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Detroit’s bankruptcy creates a chance for change, leaders say

Detroit News: October 4, 2013

By: Mike Wilkinson and Joel Kurth

Detroit – Sixty years of decline and the city’s historic bankruptcy have created a unique opportunity that could spark Detroit’s long-awaited comeback, experts say.

The city not only has an opportunity to wipe away debts and improve services under bankruptcy, but its collapse has lowered real estate and other costs for new businesses, boosters said.

“There’s a lot changing for Detroit, all for the good,” said Sandy K. Baruah, president and CEO of the Detroit Regional Chamber.

“We meet with people every day and they are getting ready to invest. … If you can look past the headlines, you can see the opportunity.”

Tim Bryan, chairman and CEO of GalaxE.Solutions, chose downtown as the North American headquarters in 2010 for his company that makes custom software and offers information technology services.

He said bankruptcy is a necessary evil that will accelerate the reinvestment already occurring through downtown and Midtown. In five years alone, businesses have spent some $12 billion in Detroit, according to the Detroit Regional Chamber.

“You take (bankruptcy proceedings) as a step in the process of the city ‘righting’ itself,” Bryan said. “It created certainty.”

The city enjoyed decades when auto plants churned out thousands of paychecks, and Bryan sees a future of tech-savvy entrepreneurs starting small but perhaps creating the next Facebook, Google or Groupon.

“Taking this city and turning it into a culturally stimulating city … is ambitious and achievable,” Bryan said.

The bankruptcy filing came amid rapid growth in the central business district and near Wayne State University that followed Quicken Loans’ move downtown from Livonia in 2010.

Since then, companies affiliated with the mortgage company’s founder, Dan Gilbert, have purchased at least 40 buildings downtown and relocated 11,500 employees.

“In so many circles of people in this city, there’s a sort of a rallying call,” Gilbert said. “It’s now or never; everything is on the table right now — that’s the sense you get.”

Gilbert’s top aide, Rock Ventures’ President and CEO Matt Cullen, said Detroit’s down-but-not-out status allows investors to “do well and do good” and have an immediate impact on a city that needs one.

The bankruptcy process has yet to discourage investors, said George Jackson, president and CEO of the Detroit Economic Growth Corp. The family of Red Wings owner Mike Ilitch has proposed a $650 million arena and entertainment district off Woodward and other projects are proceeding as planned.

“This actually provides a new beginning for the city, wiping the slate clean,” Jackson said. “The projects that we are working on are going forward. No one is saying ‘no.’ ”

He and others said bankruptcy would prompt a long-needed restructuring of city services and bureaucracy. Eliminating or restructuring $18 billion in long-term debt could free money to get more police on patrols, fix streetlights and buy ambulances. The White House this month pledged $320 million in grant money to help improve city services.

“I am not aware of any plan without the bankruptcy that was going to turn the lights back on,” Bryan said.

One challenge is selling Detroit to outside investors, Baruah said.

Much of the recent investment has come from “friends and family” such as Gilbert and Ilitch who are familiar with the city, Baruah said.

Bankruptcy also has a stigma in Asia that could deter investors, said Ray Byers, Wayne County’s economic development director.

County officials recently met with Taiwan developers who believed the city was fenced off and “going out of business,” Byers said.

Baruah traveled to China in September with Gov. Rick Snyder to address the misconception.

Downtown investment, though, hasn’t always helped Detroit’s neighborhoods. Mayors for 60 years have heard complaints they’ve favored the central business district over residential areas.

Part of the issue is that most taxes from downtown investments stay there. The city’s Downtown Development Authority captures most property taxes within its borders and spends them there.

That means downtown property taxes don’t fix streetlights or sidewalks in Palmer Park or Lakewood Street. The jobs created by those investments, however, create income taxes that can be spread throughout the city.

Cullen acknowledged that high-tech firms won’t eliminate chronic neighborhood problems, but they’ll create jobs that allow workers to move into Detroit.

Even if they don’t, they’ll spend money here and pay taxes, he said.

“What’s exciting is people want Detroit to do well,” Cullen said. “We’re taking up the hard issues we needed to take up.”