Detroit shows improvement, promise 1 year out of bankruptcy

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Posted: Dec 09, 2015 10:28 AM
Detroit shows improvement, promise 1 year out of bankruptcy

DETROIT (AP) — A year after its exit from a brief but embarrassing bankruptcy, Detroit suddenly has something it long lacked: money to spend.

After paying down debt and other expenses, the city's budget is projected to have a $35 million surplus for the fiscal year that began July 1. That's a major improvement from a few years earlier when it often struggled to find the money for worker paychecks.

Thursday marks the anniversary of the end of Detroit's bankruptcy, and changes are noticeable across the city.

So far, the city has met all the targets it agreed to under the bankruptcy, such as developing a four-year financial plan and reaching a collective bargaining agreement with a major union. As a result, a bond rating service upgraded Detroit one notch this year, citing income tax growth and other improvements.

"Looking back, most people would be remarkably surprised at the progress the city's made," state Treasurer Nick Khouri said. "... These are the best of times right now for the economy. When we're doing long-range budgets we have to understand and try and plan for the bad times, not just the good times."

The city earlier this year submitted its first balanced budget in more than a decade. Residential development near downtown and a new professional hockey arena are coming.

However, not everywhere has enjoyed Detroit's post-bankruptcy boom.

On Monday, bags of dumped trash and discarded furniture lined a street in an east side neighborhood. The houses were abandoned three years ago and have been falling apart ever since.

Ronnie Williams, a resident of the neighborhood since the 1960s, raked leaves in an empty lot and recalled better times, when a family lived in every home on the block.

"I don't think the city is digging in hard enough," Williams said.

Through bankruptcy savings and leveraging of federal and private funds, Mayor Mike Duggan's administration since May 2014 has torn down about 7,100 of an estimated 40,000 vacant houses and auctioned off another 500.

The city was insolvent in July 2013 when then-state appointed emergency manager Kevyn Orr filed for Detroit's historic bankruptcy.

"I've been very impressed with the mayor's energy, creativity and commitment," Judge Stephen Rhodes, who presided over the bankruptcy case, told The Associated Press. "He invites people to judge him on one criteria — and that's if people move back into the city. He is just what the city needs at this moment in its history."

While the city's population of around 680,000 is barely a third of what it was in the 1950s, the exodus seems to be leveling off. The city only has lost about 30,000 residents since the 2010 census.

Duggan has said the city needs to become cleaner, safer and more efficient to be able to lure new residents and businesses, while convincing others living within Detroit's 139 square miles that better times are coming.

"It's up and down with Detroit. It's a beautiful city, though," said Dustin Lynch, who lives in the affluent suburb of Grosse Pointe.

Lynch, who cares for a cousin who lives in Williams' neighborhood, said he has seen some progress there — including property owners planting trees and laying sod in some lots.

Private investors are taking a chance again on downtown development.

Work has started on a $45 million, 185-unit apartment complex to the east of downtown. A separate $65 million development along the city's riverfront will include more than 270 residential units as well as retail space in an area once blighted with old warehouses, crumbling narrow streets and weedy lots.

Construction also is underway on a new $450 million, 20,000 seat hockey arena for the NHL's Detroit Red Wings that will anchor a 45-block entertainment district.

JPMorgan Chase has committed $100 million, boosting the city's economic recovery and neighborhoods with such things as financing for a rehabbed apartment building in Midtown, grants for buyers of restored homes and loans for minority-owned small businesses.

However, despite meeting all the early goals under the bankruptcy, some trickier ones remain. Perhaps the biggest are the payments the city must make to its two pension systems — one of which could climb close to $200 million in 2024.

Bankruptcy expert Anthony Sabino, who teaches law at St. John's University in New York, said Detroit's real test is figuring how to juggle both those challenges and the unexpected ones.

"What will Detroit do when it is hit by its first crisis, say a horrible winter that decimates the snow removal budget or the new revenue and/or payroll systems or protocols go awry? Or when a union demands a big pay hike?" Sabino said. "The point is, the plan looks good on paper, and certainly much has been sacrificed to get to this point, but the trick is the execution of the plan."

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This story has been corrected to show that a JPMorgan loan program is for minority-owned small business, not to encourage businesses to hire minorities.