Can Detroit turn around?

Amid all the hoopla and controversy over whether the city inflated its pension obligations as a negotiating tactic and who actually has jurisdiction over their bankruptcy filing, the substantive question remains: what can they do to revive the city?

At the heart of Detroit’s problem is its population decline. The number of residents peaked in 1950 at 1.8 million. In the 2010 census, it was 700 thousand. And where did they go? For the most part, they moved to the suburbs. In 1950 there were 3 million residents of the larger metropolitan region, which now has 4.3 million—and has been fairly stable for 40 years.

Lack of jobs, crime, and corruption are cited as reasons why the city is hollowing out. But just as success can sow the seeds of future failure, present failure can create the conditions for future achievement. Low real estate prices in the city are attracting urban homesteaders. Leadership changes and increased financial scrutiny reduce the potential for corruption. And a leadership may finally give police and firefighters the resources they need.

But it starts with finances. Getting through bankruptcy and rationalizing their debts is critical to creating a strong city. And a growing, competitive Detroit would be good for everyone.

Douglas R. Tengdin, CFA

Chief Investment Officer

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