Next Chapter Detroit brings you a few of the bankruptcy-related stories from the previous week in the local and national media:
The Million-Dollar Housing Market?
The city’s auctioning of abandoned homes has generated more than $1 million in commitments, city officials reported this week.
“The success of these auctions is another reminder of just how much demand there is for good homes in Detroit’s neighborhoods,” Mayor Mike Duggan said statement on June 26. “Within a matter of months, these vacant houses will become homes that will be adding to the strength of our neighborhoods.”
As The Detroit News reports: Since May 5, the city has been selling homes on the www.buildingdetroit.org. The first auction generated 88 bids with a high of $34,100. For the past month, the land bank has been selling two homes per day.
Speaking of Moving In…and Out of the City
The New York Times and the Wall Street Journal published stories this week about whether Detroit’s population continues to move out or grow with new residents. The WSJ’s Marketwatch blog takes a somewhat analytical approach, comparing cities across the country on the basis of home affordability, tax rates and unemployment. Of course, the piece is also peppered with colorful anecdotes about Detroit’s reality with a hopeful tone.
The Times, though, includes “up high” some of the facts that seem to fascinate much of the country: Detroit’s foreclosure rate (one in 10 properties this year) and the occasional starting auction price of $500 for a house. The Times also notes Detroit’s unusually high tax foreclosure rate, linking it to the city’s financial woes:
“In some cases, homeowners have abandoned properties and simply quit paying taxes, and foreclosure may be the only way to get a house back into the hands of people who actually want to live there and pay their share. In other cases, those who lose or abandon their houses sometimes end up buying other houses at auction – sometimes for as little as $500 – and begin the cycle again, although new rules are aimed at taking back properties sooner if taxes are again not paid. Either way, the city fails to get all the tax revenue it is owed.”
Lighting Up Detroit
The June 25 sale of $185 million worth of revenue bonds for Detroit’s public lighting authority “had no problem finding buyers,” Reuters reports.
“The bond issue, which was sold through the Michigan Finance Authority, was 2.5 times oversubscribed, receiving 35 institutional orders and several dozen more from retail accounts, according to a statement from Michigan officials.”
In December, Citibank financed about $60 million in floating-rate bonds for the lighting system. The June 25 sale was the first public offering of Detroit debt for lighting since then, Reuters reports.
What the Detroit bankruptcy “teaches” the rest of the world continues to be a common theme in media coverage and conversations about history’s largest Chapter 9 filing. This week, the Wall Street Journal’s Bankruptcy Beat blog covers some.
Perhaps predictably, the WSJ did not address communicating with citizens or ensuring the process is explained as fully as possible for residents or retirees. But the “takeaways” author identifies are worth “putting on the record” as lawyers and journalists say. They are:
Negotiate and make every attempt to avoid Chapter 9, but do not forego its potential rehabilitative benefits.
Seek to organize creditor groups as soon as practicable and engage in meaningful negotiations.
Understand the nature, full extent and potential value of the assets of the troubled municipality.
Prior to any formal proceedings, develop a projected restructuring and business plan that would be feasible and would comply with the applicable principles and rules that govern Chapter 9.
Establish, as early as practicable, the involvement of the state government as a party in interest.
Detroit’s bankruptcy continues to offer a multitude of “teachable moments,” and this week, restructuring expert Lisa Donahue weighs in on the Wall Street Journal’s Bankruptcy Beat blog about how she thinks the Detroit Chapter 9 should be interpreted and what actions other municipalities and states should take based upon the experience here. She begins:
Facing issues head-on is difficult, and it’s tempting to put off until tomorrow what should be done today. But it’s unwise. That’s perhaps the No. 1 lesson from Detroit—and one that applies as much to cities and other municipalities as to companies.
Donahue, who works at Alix Partners, also opines that the election of Mike Duggan as mayor reflects a “new spirit emerging in a grassroots way among Detroiters themselves.”
Noting Detroit’s 60 years of population decline, unique among the biggest U.S. cities, the Wall Street Journal last weekend explored Mayor Mike Duggan’s efforts to reverse the trend. Even during his first half year in office, Duggan knows his success on this particular issue could be a major factor in his re-election, the newspaper reports.
“The single standard a mayor should be defined on is whether the population of the city is going up or going down,” Mr. Duggan said in an interview at his City Hall office six months after he was sworn in. If he fails, he says he doesn’t expect to run in 2017 and win—marking the boldness of his undertaking, considering the long odds he faces.
Duggan’s first term, of course, has taken place with the city in bankruptcy. Emergency Manager Kevyn Orr controls the city’s finances and the police department, but Orr’s term is scheduled to be up at the end of September. Duggan has made public his enthusiasm, high expectations for himself and staff, and his energetic vision for the city.
These first six months of Duggan’s mayoral tenure have been full of headlines about cooperation with city council, blight removal, lighting improvements and a renewed focus on the city’s neighborhoods, the WJS reports. But like many city residents, advocates and observers, the newspaper is essentially asking the question “Will Duggan’s momentum continue?”
Judy Washington, a 55-year-old project manager, toured an open house on a recent weekend. Ms. Washington said she thinks about leaving the city “all the time,” but stays because Old Redford shows signs of coming back and she feels a “sense of responsibility” to help the city revive. “I think the jury’s out,” Ms. Washington said when asked about the mayor’s plans. “We’ve been down this road before.”
It’s not often we see Detroit held up as a role model — and plenty of people will disagree that the new city pension plans are anything that should be emulated — but attention paid to our city from elsewhere is something Next Chapter Detroit is always looking out for. In this case, it comes from the Charleston (West Virg.) Daily Mail in the wake of the recent revelation that municipalities in that state are about $1 billion short in funding their police and firefighter pensions.
A West Virginia tax on insurance premiums provides about $17 million annually, the Daily Mail reports. Still, the paper urges more leadership on pension funding issues, citing Detroit’s new plan:
Legislators who regulate municipal pensions must do something. But what? An agreement by unions and city officials in Detroit gives hope. Unions agreed to scale back the pension plans in the face of the city’s bankruptcy court proceedings.
The Daily Mail neglects to print the details of the plan, as NextChapterDetroit.com reported:
Terms of the new plan maintain parts of a defined benefit system but also require a contribution from current employees, which will be deducted from their salaries beginning July 14. For police and firefighters, the contribution will be 6 percent of their weekly pre-tax base salary, while non-uniform employees in the General Retirement System will contribute 4 percent. For employees hired after June 30, the contributions will be 8 percent.
But with such a lack of real conversations and initiatives about municipal reform, we thought the Charleston view was worth posting.
“Less than a year ago, Snyder pushed Detroit into bankruptcy. Now he’s an unlikely driving force rallying the rest of the state to help this overwhelmingly Democratic city back on its feet,” The Washington Post observes. “It’s not unusual considering that Snyder, 55, has become one of the most hard-to-pin-down Republicans in the country.”
The politics surrounding Detroit’s bankruptcy in the city and the state capitol haven’t gone unnoticed by local columnists, reporters and politicos. But this week, The Washington Post took note. Calling him a unique Republican, the Post reviews several of the governor’s initiatives, with a large focus on his Detroit-related efforts. The Post finds some of them are seemingly at odds with the usual Republican party platform:
Like some other GOP governors, Snyder has signed controversial right-to-work legislation preventing unions from requiring workers to pay dues — a crushing defeat for organized labor in a state that was once a hub of union power. Working with a GOP-controlled legislature, he also has cut unemployment benefits and slashed business taxes while imposing a new tax on pensioners.
But unlike many Republican governors, he pushed to expand Medicaid and is encouraging immigration of high-skill workers. He vetoed legislation requiring voters to have government-issued identification. And while Snyder forced Detroit into bankruptcy, he has become perhaps the most influential advocate for an aid plan to put the city back on sound financial footing.
The Post notes only 5 percent of Detroiters casting gubernatorial ballots in 2010 did so for the “one tough nerd.” But that hasn’t lessened his interest in the city’s restructuring. The Post writes Snyder has “earned grudging praise” from some Democrats in Michigan.
November — and history — will show how deserved that is.
A hedge fund manager is butting in to improve Detroit.
The New York Times DealB%k blog reports this week about a hedge fund manager who set loose in Detroit’s Brightmoor neighborhood a herd of goats. Twenty of them. Yes, nestled within the blog’s financial news about bond rallies, wireless regulations and global business deals, was the post about Mark Spitznagel’s “experiment.”
Spitznagel, DealB%k reports, is the founder of the $6 billion hedge fund Universa Investments, and he’s brought the herd from his northern Michigan farm into one of Detroit’s most challenged but resilient neighborhoods that is also known for its urban agriculture, including a “Farmway,” and public artwork.
Spitznagel released his goats on Thursday, capturing the attention of the DealB%k blog:
To most of the world, the solution to debt-ridden Detroit is money. But for one hedge fund manager, it’s goats….Mr. Spitznagel says he is contributing directly to the community. “It’s an urban farming experiment,” he said of his plan to leave his goats to roam and munch on overgrown grass. “Goats are an effective way to do landscaping,” he added.
DealB%k reports that Spitznagel plans to hire unemployed adults and some kids, er, “local youth” as herders. He’ll build housing for the goats. At the end of the summer, he plans to ” sell the goats to Detroit butchers and give the proceeds back to the community.”
The final day of the Mackinac Policy Conference will kick off with New Orleans Mayor Mitch Landrieu. The first-term mayor authored a guest column in the Detroit Free Press today that previews some of what he plans to say tomorrow.
Of course, he’ll be interviewed on the conference stage by WDET’s Craig Fahle, general manager and host of The Craig Fahle Show. So his appearance won’t be a complete repeat of his column as Craig plans some questions of his own. But Landrieu makes a few points worth highlighting.
First, he emphasizes his belief that helping New Orleans post-Katrina and Detroit as it aims to emerge from bankruptcy and create a financially stable city are part of the American responsibility:
After Hurricane Katrina devastated New Orleans, flooding more than 80% of the city, MSNBC host Chris Matthews asked me, “Why should a guy driving a cab up in Detroit” care about rebuilding New Orleans? I said that an American tragedy requires an American response. This is the same reason why someone in New Orleans should care about Detroit and its struggles. Only if we remain one nation, indivisible, can we be strong. We need each other.
Second, he recognizes Detroit as having opportunity as it restructures post-bankruptcy. That’s a similar message to what is said after natural disasters as communities rebuild: “with disaster comes opportunity.” Landrieu writes, “There is no greater engine for growth, no greater power for innovation, and no smarter investment to make than in Detroit. Now the struggle of years past is giving way to new opportunities.”
Third, he’s an optimist. “I know Detroit will show us, too, that it can come back better than before. The spirit of Detroit is unbreakable as the iron forged in its furnaces and factories. Bankruptcy is not the end, it is not even the beginning of the end. It is just a way station on the road toward a better future.”
We’ll report on the Mackinac Policy Conference audience response to Landrieu and his message tomorrow.
Blight removal, job training and access to mortgages will be enhanced in Detroit with a $100 million investment from JPMorgan Chase, the Detroit Free Press reports.
The formal announcement is to come Wednesday, but the Freep’s John Gallagher writes today that the funds will come over five years, half in grants, half in loans.
Chase has been working for several months developing the program, which will be announced Wednesday at a luncheon featuring Gov. Rick Snyder, Mayor Mike Duggan, and JPMorgan Chase Chairman and CEO Jamie Dimon, as well as local foundation leaders and business executives including Dan Gilbert, founder and chair of Quicken Loans.