National Post (National Edition)
Detroit’s reversal of fortune
CITY WAS ON VERGE OF CHANGING GENERATIONS OF STRUCTURAL RACISM AND POVERTY. THEN THE PANDEMIC HIT.
Its burnt-out buildings were once a bigger tourist attraction than its art museum, and in 2013 Detroit went bankrupt. Yet by last year it had been transformed, with a revived downtown filled with jobs and pricey condominiums — one of several fading industrial cities across the U.S. rust-belt that had managed to breathe new life into their economies.
Attracted by low costs, light traffic and architectural masterpieces left over from when these were boom towns, millennials priced out of markets on either coast moved to old industrial cities. They opened cafés and bakeries and pop-up restaurants and art galleries, often with startup incentives they couldn’t obtain elsewhere, creating Midwest cultural and lifestyle hubs in some of the grittiest cities on Earth.
Now that whole process is in jeopardy. Some of the rustbelt cities are among those places hardest hit by the coronavirus pandemic that has killed more than 100,000 people in the U.S. and which is shattering economic optimism and throwing thousands out of work in cities such as Detroit, the original Motor City.
“(Coronavirus) may have wiped 10 years of progress off Detroit in just two months,” says Amy Liu, director of the metropolitan policy programme at the Brookings Institution think-tank and an expert on Midwest cities, who says as many as half of small businesses are at risk. “The public health crisis will come and go for at least 18 months. Things will not just be bouncing back to normal.”
In recent days cities across the U.S., including Detroit, have faced some of the worst nationwide rioting in decades after protests over police brutality against African-Americans turned violent. The protests were sparked by the death of George Floyd, at the hands of police in Minneapolis on May 25. Black leaders in Detroit and some other cities have said much of the violence was committed by white protesters from the suburbs, highlighting the complicated racial dynamics that pose a further challenge to the rust-belt’s revival.
COVID-19 hit Detroit just as it was trying to “reverse generations of structural racism and poverty” in mostly African-American neighbourhoods, says Liu. “There was a deep, deep awareness that the early renaissance was not reaching all people in all neighbourhoods. So it’s a setback.”
The burden of the pandemic has fallen hardest on exactly those people: poor African-American households with a high incidence of pre-existing conditions such as heart disease, diabetes and asthma, exacerbated by poverty, poor nutrition and lack of access to medical care. More than 40 per cent of Michigan’s COVID-19 deaths have so far been African-Americans, three times the percentage of black people in the state.
So acute is the poverty that when the virus began to stalk Detroit in early March, thousands of mostly non-white residents lacked even that most basic amenity to fight it: clean water for handwashing. And although the city and state governments moved swiftly to get those with large unpaid water bills reconnected, the city rapidly became a COVID-19 hot spot. Wayne county, which includes Detroit and has a population of just 1.7 million, is fifth in the U.S. league table for coronavirus deaths, trailing only counties that include the much larger cities of New York and Chicago.
“One of the things we always said was ‘we can’t take our foot off the accelerator’. We had great momentum,” says one property developer involved in the city’s revival. “But this city is only in the second inning. How will (downtown) retailers survive if people keep working at home for extended periods?
“Every single thing we pushed was about being together, and now the direction is going to be the opposite,” he adds. “I am very worried.”
Experts from industry, finance, government, philanthropy and academia — who have studied the city as a model of rust-belt revival — agree that the next few months, and even years, will be financially difficult.
More than 40 per cent of Detroiters who had jobs before the pandemic struck have since lost them — many on a permanent basis — according to a University of Michigan survey. It estimates the city’s unemployment rate now stands at 48 per cent — more than twice the official state level and up from 11 per cent before the pandemic, according to the study’s authors.
In April, S&P Global Ratings revised its outlook on Detroit debt to negative — making it potentially more difficult and expensive for the city to borrow — on pandemic concerns. And many of the new startups that gave Detroit its unlikely rustbelt charm may never reopen even after the city ends its lockdown, most probably sometime this month.
But Detroit will be far from alone in suffering serious pandemic damage. And it may be better placed to recover than others, partly because it has already had “practice” from overcoming bankruptcy.
The city emerged in 2014 from what was then America’s largest municipal bankruptcy after restructuring US$7 billion in debt and putting its finances under state oversight. Several of the city’s richest philanthropic foundations and other private entities provided funding to help, and urban experts point to a tight public-private coalition as critical to the deal. By 2015, the city had achieved a balanced budget for the first time in more than a decade, and in 2018 it was released from state financial oversight. But if the city budget goes back into deficit, Detroit will come under state financial oversight again.
“The advantage Detroit has is that we have been down this road before, there is a playbook that we have that other cities don’t,” says Wendy Lewis Jackson, managing director of the Detroit program at the Kresge Foundation, one of the city’s largest philanthropic backers.
It is a view echoed across the city. Other experts point to Detroit’s highly rated mayor, Mike Duggan, strong municipal and corporate leadership and the unwavering commitment since the bankruptcy of philanthropic institutions funded with old Detroit money as reasons for optimism.
The importance of the public-private partnership that has driven Detroit’s recovery was demonstrated within days of the pandemic outbreak when the city quickly set up a drive-thru COVID-19 testing site with booking services provided by Quicken Loans, the company founded by Dan Gilbert, who is seen as the single biggest corporate driving force behind Detroit’s rebirth.
“You are dealing with a community that is used to taking hits. This isn’t new, it’s just worse,” says Pam Lewis, head of Detroit’s New Economy Initiative, set up by philanthropists such as the Ford and Kresge Foundations to help drag the city’s economy into the 21st century. “There has been loss of life, there will be loss of businesses, but people will come through it.”
Peter Scher, head of corporate responsibility at JPMorgan Chase and architect of its planned US$200 million investment in the city by 2022, says Detroit’s regeneration leaves it much better prepared to handle the crisis than it would have been had it hit in 2012 or 2013.
“Now you have the institutional capacity on the ground,” he says. “(There is) a sense of shared purpose and shared focus across the business community, government and civic leadership, that didn’t exist to the same extent (back) then.
“I don’t want to minimize the impact of this (pandemic) but I look at a lot of cities around the world and I think Detroit is as well positioned as any of them,” adds Scher. “I think it will continue to be one of the great American comeback stories.”
There could even be a silver lining to the crisis, say experts, for the less densely populated cities of the Midwest where commuting by personal car is still the norm, public transportation is used only by those with no alternative, and where living well costs far less than on the coasts. Cities such as Pittsburgh, Indianapolis and Cleveland could capitalize on the kind of smokestack cachet they gained before the pandemic hit.
“People are pulling out of big cities. Will the middle of America now be seen as more attractive than it was prior (to this)?” asks Becky Frankiewicz, president of ManpowerGroup North America, a recruitment company. She points to a recent Harris Poll saying nearly one-third of Americans are now considering moving to a less densely populated area.
Equally, some believe the pandemic-induced recession could ease overheated property markets in rust-belt cities.
“High housing prices were becoming a barrier to attracting people from other markets because cities like Indianapolis and Detroit were no longer the deal they once were,” says Aaron Renn, publisher of Heartland Intelligence, a cultural and economic newsletter about the Midwest. “You used to be able to buy a house in Detroit for $100; now it can be several hundred thousand dollars. Detroit attracted creative people because it was essentially free to live there. That’s not true any more.”
“The Midwest won’t necessarily be hit worse than anywhere else in the U.S.,” he adds. “It’s not Orlando, a tourism-dominated economy, or even Nashville, which has made a huge investment in hotels.” But there will be a “restaurant blowout”, and that could hit the reviving neighbourhoods.
Many startups — which have had help from local foundations and government schemes during the crisis — believe they can survive. Détroit is the New Black, a trendy fashion brand on the newly resurrected main drag and also the city’s unofficial motto, says it plans to reopen once the lockdown has been lifted. Gwen Jimmere, founder of Naturalicious, an African-American hair care brand, responded to supply chain problems by shifting to making hand sanitizer during the lockdown. “I am 100 per cent confident we will survive the pandemic. In fact, sales are up,” she says.
Places such as Cleveland, Columbus and Cincinnati in Ohio “have had really explosive growth in core neighbourhoods in the last 10-15 years ... and some of that will come back pretty easily,” says David Stradling, an urban historian at the University of Cincinnati. Those who started the rustbelt foodie wave “won’t lose their entrepreneurial skills or their ability to cook”, he says. “I don’t think coronavirus will adversely affect the Midwest any more than it adversely affects other regions.”
Yet many Detroiters are worried that the pandemic could reignite racial tensions between the city — where four-fifths of the population are African-American — and white working-class residents in nearby suburbs.
“This risks being another scarlet A on the African-American community,” says John Austin, an economics lecturer at the University of Michigan and director of the Michigan Economic Center, in a reference to the 19th century novel The Scarlet Letter.
“The subtext, once again, is ‘blacks wrecked the city’. With the anti-leadership of (President Donald) Trump, there is more white-working class resentment and the pandemic’s disproportionate impact on black communities may give whites another reason to justify racist attitudes, and why they should fear African-Americans,” he says.
The city has ambitious plans to revive poor black neighbourhoods that have so far seen none of the new prosperity in the wealthy downtown and midtown areas, but those plans could be delayed or derailed by the crisis.
The pandemic has devastated municipal finances, forcing the city to draw down half of its US$100 million “rainy day fund”. In May, the city council passed deep cuts to balance the budget because of a projected US$194 million revenue shortfall for this fiscal year. “We need to make sure that we don’t fall into the trap of bankruptcy again,” says Jackson of Kresge.
But, says Liu, “Detroit is going to go through the next recession with a lot more assets in place than during the previous recession. The one thing I learnt from places like post-(Hurricane) Katrina New Orleans is that the bulk of the battle is whether you have the ability to bring the community together and execute in a crisis. There is a lot more capacity in Detroit for recovery than in 2008.”
ONE OF THE THINGS WE ALWAYS SAID WAS ‘WE CAN’T TAKE OUR FOOT OFF
THE ACCELERATOR’. WE HAD GREAT MOMENTUM. BUT THIS CITY IS ONLY
IN THE SECOND INNING. HOW WILL (DOWNTOWN) RETAILERS SURVIVE IF
PEOPLE KEEP WORKING AT HOME FOR EXTENDED PERIODS? — DEVELOPER