On July 18, 2013, Detroit filed for a historic Chapter 9 bankruptcy, the largest city in America to ever do so. Once a very prosperous city, Detroit has seen a material decline in its’ population, from about 1.8 million in 1950 to about 700,000 residents today, nearly 20% of whom are unemployed. This huge decline can be attributed to not only a decline in manufacturing jobs and the automobile industry, but also Detroit’s public safety woes. Coupled with a decreasing tax base and an increasing debt burden, Detroit’s decision and policy makers ultimately drove themselves into insolvency. However, the City of Detroit is taking several measures to try and claw out of the mess they are in in hopes of returning them to the wealthiest US city per capita (again).

Now that Detroit is at its breaking point, the city's emergency manager Kevyn Orr has requested that the Detroits Institute of Arts collection will be appraised by New York auction house Christie’s. An estimate suggests that the collection would be worth well over $1 billion dollars and the appraisal is a crucial step in rebuilding the city and establishing a trust with creditors. Despite numerous denials from Orr and the museum leadership that the art collection will be sold, this has caused an outrage in the art community. Orr has commented that selling the cities assets is a last ditch effort. Detroit and its surrounding communities are actively seeking other means to bring the city back to life.

Detroit has been in economic hardship for decades but recently saw a turn for the better. Modest as they may be, there are sign of recovery starting to appear. This fiscal crisis may be exactly what Detroit needs, as a region once divided it’s finally starting to work together to better the city as a whole. Programs like I Am Young Detroit, Detroit Lives, and Detroit 4 Detroit are the product of ambitious locals trying to encourage the economical change Detroit needs. These volunteers are using every available commodity to them including the legacy of music in Detroit, the once thriving automobile industry, and especially support from the surrounding suburbs. If you look at the metropolitan area of Detroit, it shows great promise for the areas future. This area is home to huge assets including research universities, musical and creative talent, global airport, and riverfront access. According to the US Census Bureau, this economic area (Including Ann Arbor) is home to nearly 5 million people and has an economic output of more than $200 billion, ranking it as the 14th largest metropolitan economy. Some of the institutions located in downtown Detroit are the Institute of Arts, Wayne State University but most are in the surrounding suburbs containing Michigan State and University of Michigan. The urban area north of the city’s old waterfront is experiencing even more reinvestment. This 7.2 square mile area is more affluent, better educated, and more racially disperse than the rest of Detroit. More that 40% of the young adults who reside here are university educated. The urban center has more than 600 new companies and attracts 10.5 million visitors each year. In addition, Detroit remains the busiest border crossing between Canada and the United States drawing travelers and tourists all year round. The city has full intentions of building a new bridge to connect the two countries called New International Trade Crossing.

Although there is a fair amount of opposition, Detroit is also planning on building a new hockey stadium for the Detroit Red Wings. Along with the stadium, $200 million of retail, office, residential, and hotel buildings would be built. It’s expected to cost about $650 million altogether, over half of which will be paid by the private sector, mainly the Ilitch family, founders of Little Caesars Pizza and owner of the Red Wings and Detroit Tigers. The construction alone will create about 8,000 jobs for the construction of the stadium and surrounding buildings. Many other jobs will be created once the construction is complete. This would include retail and service jobs around the stadium. All in all, about $1 billion worth of revenue is expected in the coming years because of the project. Much of the land where this construction project will be built is currently abandoned and uninhabited. Although much of the population has migrated to the suburbs, Detroit is expected to have more traffic in the coming years. Right now, it is the epitome of ‘buy low, sell high.’ Spaces to operate a business are low to invest in right now. It is a prime city for startup entrepreneurs. Michigan eliminated a 4.95% tax on small business in 2007. They are also trying to slowly phase out property taxes. There is an enormous amount of unemployed college grads looking for work and many travel to Detroit. The future of business in Detroit has the potential to skyrocket.

Although Detroit has some viable options to fix their financial issues, there are some options that bring up ethical and political problems. First, in the city’s annual report for the period ending June 30, 2012, there is mention of restructuring city employees’ contracts. A city financial board approved a 10% wage reduction, changes to health care coverage and a decrease in the pension multiplier to 1.5 for certain city employees. It seems that these city employees have undeservingly been placed with a burden due to Detroit’s financial issues that the employees had nothing to directly do with. Targeting certain city employees because of someone else’s mistakes raises some ethical red flags.

Second, in August 2012, Detroit issued another $130 million in bonds to retire short-term debt obligations, while already being consumed by debt and facing a $330 million budget deficit. Debt can be a good thing for a business (city), but not one approaching bankruptcy and facing such massive deficits. Alternative solutions could have been sought to avoid taking on even more debt obligations while already nearing insolvency.

Bibliography

http://money.cnn.com/2013/07/26/news/economy/detroit-bankruptcy-arena/index.html http://www.npr.org/templates/story/story.php?storyId=209512307 http://www.michiganbusiness.org/
http://money.cnn.com/2013/07/23/smallbusiness/detroit-bankrupt-entrepreneurs/index.html?iid=EL#TOP