Detroit Turnaround?

Can Detroit turn around?

As city officials, unions, creditors, and their lawyers meet to figure out what to do with Detroit’s $18 billion in liabilities—an astounding $25 thousand per person—it’s worth asking what can be done to change things. What can the city do to reverse decades of suburbanization and de-gentrification that has resulted in a central city that’s simply too small for its contracted obligations?

It’s tempting to say that the situation is hopeless: that a decaying city-center simply can’t compete with greener suburbs, warmer weather in the south and west, and the nationwide decline in manufacturing. But we’ve been here before. In 1975 New York City faced bankruptcy and initially failed to get any Federal support. In 1978 Cleveland defaulted on its Federal loans. In these and other cases, financial distress followed decades of ruinous trends. But then things got better. What changed?

Problems get attention, and management attention is the scarcest resource of all. When leaders focus, things can improve. Cities that turn around build up their financial, civic, and intellectual capital. Lower land prices help, but they aren’t enough. Reversing a city’s decline is possible, but it doesn’t happen by itself.

Fasten your seat belt, Detroit. It’s going to get a little bumpy.

Douglas R. Tengdin, CFA

Chief Investment Officer

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