July 22, 2013 --

On Thursday, the city of Detroit filed the largest municipal bankruptcy in American history. Cue the panic.

The media, internet, and social media exploded with predictable stories of the city's imminent demise. There's the shrinking population, which dwindled from a peak of nearly 2 million to 700,000 in 2012. Over and over again, we heard the the long list of other woes - mass joblessness, the sky-high murder rate, street lights that don't work, unthinkably long waits for police and emergency services, huge numbers of vacant buildings, and neighborhoods that are all but abandoned.

By Friday, a Michigan court ruled the bankruptcy unconstitutional, leaving the city's future even more up for grabs.

The reality is that Detroit's fiscal woes have been a long time in the making. They are the product of the city's history finally catching up. They reflect much more than a revenue shortfall, or even incompetent and at times corrupt city politics. They are the product of a half century or more of white flight, the outmigration of industry, deindustrialization, sprawl, and the huge racial and class division between the city and the suburbs, all of which have been well-chronicled.

Detroit's problems surely run deep. But beneath its fiscal problems, and all the hemming and hawing about them, lie the seeds of rebirth for the city and the broader metro region. Since the economic crisis, and perhaps somewhat before it, the first signs of recovery and revitalization, modest as they may be, are finally starting to surface.

As I've written here on Cities, Detroit's downtown urban core is seeing more investment, economic activity and an influx of talent than it has in decades. This revitalization is concentrated and spotty and it is far from inclusive, but it is certainly something positive, generating jobs, revenue and much-needed hope and optimism that provide a foundation to build upon.

The broader metropolitan region is home to huge assets - truly great research universities, world-class research, development and design capabilities, abundant musical and creative talent, a great global airport, and, after years of neglect, a massive effort to invest in and revitalize its downtown core.

Of course many of these assets are concentrated outside the city, in its suburbs and adjacent communities and metro areas such as Ann Arbor and Lansing. And for that reason, the real key to the city's rebirth will depend on true regional cooperation. For too long the city and its suburbs have been beset by racial and class division, at times stoked by divisive politicians from both sides. The city's looming bankruptcy provides the deep crisis that may at long last be the spur for the regional cooperation from the suburbs and outlying areas that long-run recovery requires.

Over the weekend, a number commentators have suggested there is a way forward beyond the city's fiscal crisis. Here are a few of my own reasons why the bankruptcy may signal a turning point for the city and region:

A fiscal crisis and an economic crisis aren't the same thing. Bankruptcy is a restart, not a defeat.

Detroit is not the first city on the verge bankruptcy, nor will it be the last. New York's suffered near-bankruptcy in 1975 and has recovered in ways few could have imagined at the time. Orange County, California, also recovered after suffering the nation's third-largest municipal bankruptcy to date in 1994.

Detroit has been in economic crisis for decades. But a fiscal crisis is a crisis of municipal budgets; It reflects a long history of decline and overspending. But it is not the same thing as an economic crisis. In fact, it is occurring at a point when the city and region's economy actually looks to be turning upward. And it will likely help the city's turnaround by cleaning out the fiscal mess.

The ingredients for long-run economic recovery are already present in the region.

As a metropolitan region, Detroit has the assets needed to underpin economic recovery. While the decline of the auto industry left it reeling, the region has strengths that enable it to reposition for the knowledge economy. The broad region is home to more than 5 million people and produces nearly $200 billion in economic output.* Its economy is larger than New Zealand's and not too much smaller than that of Hong Kong or Singapore. There are substantial concentrations of talent: about 34.5 percent of the entire metro area's workers are members of the creative class, slightly above the national average. Its older suburbs like Birmingham, Royal Oak and Ferndale - which stand as textbook examples of mixed-used walkable communities - have concentrations of of talent and human capital that rival creative centers like San Francisco, Washington D.C., and Boston. The Greater Detroit region has also shown a persistent ability to attract global talent in the form of new immigrants - another big asset that differentiates it from many other economically hard hit metros.

The region has world-class cultural and educational institutions. Downtown there's the Detroit Institute of Arts and Wayne State University. Much more has been concentrated in the suburbs. There's the Cranbrook educational community in Bloomfield Hills, the great for art, architecture and design. Michigan State is in East Lansing; the University of Michigan in nearby Ann Arbor. In the last few years, Ann Arbor itself has boomed, with a high rate of startup activity and a top-tier ranking among small metros on my creativity index.

The size and scale of the region's economy, the quality of knowledge institutions, its International airport, and openness to global talent put Detroit in a different category than other hard-pressed Rustbelt cities.

Bankruptcy is not likely to disrupt the flow of capital, technology and talent back to the urban center.

Detroit's urban center is seeing substantial reinvestment, spearheaded by private investors. Earlier this year I wrote about a report highlighting the revitalization of Detroit's Greater Downtown Corridor, a 7.2 square mile region stretching north from the city's old riverfront. The corridor includes the central business district; the trendy Corktown neighborhood; the Cass Corridor arts and cultural district; Midtown, home to Wayne State University; and Tech Town. As has been widely reported, Dan Gilbert, moved the headquarters of Quicken Loans from the suburbs to downtown in 2007. (Gilbert has invested about $1 billion dollars in Detroit real estate, including a major effort to revitalize parks and stimulate real place-making downtown). Smaller creative and tech firms are coming back to the city, many of them setting up shop at The M@dison, where venture funds, tech companies, a small Twitter office and an accelerator are located. The construction of new light rail along the corridor, with $100 million in local funding from non-governmental sources, promises to galvanize this revitalizing core and in time hopefully connect it the older, mixed use suburbs along the Woodward spine.

This area is more affluent, better educated, and more racially diverse than the rest of the city of Detroit, as I explained The Financial Times this past April:

More than 40 per cent of the young adults living there are university educated, according to a recent report, compared with 11 per cent for the city as a whole, 29 per cent for the state of Michigan and 31 per cent for the nation. The urban center is home to more than 600 new companies and draws 10.5m visitors to its leisure attractions each year.
This revitalization is powered by a new model of public-private partnership backed by local entrepreneurs, city-builders and philanthropic foundations, in tandem with community groups that are pumping billions of dollars into the urban center.

Bankruptcy is likely to have little, if any, effect on this flow of investment capital back to the core. As Detroit Venture Partners chief Josh Linkner told Venture Beat on Friday, "I'm proud to say Detroit is my hometown," Linkner said. "It will still be my town tomorrow, the day after, and in the years to come."

Bankruptcy can spur greater regional cooperation.

The Detroit region has long been a case study in white flight and urban decline. In a perceptive blog post Friday, UK economist Jonathan Schifferes explained the role that the history of geographic inequality and urban-suburban divide in the Detroit area played in last week's bankruptcy. He wrote, "Most accounts assume Detroit's problems stem from severe de-industrialisation. This is entirely insufficient. The root cause of this is administrative geography: growing suburban wealth has mirrored urban decline."

Earlier this year, I mapped the region's highly uneven class geography.

For a time, it looked like the suburbs could essentially abandon the city, effectively replicating its functions outside it. But, today's technology-intensive knowledge economy requires centrality and density. The suburbs can no longer prosper without the city. As I noted back in April:

One of the things that nearly killed downtown Detroit was the misguided notion that its function as a location for offices and headquarters could be transplanted to its suburbs. The region can no longer afford the outmoded and incorrect notion that it can build an alternative "downtown."
Many of Detroit's new generation of investors and city-builders moved their activities back to the city because they realize true regional prosperity can only come from a strong, revitalized core.

As journalist and Cities contributor Micheline Maynard pointed out Friday, this is an opportunity for Detroit's boosters who live in the suburbs to step up. Suburbanites like to claim Detroit's great assets: its arts and cultural institutions, its fabled music scene, its sports teams. But they haven't wanted to pay for it. Without the city, the suburbs will have much harder time surviving and thriving.

Bankruptcy may well be the spur that may finally brings the suburbs to the table. The region can take the example of Minnesota's Twin Cities, where seven counties have proactively shared tax bases since 1971, or the Pittsburgh-centered Allegheny Regional Asset District.

Bankruptcy shows the need for a broader, more inclusive model of urban revitalization.

Longer-run recovery will also require addressing the widening divides revitalization is bringing to the city itself. Karen Dumas, the former press secretary for Detroit Mayor Dave Bing, wrote of this gap in an op-ed for the Detroit News last year:

On one hand, you see a "new" Detroit. Young, white, educated and employed are the characteristics of those who are taking a chance on the city.

They stand in stark contrast to native Detroiters - most of whom are African-Americans and many who are undereducated and unemployed - who have stayed and stuck it out over the years, through challenge and controversy. The native Detroiters, tired of the struggle and lack of change, see problems, while the new Detroiters - armed with energy and excitement - see possibilities.
Investment in the central business district is important, but it cannot succeed as essentially a gated city - a cluster of advantage and reinvestment walled off from adjacent areas of disadvantage, decline and despair. Bankruptcy makes it impossible to continue to ignore the widening gulf between the city's haves and have-nots, its areas of concentrated advantage and concentrated disadvantage.

In a thoughtful email exchange with me on Friday, Maynard zeroed in on the responsibility Detroit's revitalizers and boosters have for the broader city and its residents. "For everyone who wants to create a park downtown, there needs to be someone who'll adopt a park in a neighborhood," she wrote. "The lives of residents need just as much renovation as the skyscrapers and houses."

The region is already taking some steps in this direction. The Kresge Foundation's $150 million Detroit Future City initiative provides a broad strategic framework to strengthen and rebuild disadvantaged neighborhoods, create jobs and spur a new model of development across the city. As I noted back in April:
A new urban social compact is desperately needed to make this happen: to upgrade its underfunded schools and to train and connect more workers and residents to the new economy that is emerging downtown. The same kind of compact is needed in cities like New York, San Francisco, and even London which, while more affluent, suffer from the similar if not worse inequality.

Writing in the Washington Post, Dan Balz argued forcefully that Detroit's bankruptcy reflects the absence of any real federal urban policy. It also shows us the limits of today's urban revitalization strategies. Helping Detroit's leaders - and all of us - see the need for a new generation of broader, more inclusive urban development strategies could be the long-lasting and most important legacy of Detroit's fiscal plight.

By: Richard Florida