largest trading partner bordering the city is a big advantage, and one that hasn’t been exploited. The growth from that in the way that we see in Europe across national lines could really change how Detroit grows in the future. Not to dwell on Detroit, but do you think it could be the next tech city?

Katz: Detroit has the possibility to do that, yes. Detroit also has some real problems that need to be addressed, but with what is going on there the entire core could be an innovation district. What needs to happen for cities like Detroit to rebound?

Katz: The cities that will flourish are the ones that are on the vanguard of policy. Historically, New York and Chicago have the ability to adapt and flourish because large cities are essentially co-governed. Private capital and institutions work with city governments to create physical forms and policies that perpetuate this type of growth. But can Detroit become Silicon Valley?

Katz:The tech we should focus on is not just Facebook tech or Google tech but rather manufacturing tech, green tech. If we don’t focus on this we will see ourselves in 50 years having lost our economic advantage and loose our place in the world. This is well within our grasp. We have the ability to be the leaders if we just focus our attention. This is not just about advanced telecommunications. That it is part of it. But most of our new patents come form manufacturing. We need to stay on the forefront of this. You’ve mentioned things like public investment, smarter policy and the need for more government involvement. Given the current political climate, is this possible? Can we even have the discussion?

Katz: If you really want smart cities, you do not want government to get of the way, you want it to get into the game. You can really integrate technology across places and spaces throughout cities if the government is working with the tech sector to make it happen. It takes local political leaders and private capital to make it happen. The federal government is very disconnected from this. The cities are the engines of the economy. It is not Ben Bernanke who will do this, but cities supporting their key industries.