Mayor Dave Bing faced a room of silent anger as he addressed leaders of the roughly 50 unions representing 10,000 municipal workers recently.
Detroit is broke, he declared. It could be forced into the municipal equivalent of bankruptcy in October.
“You are talking about running out of cash in the next 60 to 70 days,” he told reporters after the meeting.
“Time is not our friend, it is not our ally. If we go to receivership, all bets are off.”
The United States may be emerging from a long and painful recession, but Detroit is mired in the depths of depression. Unemployment stands at 28 per cent. The city government is $350-million (U.S.) in the red on a $3.1-billion annual budget, and revenues for this year are down another $100-million (U.S.). The city is at the epicentre of a state in crisis. The Michigan government's revenues for this fiscal year are now expected to fall at least $2.7-billion (U.S.) below previous worst-case projections for their $47.2-billion (U.S.) budget.
Unemployment statewide is above 15 per cent, the worst of any state in the country.
And what's bad for Michigan is bad for Ontario. The two economies are intimately intertwined, especially in the auto sector. More than one-quarter of all Canada-U.S. trade crosses the Ambassador Bridge between Windsor and Detroit each day.
But Detroit and Michigan haven't given up. Along the university research corridor – named in hopeful imitation of North Carolina's technology triangle – billions of dollars from government and private foundations are financing research in new technologies at state universities in Detroit, Ann Arbor and Lansing. The principal focus is on alternative-energy research and, increasingly, on adapting automotive technology to biotechnology.
“Basically, if you can make a hood, you can make an elbow,” explains Nancy Cappola, who works with an entrepreneurial development program at Detroit's Wayne State University.
There have been promising advances, there are exciting new startups. Will they employ millions of unemployed auto workers any time soon? No.
But their future is Detroit and Michigan's future. If they succeed, Michigan can succeed. We don't know if they will. We only know they must.
Going for broke
The financial woes of the city are reflected on its streets. Much of downtown Detroit is a wasteland of vacant buildings and empty sidewalks, surrounded by blocks of boarded-up homes. Many of the people you encounter are homeless, raggedly in search of a handout, or at least a cigarette.
According to the postal service, as of March of this year, 20 per cent of the addresses in Detroit were vacant. In total, that's about 78,000 empty homes, twice as many as in 2005.
The city has the worst crime rate in the United States, according to most surveys. Detroit police are anticipating 450 homicides this year, within a population of 912,000. (The city's population in 1950 was 1.8 million.) The Milken Institute/Greenstreet Real Estate Partners index of best-performing cities rates the greater Detroit area dead last in a survey of 200 cities, based on economic growth and job creation.
To forestall bankruptcy for Detroit, Mayor Bing wants city workers to accept a 10-per-cent pay cut and plans at least 1,000 layoffs, about 10 per cent of the city's work force. Thus far, none of the unions are bending.
Mr. Bing is also contemplating a broad range of cuts to city services, including discontinuing bus service on Sundays.
“The first thing we've got to do is get our arms around our costs,” he maintained.
If bankruptcy were to happen, a receiver would replace the city government. All existing union contracts would be void. The receiver would have the power to cut city services until revenues are in line with expenses.
While police and fire services would likely be protected, public transit, garbage collection, city maintenance, services to the poor and much else would be cut back.
While that might seem a painful but necessary course, the long-term consequences could be even more damaging. As with any bankruptcy, Detroit would have a very hard time raising money through bonds, meaning it would have no funds for future projects such as bridges or sewers.
Shuttered homes and businesses line a downtown Detroit street.
An excess of success
How did things get this bad? The tale, as told by Lyke Thompson, director of the Center for Urban Studies at Wayne State, is familiar: The automobile industry was so successful through much of the 20th century that it suffocated all other economic activity, turning Detroit into a one-industry town.
But that left the government and economy exposed when foreign competition and corporate mismanagement brought down GM and Chrysler.
Now, he maintains, Detroit's and Michigan's future hinges on encouraging emerging entrepreneurs through a co-ordinated municipal, regional and state industrial-investment strategy.
“We have to demonstrate some collective intelligence,” he said.
“You're not going to see a blossoming of hundreds of successful entrepreneurs in short order without a coherent strategy to support their investments.”
He rejects utterly the notion that the United States or any other advanced economy can abandon manufacturing.
“An economy that stops making things and that relies instead on providing services, from taking in each other's laundry to lending each other money, is a society doomed to impoverishment,” he said.
“You have to collectively decide to go after new manufacturing in new ways.”
Prof. Thompson sees some evidence of such coherence among governments, universities, medical centres, private foundations and the other potential engines of diversification. “But we still have a long way to go.”
A car drives past the remains of the Packard Motor Car Company which ceased production in the late 1950s.
The way out
Must Detroit fail? Has it declined too far to ever return to prosperity? The answer, perhaps, can be found across campus, at a new engineering research centre, filled with robotics labs and clean rooms, where researchers are conducting experiments in alternative energy, nano-science and biotechnology.
This despite savage cuts to university budgets from a straightened state government.
“We have a brilliant faculty who are out there in the market … raising money for the College of Engineering,” said Ralph Kummler, Dean of Wayne State's College of Engineering.
It can be found at Tech One, housed in a formerly vacant building where the Chevrolet Corvette was designed, but which today incubates 98 entrepreneurial startups, including Asterand, which harvests waste tissues from hospitals and then makes them available for medical and pharmaceutical research.
It can be found at NextEnergy, a non-profit industry accelerator that works with businesses to develop commercially viable alternative-energy products.
Vice-President Joe Biden visited here earlier this month, part of the Obama administration's rollout of $2.4-billion (U.S.) in grants for electric-vehicle research. More than half of that money, $1.3-billion (U.S.), will flow to Michigan.
Keith Cooley, president and CEO of NextEnergy, is confident that the foundations of a new economy for Detroit and Michigan have already been laid.
“It's going to take a little while to get wound up, but it will,” he predicts.
There are even signs of life in the downtown. The Eastern Market thrives with local farmers on weekends. A few developers have taken over abandoned industrial buildings and turned them into loft condos.
According to one study, 83 per cent of new arrivals to Detroit have a college degree or higher.
Michigan remains a global leader in automotive-technology research, with a large pool of highly skilled engineers. The challenge is to use that resource to reinvent America's manufacturing base, and to make sure that enough of the jobs that flow from that reinvention remain in Michigan to restore the state's economy, along with a more confident sense of its future.
“In 10 years you will see a dramatic renaissance in Michigan's economy, driven by a renewable-energy environment,” Keith Cooley at NextEnergy predicts.
Michigan's future, and possibly Ontario's, depends on him being right.
