Bloomberg News

Detroit Leaders Escape to Resort With Crisis as Uninvited Guest

June 01, 2012

Detroit’s business and political leaders gathered at a Mackinac Island resort this week to revel in the return of an IndyCar race, a new Whole Foods Market Inc. (WFM:US) store in the city and a job surge downtown that’s made leased parking spaces scarce.

Less thrilling to the 1,500 people at the annual policy conference of the Detroit Regional Chamber at the 125-year-old Grand Hotel -- and less discussed -- was the lingering financial crisis in Michigan’s largest city. Two months after a state takeover was averted, a new nine-member oversight board still lacks three members that the City Council is supposed to appoint.

“It’s appalling,” said L. Brooks Patterson, the chief executive of suburban Oakland County. “They think if they ignore it, it will go away, that’s been their attitude all along. We’re at a crisis point here.”

While strong auto sales drive Michigan’s resurgence, Detroit’s governance is a lingering headache that has some wondering whether a state takeover -- or bankruptcy -- is inevitable. A takeover would trigger turmoil in a mostly black city with a history of conflict with the predominantly white state government. Bankruptcy might hurt both the image and bond ratings of a region that’s home to the U.S. auto industry.

Necessary Steps

“I am 1,000 percent confident that the problems the city faces can be managed,” said Conrad Mallett Jr., a member of the state review team that in March recommended intervention to solve a $265 million deficit and deal with long-term debt topping $12 billion. “What I am not confident in is the current executive leadership is going to take the steps necessary, in cooperation with the state, to confront those problems.”

Mallett, executive vice president of the Detroit Medical Center, said he was taken aback that Mayor Dave Bing let the city’s top attorney challenge the legality of the agreement that Bing approved.

Naomi Patton, the mayor’s spokeswoman, said yesterday that the city’s corporation counsel, Krystal Crittendon, acted on her own authority under Detroit’s charter.

Bing, 68, said yesterday that he and the council are starting to get control of spending. He said he was surprised when he took office in May 2009 by the depth of Detroit’s financial abyss.

“People are waiting for change right now,” the mayor said during a panel discussion. “We’re going to be able to do things much faster than we were in the first couple of years.”

Better Atmosphere

Statewide, the economy is improving.

Michigan’s unemployment rate dropped to 8.3 percent in April after peaking at 14.2 percent in August 2009 during the longest recession since the 1930s. That compared with an 8.1 percent national rate.

The state was second only to to North Dakota in economic recovery from the fourth quarter of 2010 to the fourth quarter of 2011, according to the Bloomberg Economic Evaluation of States.

Still, Detroit’s persistent urban struggles were an undercurrent at the conference 280 miles (about 450 kilometers) north of the city on an island that bans motorized vehicles in favor of bicycles and horse-drawn carriages.

At a forum on how Detroit can overcome its decades of economic decline, former Washington D.C. Mayor Anthony Williams said the council’s delay in appointing oversight board members was “ridiculous.”

Councilman Gary Brown said May 30 that the remaining three board members may be appointed next week. The panel must concur with the mayor and council before Detroit’s budget can be approved.

Emptying Out

Bing, who has 18 months left in his term, said he and the City Council have agreed on a plan that reduces spending by $250 million in the fiscal year that begins July 1, and will cut about 750 jobs in addition to 1,800 that will be eliminated by June 30.

The mayor said he’ll work under an agreement with the state that calls for eliminating the city’s deficit in five years.

Republican Governor Rick Snyder pledged to a conference audience that he’d help Detroit, where 40 percent of streetlights don’t work, vacant lots are weed-choked and one- quarter of the population left since 2000.

The city’s agreement, which averted Snyder’s appointing an emergency manager, sets up a possible confrontation with municipal employee unions. In February, they agreed to concessions, and now must renegotiate what may be deeper cuts in pay and benefits.

Safe, Stable

The key to fixing Detroit is for the unions to cooperate in reducing pension liabilities too large for a shrinking workforce, said former Mayor Dennis Archer.

Archer said businesses are committed to Detroit, as evident in the new Whole Foods store and the planned relocation there of employees by Quicken Loans Inc. and other companies. Young people will move to the city if it’s stable and safe, Archer said.

David Zilko, 49, vice chairman of Garden Fresh Gourmet based in Ferndale -- it makes Garden Fresh salsa -- said Detroit faces a catastrophe without federal assistance and additional entrepreneurial growth such as urban farms. He said more immigration would fill emptied neighborhoods.

“It really depends on whether we have the political will and capability to do that,” Zilko said in an interview at the conference.

Changing Image

Angel Gambino, who lives in downtown Detroit, is co-founder of Nonopoly, a commercial-property developer. She said Detroit’s image is changing.

“People are curious,” Gambino said. “They’ll say things like, ’Oh, I’ve heard that there’s a really big, organic arts scene there.’ Or, ’I heard that the electronic music scene is really happening there right now,’ or they hear property is so cheap that people are coming in and doing really interesting things.’”

Gambino, 40, said the city needs bold changes, such as eliminating property or sales taxes. And she voiced what’s become a perennial theme at the annual conference:

“We need to diversify the economy a heck of a lot more.”

To contact the reporter on this story: Chris Christoff in Mackinac Island, Michigan at cchristoff@bloomberg.net

To contact the editor responsible for this story: Stephen Merelman at smerelman@bloomberg.net


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