Wednesday, September 4, 2013

Detroit - Bankrupt, but Not Broken: A CPBB Exclusive Interview with Nolan Finley of the Detroit News

For anyone with an interest in what it takes to truly stimulate and develop a successful local economy, nowhere could be more interesting than the recently bankrupt City of Detroit. The Center for Priority Based Budgeting is in the business of helping local government explore their role in successful economic development, understanding better where public sector investment could inspire a greater private sector contribution and better influence economic health (and clarifying where the role of government might end).

It’s not an easy issue, and yet it is one of the most important issues of our time. In our work facilitating the identification of community priorities, economic development and job creation are clearly among the very top in every place we've applied the Priority Based Budgeting process. From the City of Edmonton, Alberta (where they espouse the necessity of a “Diverse Economy”) to the Town of Cary, North Carolina (“Economic Vitality and Development”) to Lehigh County, Pennsylvania (“Economic Health”), what we do in government to strengthen the local economy could not be of more critical importance.

With this in mind, the Center for Priority Based Budgeting has once again immersed itself in the trenches of this issue, and gone straight into perhaps the most interesting experiment in economic development we could imagine: the re-birth of a City.

Our first article focusing on the City of Detroit, Reversing the Trend: Might Corktown Hold the Key to a Greater Detroit Neighborhood Resurgence?, provided background context on the city's challenges and how entrepreneurship is playing a driving role in reshaping the downtown core and, slowly, the inner city neighborhoods. This article will focus more on city leadership and, from the opinion of one of the city's civic leaders, what must change to get Detroit up and running efficiently and effectively.

Nolan Finley Weighs In

Nolan Finley, Detroit News
The CPBB had an opportunity to discuss the future of Detroit with Nolan Finley, the Editorial Page Editor of the Detroit News. Nolan has held this position for over 13 years and as such directs the expression of the newspaper's editorial position on various local and national issues. Nolan Finley joined The Detroit News staff as a copy boy in 1976 while he was still a student. He navigated the positions of reporter, deputy managing editor, business editor, city editor and opinion leader to eventually become the editorial page editor, a position he has held since 2000. In 2012, Nolan was inducted into the Michigan Journalism Hall of Fame.

The CPBB reached out to Nolan after reading his recent Bankrupt, but Not Broken series of articles on Detroit. The article series includes: Everything Must Change in Detroit, Leadership is Key to Detroit's Revival, and Can Detroiters Govern Their Own City. These honest and introspective articles focus on subjects that the CPBB finds integral to the success of local governments nation wide. These principles include ensuring the fiscal health of a city, focusing on public/private partnerships, competent city leadership, planned economic development and efficient delivery of the highest priority (what some might call "core") city services. These are all must have's for any city and as Nolan clearly articulates none were working prior to the bankruptcy filing and the installation of a Detroit Emergency Manager.

Nolan is blunt, and cautiously optimistic, about the direction of Detroit. The "systemic failure in city
governance" directly led to the bankruptcy filing, which is "the biggest local news story" in the city's history. The city "must get city services back on track" and initiate sustaining reforms that lead back to "good government practices."

With that said, Nolan took a step back to outline the missteps and negligence that led to Detroit's bankruptcy. "The City of Detroit has ignored warnings about pension obligation issues for the last 30 years. The City has had a hard time deciding whether they are a service provider or an employment provider. The city has more public employees than most major cities in the US." A quick fact check reveals that Nolan is correct on both counts.

According to the Bill Johnson Group (Detroit Missed Pension Reform Opportunities), there have been decades of opportunities, miscalculations and squandered opportunities in the city's efforts to address and renegotiate the swelling pension obligations. "History, however, shows this looming crisis might have been averted if the employees unions and pensioners had shown more flexibility forty years ago in restructuring city pension benefits. Instead, the intractable opposition demanded the city stay on a dead end course to default." The article closes by stating "The bottom line is this: City government is now unable to fully fund the system. The refusal of the council and city workers to get out of the way of Detroit’s entry into the modern pension era comes with dire consequences that could have been avoided. Bankruptcy may now be the best equalizer for their imprudence and collective bad judgment." Indeed, Detroit has now entered an era of active bankruptcy.

An Opportunity for Shared Services

Besides bankruptcy, Detroit has gained significant media attention for how the city delivers core services. In particular, the Detroit Police Department (DPD) has been called out for not responding quickly to citizen emergencies. Nolan states, "The city must drastically improve community policing and restore civic confidence in the DPD. This is critical to improve the city's reputation and to ensure the safety of its citizens." The NY Times recently reported "The Detroit police’s average response time to calls for the highest-priority crimes this year was 58 minutes, officials now overseeing the city say. The department’s recent rate of solving cases was 8.7 percent, far lower, the officials acknowledge, than clearance rates in cities like Pittsburgh, Milwaukee and St. Louis." Nolan adds "30-60 minutes to respond to a call is unacceptable."

Additionally, the city is challenged with maintaining and providing other highly relevant ("core") services such as emergency medical services, street lighting, street maintenance and snow removal. Nolan states that the "City needs to commit to solid and dependable core service provisions and look for opportunities to contract and/or privatize services where it makes sense." The city has been, and continues to look for, alternative service provisions. Recently, Emergency Manager Kevyn Orr suggested that the city may privatize or contract out garbage/recycling and parking garages/meters. The city is already working on a plan for the Detroit Water and Sewerage Department (DWSD) to turn into a new, larger regional authority: the Metropolitan Area Water and Sewer Authority (MAWSA). The conversation will allow MAWSA to restructure debt by issuing new lower interest bonds while paying the city a fee for providing this service.

Nolan cited Cobo Hall as a "shining example of a newly regionalized effort" to provide city services. In September 2009, Cobo Hall, Detroit's convention center, was placed under the authority of a new Detroit Regional Convention Facility Authority (DRCFA) after suffering years of city mismanagement. Since then, according to the Detroit Free Press, "Under regional management, Cobo is thriving. Conventions are up, a $279-million renovation is well underway, and the North American International Auto Show, Cobo's most important annual tenant, is recommitted to the facility for the long haul. Even more important, Cobo now stands as a shining example of what can happen in southeast Michigan when cooperation, rather than parochial rivalries and nepotism, frame the discussion about issues of public interest." While Detroit's bankruptcy allows for an historic opportunity to eliminate debt and restructure service delivery, Nolan states "Orr will eliminate debt and focus on restructuring service delivery, but these practices must be instilled and provided consistently by future elected city leaders."

The Next Generation

While Detroit remains under emergency management for the foreseeable future, a non-partisan primary election was held on August 6th to determine the next Mayor of Detroit. The incumbent Mayor, David Bing, chose to retire rather than seek re-election which brought forth an open field of candidates to become the next Mayor of Detroit. Of the fifteen contenders who were official candidates on the ballot, two emerged as front-runners for the election: Mike Duggan, former CEO of the Detroit Medical Center and Assistant Wayne County Prosecutor, and Benny Napolean, Wayne County Sheriff and former Detroit Chief of Police.

Before voting could begin, controversy erupted with candidate Duggan being eliminated from the ballot due to a technicality revolving around his status as a bonafide resident of the City of Detroit. After the Election Commission decision was upheld by the Michigan Court of Appeals on June 18th, Duggan officially bowed out of the race. Yet just ten days later, Duggan declared his candidacy again as a write-in candidate on the ballot and ultimately won a plurality of the votes, defeating his closest competitor, Benny Napolean, by a margin of over 15%. Duggan will now face Napolean in the general mayoral election in November of this year.

Nolan states that the election was "remarkable in the environment of active emergency management." The next Mayor of Detroit will inherit an environment of active emergency management and thus will hold no authority until power is transitioned back to elected officials. Nolan added that Duggan "ran on a turnaround message" and indicated enthusiasm that the turnout produced "48,000 write-in votes and multiple good council candidates."

While Detroit's bankruptcy and dramatic primary elections have dominated media headlines, the resurgence of Detroit, led by significant private sector investment in the downtown core, have begun stealing the headlines. The significant private sector investment is led by Quicken Loans founder Dan Gilbert. While much has been written about Detroit's resurgence, Nolan remains cautiously optimistic. Nolan states "private sector investment to date (Gilbert, etc.) is effectively an act of alturism. While great for the city they can likely achieve greater service efficiencies and profits by headquartering elsewhere." Nolan added he'd also like to see "the private sector contribute more to the development and cultivation of political leadership." With private sector investment clearly changing the finances and landscape of downtown Detroit, and a mayoral election to be held later this year, the opportunity for the private sector and a new generation of political leadership to come together and carry out a new vision for Detroit appears promising.

The Hard Work 

The City of Detroit has truly entered a complicated and challenging environment. Driven by a complex mix of unprecedented bankruptcy, emergency management, challenges delivering the most highly-relevant or "core" services to the citizens, poor fiscal health, and controversial upcoming elections, while simultaneously experiencing enormous private sector investment in the city, a growing start-up culture, near zero residential vacancy rates and epic enthusiasm and optimism by citizens and others across the nation, the CPBB asked Nolan how Detroit can successfully move forward and thrive.

According to Nolan Finley, the following must be addressed in order for the City of Detroit to truly enter a new period of resurgence:
  • Stop the blight- "We must eliminate abandoned buildings in the non-functioning neighborhoods. We have 70,000 plus vacant structures. We must not allow this issue to get worse. We have to consolidate the population into existing functional communities and address abandoned land."
  • Expand public/private investment into neighborhoods- "There is currently no plan to expand private sector investment into the neighborhoods."
  • Reduce violence and murder- "30-60 minutes to respond to a call is unacceptable. We must get down to NYC levels and restore confidence in the DPD."
  • Attract businesses that current citizens are capable of working for- "Very few new employees are actually from Detroit. We need to attract employers that include call centers and low-skilled manufacturing to boost employment until the education system is fixed."
  • Provide education opportunities to citizens and vastly improve the education system- "We need to improve the quality of education so we have well-trained grads who are employable. This includes closing schools that are isolated and no longer serving the community. We need to look to the private sector/charter schools for assistance."
  • Balanced budgets- "Detroit can govern itself, but we must hold city leaders accountable and do business differently."
Bankrupt, but Not Broken

We've all become so accustomed to hearing the reasons why cities like Detroit are facing such challenges that we can probably recite them. As Stephen Goldsmith wrote in The Red Ink Tsunami: Why Old Ideas Can’t Fix the New Government Perma-Crisis, “ for a variety of reasons today’s budget deficits are different. Government at all levels now faces an inescapable reality – the promises of public services exceed our ability to pay for them – and will do so regardless of when the recession ends. The steady increase in the quantity and cost of public services, coupled with the needs of an aging population and public pension costs, have produced a long term, structural deficit."

But what's so interesting about Detroit, the largest municipal bankruptcy in history, is that we're starting to hear a consistent drum beat about the kinds of solutions that appear to be working.
  • Focusing limited resources on the Results that matter (safety, economic vitality, health among others that we heard) ensuring that the most highly-relevant, "core" services are being offered effectively and efficiently
  • Doggedly pursuing public-public and public-private partnerships, in order to recognize that the results of a community can be achieved even when local government is simply a partner, and not necessarily the sole service provider
  • Ensuring long-term "Fiscal Health" to the degree that financial decisions are made transparently and with accountability to the Results most relevant to the community
These are the very cornerstones of our work at the Center for Priority Based Budgeting! We too are beating this same drum! 

Detroit may indeed by bankrupt, but it is far from broken. With these insights, Detroit, just like every other financially challenged local government across the Country, has every opportunity to rise again. 

Thanks to Nolan Finley and the Detroit News for your time and insight.

Keep an eye on the CPBB blog for further updates. Sign-up for our social media pages so you stay connected with TEAM CPBB!

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If you're thinking of jumping into the world of Fiscal Health and Wellness through Priority Based Budgeting we would certainly like to be part of your efforts! Contact us to schedule a free webinar and identify the best CPBB service option(s) to meet your organization's particular needs.

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