Detroit: After bankruptcy, then what?July 24, 2013: 11:40 AM ET
A solution would be to merge the city and surrounding counties into a consolidated metro government. Unfortunately, city and suburbs get along like Hatfields and McCoys.
By Alex Taylor III, senior editor-at-large
FORTUNE -- Speed records were set in 2009 when General Motors (GM) and Chrysler zipped through government-sponsored bankruptcies. By the time the final details were negotiated -- a matter of weeks -- the future of GM, and to a lesser degree Chrysler, seemed assured. With fewer employees, dealers, brands, and debt, both companies got a fresh lease on life. In a stroke, their cost structures had been made competitive and, with their basic engineering and design skills intact, both were launched solidly on the road to success.
Getting the city of Detroit through bankruptcy will take far longer -- experts say a year and a half or more -- and be far messier, as retired city workers fight over pensions and health care while local politicians cede power and privileges to bankers and creditors. What's worse is the lack of any future benefit from all the pain. As it stands, the post-bankruptcy future of Detroit looks no brighter than its immediate past. So far, no one has presented an economic vision for a prosperous Detroit that seems remotely doable.
Since the 1967 riots that left dozens dead, there have been several well-intentioned and solidly financed efforts to lift Detroit back to its post-World War II prosperity as America's Motor City. Yet none has been enough to stem the counter-forces of industrial decline, dysfunctional government, and depopulation. Today, the city of Detroit features a moderately attractive downtown that is surrounded in three directions by acres of decrepit or abandoned housing, abandoned factories, and empty lots (on the fourth side is the Detroit River). In all, Detroit has 20 square miles of vacant land, roughly equal in size to Manhattan. There simply aren't enough visitors or commuters, much less tax-paying citizens, to blunt the perception that Detroit is on the way to becoming a ghost town.
Here and there, clumps of activity, such as Wayne State University and the Detroit Medical Center, remain and even thrive, but they struggle to push back against the blight that surrounds them. Bankruptcy will only make things worse. The vitality of these neighborhoods will deteriorate as the city lays off employees and retreats farther from essential services like police protection and garbage pickup. The malaise of financial distress envelopes the city like a thick fog. The protracted process of stiffing creditors on the one hand and scratching for new sources of revenue on the other is not going to be anyone's idea of a positive economic or social environment.
But even after Detroit emerges from bankruptcy, then what? Various ideas and schemes have been floated to revive the city, such as when Henry Ford II built the Renaissance Center on the banks of the Detroit River in 1977. Ill-conceived, the complex of office, hotel, and retail space failed to attract tenants, shoppers, or tourists, and was subsequently sold at a bargain price to General Motors in 1996.
Optimists like to point to the energy and vision of Dan Gilbert, founder of mortgage provider Quicken Loans, who has bought 15 downtown buildings over the past few years and moved 7,000 of hiss employees into them. Gilbert's vision is for a kind of techno-community, built on a foundation of cheap real estate in trendy, gritty downtown neighborhoods, and populated by engineers, software designers, and entrepreneurs. But what Gilbert needs to move his activities from the philanthropy column into the investment category is more people who aren't on his payroll to fill all that empty space. One need only venture out on a deserted city street after 5 p.m. to see what a struggle that will be.
Another, more fanciful scheme was hatched by a group called Detroit Works Project after "hundreds of meetings, connection with people over 163,000 times, and over 30,000 conversations." Its glossy "Detroit Future City" report envisions the city leading the world in developing landscape infrastructure that turns freeways into "linear carbon forests" and in getting residents to reuse vacant land by growing their own food. Its Rousseau-like vision of Detroit in 2030 sees "stately boulevards, open green space, urban woodlands, ponds and streams." The report represents a brave attempt to face up to Detroit's shrinking population, but its recommendations seem like a poor match with the skills and proclivities of the current population.
Detroit needs to connect with those people and that wealth to survive. The solution would be to merge the city with the surrounding counties of Wayne, Oakland, and Macomb, an area already known as Metro Detroit, into a consolidated city-county government. Doing so would spread the costs of police, fire, schools, and other municipal services, allowing those brave urban pioneers who want to relocate in the city to do so with less sacrifice. If the entire region was treated as one economic entity, then Detroit could make better use of its competitive advantages -- access to the Great Lakes and Canada, a strong presence in medical and information technology -- without having to struggle with the efficient delivery of services that has proved so elusive.
Unfortunately, Detroit and its surrounding counties get along like the Hatfields and the McCoys, the gap between them not only political and financial, but also racial. They have been fighting for years. The chance of them coming together to rescue Detroit after decades of decline is remote.
Detroiters must now face the prospect of at least 18 months of bankruptcy hell. It would be reassuring to see a payoff at the end, but it is hard to visualize what it might be. It is as if the city has come to the end of its usefulness and is now slowly being discarded. The idea of Detroit -- Motown -- will remain, but the physical reality will be little more than a husk.