Essay(400 words)

A STRUCTURAL DIAGNOSIS AND PRESCRIPTION FOR DETROIT’S FISCAL CRISIS: RESPONSE TO WILLIAM

TABB’S ‘IF DETROIT IS DEAD, SOME THINGS NEED TO BE SAID AT THE FUNERAL’

GEORGE GALSTER Wayne State University

INTRODUCTION

William Tabb provides a valuable commentary. His overarching point that Detroit’s woes are symptomatic of decisions made well outside the city limits is a supremely valid and invaluable one. It is indeed the “rules of the game” that the federal government and Michigan have established that provided a context for as well as (in some cases) a cause of Detroit’s problems. From this vantage point, Tabb focuses on the relatively recent events that led up to Detroit’s most recent fiscal crisis, such as the subprime lending-fueled housing bubble followed by rampant foreclosures. Unfortunately, he gives insufficient emphasis to the half-century-old forces that have persistently and systematically undermined the city’s quality of life and financial health. He also does not offer a clear way forward out of the plight he so well describes.

In my view, three structural factors must be emphasized in an analysis of the long-term roots of Detroit’s fiscal plight:

1. The mass suburbanization of first the industrial and then retail and commercial tax base. 2. The perpetual construction of homes on the metropolitan fringe in excess of household forma-

tion. 3. The retrenchment of federal and state revenue sharing.

In this response I briefly describe these three forces and present a sketch of a policy response to alter the structural “rules of the game” that have historically and will continue to generate them.

SUBURBANIZATION OF ECONOMIC ACTIVITY

The auto companies were the shock troops of Detroit’s post-war job dispersal (Babson, 1986; Sugrue, 1996), driven by the new land-extensive plant technologies and the growing use of truck transport via limited access highways. In the 1950s, Detroit’s auto companies built 25 new plants in southeast Michigan; none were in the City of Detroit. From 1950 to 1956, 124 other manufacturing firms located in the suburbs; 55 moved out of Detroit to do so. During the 1950s alone, 840 manufacturing plants in the city closed (Hyde, 1980).

The magnitude of this dispersal of employment from Detroit to its suburbs is nothing short of staggering. Of the 333,000 manufacturing jobs located in the city in 1947, less than 10%— only 23,000—remained by 2007. By contrast, the suburbs of metropolitan Detroit had 189,000 manufacturing jobs in 2007. Between 1970 and 2000 alone, the number of jobs in Detroit’s

Direct correspondence to: George Galster, Wayne State University, Department of Urban Studies & Planning, 656 W Kirby, 3185 Faculty Administration Building, Detroit, MI 48202. E-mail: [email protected].

JOURNAL OF URBAN AFFAIRS, Volume 37, Number 1, pages 17–20. Copyright C© 2015 Urban Affairs Association All rights of reproduction in any form reserved. ISSN: 0735-2166. DOI: 10.1111/juaf.12175

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three-county suburban ring grew 2% per year, on average, while jobs in the city declined by 2% annually on average. This means that today over three-fourths of all the region’s jobs in retail and wholesale trade, construction, finance, insurance and real estate, business and repair services, per- sonal services, and professional services—as well as manufacturing—are located beyond the city limits (Farley, Danziger, & Holzer, 2000; Galster, 2012). All of these potential sources of property and income tax revenues are beyond the grasp of the City of Detroit.

EXCESS SUPPLY OF HOUSING BUILT IN THE SUBURBS

During every decade since 1950, regardless of whether the number of households grew a little or a lot, the tri-county Detroit region’s developers built many more additional dwellings—an average of over 10,000 per year—than the net growth in households required. Developers built this perpetual excess supply since 1950 because they could make a profit; their new suburban subdivisions could win the competition for occupants against the older housing stock located in more dangerous, more deteriorated, lower-status neighborhoods. Almost an equivalent number of dwellings were rendered redundant by this excess supply, minus those relatively few lost due to highway construction or retail and industrial development. Some of these redundant dwellings were converted to non-residential uses, but the bulk were vacated and eventually abandoned by their owners. Typically after years of increasing deterioration, many of these abandoned dwellings were demolished or left to arson or rot. The stock of dwellings in Detroit consequently has fallen by an annual average of almost 4,000 since 1960 (Galster, 2012, Ch. 9).

This process has systematically stripped value from homeowners in core neighborhoods. From 1970 to 2000 the median value of owner-occupied homes in Detroit, adjusted for inflation, fell 8%, from $67,000 to $62,000. During the same period, median home values in Detroit’s suburbs rose 50%, from $94,000 to $142,000 (Goodman, 2005). The national mortgage market meltdown since 2007 hastened the downward slide of property values, not only in Detroit but in its suburbs as well. During 2009, the average price of a home sold in the City of Detroit was less than $13,000.

In 2009, the city completed a survey of all 343,000 residential parcels within its borders. The results quantified what was obvious to the casual observer: 27% (over 90,000) of the residential parcels in the city are vacant land; another 3% (over 10,000 parcels) have houses that are vacant and open for trespass. Thus, nearly a third of Detroit’s residential parcels have been wiped out by the excess housing supply built in suburbs; another 10% of the parcels (roughly 33,000) have dwellings that currently are vacant and may soon be abandoned.

FISCAL RETRENCHMENT BY FEDERAL AND STATE GOVERNMENTS

The combined effects of non-residential property suburbanization, population loss, property value deflation and abandonment have wreaked havoc on the city’s property and income tax bases. The aggregate, inflation-adjusted value of properties in Detroit has fallen 79% since its peak in 1958. Despite two rate increases, the inflation-adjusted value of aggregate income tax revenue in Detroit has fallen 76% since its peak in 1972.

To make matters worse, revenue sharing from both federal and state sources has shrunk dramati- cally. Since 1974, the federal government has distributed through its Community Development Block Grant program some of its revenues to local governments through a need-based formula. Sadly, the program has long been woefully underfunded: less than $3 billion for the nation currently, which represents only a sixth of Detroit’s accumulated debt. Even worse, Washington has been moving in the wrong direction—CDBG has borne an inflation-adjusted reduction of 46% since 2003 (Rohe & Galster, 2014). Michigan enacted its own revenue sharing program in 1971, but it, too, has become a trivial source of fiscal equalization. The inflation-adjusted value of Michigan revenue sharing to Detroit has declined by two-thirds since 1998 and now comprises a paltry $75 million contribution to the city’s budget.

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CHANGING THE RULES OF THE GAME

What would it take to change the structure that has led to Detroit’s decline? Any serious solution must address the aforementioned roots of the process:

1. Manufacturing, residential, commercial, and retail interests that find it more advantageous to build on vacant land at the suburban fringe.

2. Localized tax bases resulting in fiscal disparities across localities that serve to reinforce household and retail demands for suburban locations.

3. Excess suburban housing construction that has left residual concentrations of poverty and dilapidation in the City of Detroit that also serve to reinforce household and retail demands for suburban locations.

Ferreting out and eradicating these structural roots obviously requires a coordinated, region-wide solution; this must originate at the state and/or federal levels of government.

Such a state-federal initiative should embody three necessary components:

� A regional growth boundary, past which building permits would not be issued and infrastructure would not be extended.

� A robustly-funded, progressively redistributed intergovernmental revenue sharing scheme. � A holistic “inclusionary” housing scheme, whereby both place-based and tenant-based housing

subsidies would be directed away from the City of Detroit and into suburban areas, inclusionary zoning would be mandated for new residential developments, and source of income would be added as a protected class under fair housing law.

These three components would work synergistically and all need to be enacted to counteract unin- tended side effects that each individually might generate. A growth boundary would force residential and non-residential development into the existing footprint of the metropolitan area, eventually re- purposing vacant acreage in the City of Detroit. This would help erase blight, rebuild the city’s tax base, and improve job and retail accessibility to the city’s needy residents. Fiscal equalization strategies would stop the downward spiral of the city’s “falling tax base–raise tax rates–drive out more tax base” regime. Resulting improvement in city services and employment opportunities would also help stanch the outflow of population. Improving access to affordable housing throughout the suburbs (not merely reconstituting poverty pockets there) would improve the opportunities for low income families to gain employment and raise children in safer, healthier environments with superior educational options. It would also encourage more mixed-income redevelopment of the city. The resulting reductions of concentrated poverty in Detroit would remove a prime motivator for middle- class flight, improve the quality of life for all Detroiters, rebuild the city’s fiscal capacity and service delivery, and alleviate fears of longtime Detroiters of being displaced by gentrification forces.

I am not suggesting that any of these necessary steps would be politically easy. On the contrary, I fear that in the current political climate in Michigan and the U.S. such proposals would be “dead on arrival.” Thus, I am left, ironically and soberly, trying to find solace in the official motto of the City of Detroit, written in the aftermath of the Great Fire of 1805: Speramus meliora; resurget cineribus (We hope for better things; it shall rise from the ashes).

REFERENCES

Babson, S. (1986). Working Detroit: The making of a union town. Detroit: Wayne State University Press. Farley, R., Danziger, S., & Holzer, H.J. (2000). Detroit divided. New York: Russell Sage. Galster, G. (2012). Driving Detroit: The quest for respect in the motor city. Philadelphia: University of Pennsylvania

Press. Goodman, A. (2005). Central cities and housing supply: Growth and decline in US cities. Journal of Housing

Economics, 14, 315–335.

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Hyde, C. K. (1980). Detroit: An industrial history guide. Detroit: Detroit Historical Society. Rohe, W., & Galster, G. (2014). The community development block grant Turns 40: Proposals for expansion and

reform. Housing Policy Debate, 24(1), 3–13 Sugrue, T. J. (1996). The origins of the urban crisis: Race and inequality in postwar Detroit. Princeton, NJ: Princeton

University Press.

ABOUT THE AUTHOR

George Galster is the Clarence Hilberry Professor of Urban Affairs at Wayne State University. Galster has held positions at the Universities of: Harvard, Berkeley, North Carolina, Amsterdam, Delft, Glasgow, Mannheim, Oslo, and Western Sydney, among others. He served as Director of Housing Research at the Urban Institute before coming to Wayne State University in 1996. His research has focused on urban neighborhoods and housing markets, exploring how they change and how they change the people who live within them. This has resulted in over 130 peer-reviewed articles, 30 book chapters and seven books. His latest book is Driving Detroit: The Quest for Respect in the Motor City (2012). He has provided housing policy consultations to public officials in Australia, Canada, China, Scotland, and the U.S. He earned his Ph.D. in Economics from MIT.

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