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 government explore their role in successful economic development, understanding better where public sector investment could 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.
Detroit: From the Front-Lines
Detroit is a sprawling city covering nearly 143 square miles. However, the city has bled citizens over the last several decades, and experienced a 25% drop in population between 2000 and 2010 alone.The City now consists of a population of approximately 715,000, representing a 60% drop in citizens between 1950 and today. Detroit's topography is so large that you can fit the entire cities of Boston, San Francisco and the borough of Manhattan inside Detroit's city limits.
The ongoing decline has left its mark on the city, most notably in severe urban decay and thousands of empty homes, apartment buildings and commercial buildings around the city. Some parts of Detroit are sparsely populated resulting in the city having difficulty providing municipal services. Just recently, Emergency Manager Kevyn Orr is proposing the complete privatization of the city's waste and recycling and is considering the same for the city's parking garages and meters.. The city has sought and considered various solutions such as demolition of abandoned homes and buildings; removal of street lighting from large portions of the city; and encouraging the small population in certain areas to move to more populated locations as there may not be a quick response for city services such as police in depopulated areas.
More than half of the owners of Detroit's 305,000 properties failed to pay their 2011 tax bills, exacerbating the city's financial crisis. According to the Detroit News, 47 percent of the city's taxable parcels are delinquent on their 2011 tax bills, resulting in about $246 million in taxes and fees going uncollected, nearly half of which was due to Detroit. The review also found 77 blocks in Detroit had only one owner who paid taxes in 2011.
Detroit declared bankruptcy in March 2013, and Michigan Governor Rick Snyder appointed Emergency Manager Kevyn Orr to assume stewardship of the City. In July 2013, the City of Detroit filed for Chapter 9 bankruptcy protection.
An Unprecedented Rejuvenation
While Detroit moves forward with the largest municipal bankruptcy in history, at least the downtown city core, led by Midtown, is experiencing a revival. Many developers remain "unfazed" by the city's problems. Developers such as Quicken Loans CEO Dan Gilbert have been aggressively purchasing, developing and promoting commerce at properties in the resurgent core. Midtown Detroit is one of the most "successful" areas of Detroit with a residential occupancy rate of 96%. Numerous developments are currently in various stages of construction, including an 82 million dollar reconstruction of the David Whitney Building in downtown Detroit and the Woodward Garden Block Development in Detroit's midtown area.
Downtown Detroit's population of young professionals is growing and retail is expanding. A number of luxury high rises have been built. The east river development plans include more luxury condominium developments. This dynamic is luring many younger residents to the city's Downtown along with the revitalized Midtown and New Center areas.
On June 5, 2013, Whole Foods Market opened its first store in the city of Detroit. Eight weeks later the CEO of Whole foods said that the store is exceeding our wildest expectations. On July 25, 2013, Meijer, a midwestern retail chain, opened a 20 million dollar store in the northern part of the city that is part of a new 72 million dollar shopping center named Gateway Marketplace.
Other developments that have recently cleared various hurdles are a new light rail system named the M-1 Rail Line and a new arena centered entertain district involving Michigan billionaire Mike Ilitch.
While the approximately 10 square miles of the city center appears to be experiencing signs
of revitilization, what about the remaining neighborhoods representing the rest of the approximately 130 square miles of the city?
Sewing the Seeds of Resurgence: Cooley's Catalyze Corktown
The Center for Priority Based Budgeting, (a mission focused organization that provides technical advisory services to local governments, schoold districts, special districts and other non-profit agencies to enable communities to reassess their priorities in order to make sound, long-term funding decisions) recently sat down with Ryan Cooley, owner of O'Connor Realty, to discuss how the Corktown neighborhood is attempting to bring development outside the downtown core and into downtown's neighboring communities.
When you think of areas in Detroit, the two that automatically come to mind are Downtown and Midtown. Corktown is one that is brought up as the City focuses on addressing the needs of its close-in neighborhoods and communities. It is on the edge of Downtown and Mexican town. Its borders are: Interstate 75 to the north, the Lodge freeway to the east (M-10), Bagley and Porter Streets to the south and Rosa Parks Boulevard (12th Street) to the west. Although Rosa Parks Blvd. may have the western border, some still include the Michigan Central Station and other sections still a part of Corktown.
Corktown was first settled in the mid 1800s by Irish farmers who were at the time going through the Potato famine. They moved here and most were from the County Cork, hence the name, “Corktown.” Over half of the residents by 1850 were of Irish descent. Many would serve in the Civil War and as the 20th Century approached, Germans began to move into the area. The district used to be larger, but with the completion of the Lodge freeway and I-75, the district became smaller. Most of Corktown is residential, but the area along Michigan Avenue is mostly commercial.
After finishing high school in Marysville, Michigan, Ryan Cooley, headed to Chicago to attend college. Eight years ago, when most people were moving in the opposite direction, Ryan went against the trend and brought the third generation off-shoot of O’Connor Real Estate to Detroit. Ryan and his wife moved back to Detroit to join his brother Phillip, and other developers, in turning around Detroit’s neighborhoods.
In 1994, when Ryan moved to Chicago to attend DePaul Business School, Chicago’s State Street, resembled Woodward Avenue as it is today. There were predominantly vacant lots and storefronts. However, where it was once only fifty percent occupied, today there are no vacancies. In 2001, when Ryan moved to Wicker Park, a Chicago neighborhood northwest of the Loop, he couldn’t get a cab to take him there, even though condos were selling for $350,000. As young people moved into the neighborhood, and the handful of bars and restaurants grew to more than ten restaurants and twenty bars, the vacant land disappeared. Ryan is striving to accomplish the same transformation for Detroit.
He stated that the opportunities and low cost of entry that exist in Detroit could never have occurred in Chicago. Ryan and his brother Phil briefly considered opening a restaurant in Chicago, but it was too cost prohibitive. While Phil returned to Detroit, he realized the opportunities that existed in Detroit and met partners that would eventually become the Slow's ownership group. This, along with Ryan's desire for a more community focused lifestyle, brought Ryan and his family to Detroit.
The area that is on the rise is the commercial area along Michigan Avenue from roughly 6th to 14th Street. There are already many businesses along the strip that have been there for awhile and are thriving such as: PJ’s Lager House, Nemo’s Bar, the Corktown Tavern, and the Detroit Athletic Company.
There are buildings in Corktown that have been sitting vacant for a long time, but now are finding new life. Slows BBQ, opened in 2005 and co-owned by Ryan Cooley, has since won many awards, ranking as one of the top BBQ joints in Michigan. It sits right across the street from the Abandoned Michigan Central Station (MCS) and the block that it sits on has helped the buildings take new life.
Ryan credited the City's efficient permitting process as Slow's was being developed. The permitting process took only two months and allowed for an expedited construction schedule. However, Cooley also identified the zoning process as a significant hindrance to this and other developments. Cooley states, "The permitting process isn't really the issue, but the zoning is a bit of a mess." And he continues to struggle with zoning in an effort to expand parking at the ever-popular Slow's restaurant and block.
The building that currently houses Slows BBQ was too small as so much business was coming through, that it moved next door, taking over a former Real Estate Agency Building. O’Conner Real Estate moved two doors down next to Astro Coffee and LJ’s Lounge.
One building on the same block is a former Pawn Shop, next to The Sugar House, that has been empty awhile, but is looking at redevelopment and a new use. The former pawn shop was purchased by several partners, including Ryan Cooley.
The current pawn shop, soon to be Gold Cash Gold was purchased on a land contract and thus has had time for construction to get organized. Ryan adds, "The permitting process is complete, but financing has been tricky. Here things don't appraise very well, and market appraisals kill a lot of deals." Assuming the appraisal comes in as necessary, the financing will be complete and Corktown could have a new restaurant open by the summer of 2014.
The plan is to turn the former pawn shop into a restaurant with rental units located above. It has not been said yet what type of restaurant it will be. In the meanwhile, above the addition to Slows BBQ, Megan McEwen, Ryan's wife, has launched a new Bed and Breakfast called Honor + Folly. The ongoing development of the "Slows block" continues.
These are just a few of the renovations currently going on in the Corktown area. And while new businesses sprouting up along this strip of Michigan Avenue is impressive, the neighborhood still has a glut of abandoned homes, crumbling commercial buildings, spotty city services and challenges with community safety.
To address these issues, Cooley at one time sat on the board of the Greater Corktown Development Corporation, a 501(c)(3) with a mission to inspire development in the greater Corktown area, but due to a shortage of funds the community organization ceased operations in 2010. Cooley, undeterred, added that "Corktown has been and is about entrepreneurship."
There is more demand for multi-family and commercial space than availability. Both commercial and rental vacancy rates are nearly at 0%. Cooley states, "The disconnect is that property appraisals are just coming back. Until we get to prices of about $125 sq ft, there is no incentive for new housing construction and with appraisals consistently coming in below the asking price houses for the most part must be purchased with cash."
Shedding Light on A Role For Local Government?
Lending is a challenge in the city. There are no significant city, county or state programs that make lending easier and potentially reduce the amount of abandoned buildings. One state program that did exist, the Historic Preservation Tax Credit, was eliminated but federal tax credit programs do exist (but are challenging to obtain). The Brownfield Tax Credit, another state tax credit program, was also eliminated.
What can the city and state do in partnership with developers to address the abandoned building issues? Cooley suggests, "It would be nice to see programs, perhaps with non-profit companies, that assist with grants for roof and window repairs that would keep the property and owner stable." An existing popular program, the Live Downtown incentive, allows for up to $20k of forgivable grants to buyers/renters who move downtown (provided you are employed by a handful of private companies that support the program). This program has led to a downtown rental occupancy rate of nearly 98%. A similar downtown incentive model launched in Philadelphia helped Midtown Inc. buy-off on this project and allows for a long-term investment in spending to remain in the downtown core.
Cooley also suggested the City might be able to do more to eliminate or reduce city income tax that is uncompetitive with other surrounding communities. "Income tax and insurance are a challenge. I pay $1500-$2k per year for car insurance and home insurance is $2500/year. When your car is worth $20k and you pay $2k/year to insure it, it can quickly become unaffordable." Cooley suggested that "some type of insurance pool" may assist residents with obtaining affordable insurance rates and thus keep Detroit as attractive a location to live as possible.
"Detroit doesn't function like other cities. There is no leadership or community consensus on how the City invests in other neighborhoods other than downtown Detroit." "I get the sense now that what is happening in Corktown can potentially be a model for the city" The Detroit City Future Plan indicates this direction. Although Cooley didn't participate in the community conversation (as a realtor/developer he felt it would be a conflict), "in theory the plan makes a ton of sense." "How you implement it I don't see how that is possible. If some portions of it get accomplished that would be great. How it all ends up turning out I'll be fascinated to see."
Is Detroit governable given its population decline and serious infrastructure needs? Cooley states, "Infrastructure is a serious issue. At our Eastern Market development, we found out the main city sewer system collapsed and it existed of wooden barrels from the 1800's. If this infrastructure exists in a close-in neighborhood like Eastern Market, what exists farther out is scary to think about. Utilities, among other City services (police/fire) need to addressed. It would also be nice to have our streets and sidewalks plowed."
Cooley weighs in on why he remains committed to Detroit
- The low barrier to entry into the market was a driving factor. It would cost three times the amount to open Slows in Chicago, twice as much time, and they would have received one-tenth of the press.
- Cost of living impacted the decision. Cooley wanted to open a real estate business and his wife wanted to pursue a career as a writer, but they couldn’t leave their jobs and pursue what they wanted to do and continue living where they were living.
- The character of Detroit and its unique style give Cooley a sense of pride in living in a community focused neighborhood and a unique city.
- Cooley found a sense of community in Corktown that he didn’t experience in Chicago. Corktown neighbors look out for one another and support the local businesses.
- Most important for Cooley is that he wants to be part of something bigger than himself. He wants to be instrumental in helping make an area where people are excited to live.
When we in local government approach issues of such magnitude as Economic Development, sometimes we approach the world from the perspective of government. We ask, how will we stimulate the economy? We strategize about the services we'll need to offer in order to create jobs. There's nothing wrong with that. We must ask these questions. It is imperative that we seek to understand our role in the solution.
But what this experience in Detroit is teaching us is the importance of shifting perspective. Walking a block in the shoes of Ryan Cooley shows us what Economic Development looks like from the ground-up. We are being offered a glimpse of the needs of an entrepreneur, a start-up business, a caring citizen willing and intent on pursuing his business and community goals no matter how or if the City steps in to help. This is incredible!
If we in local government can better understand the world from the perspective of each of our Ryan Cooley's, perhaps we'll understand better how we can facilitate economic development, how we can assist the efforts of small business owners, and how we can be a partner to affect change, rather than presuming we're responsible to be the sole service provider. What Ryan, and other community-minded entrepreneurs, is teaching us is where local government can effectively fit-in in the re-birth of a City, and it's utterly astounding.
Our window into this world is just opening. Over the course of the next few days, the CPBB will be continuing it's work interviewing other community leaders in the tech sector, media and local community-minded entrepreneurs in an effort to gain perspective on what else needs to happen, and is happening, to shift a Motor City resurgence into second gear.
Keep an eye on the CPBB blog for further updates. Sign-up for our social media pages so you stay connected with TEAM CPBB!
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.