Rebuilding Place in the Urban Space

"A community’s physical form, rather than its land uses, is its most intrinsic and enduring characteristic." [Katz, EPA] This blog focuses on place and placemaking and all that makes it work--historic preservation, urban design, transportation, asset-based community development, arts & cultural development, commercial district revitalization, tourism & destination development, and quality of life advocacy--along with doses of civic engagement and good governance watchdogging.

Thursday, March 14, 2013

Economic restructuring of cities: Detroit etc. (with a comment on local income taxes)

Today, Michigan Governor, Republican Rick Snyder, announced the appointment of Kevyn Orr, a 53-year old bankruptcy lawyer at DC power firm Jones Day, as the Emergency Financial Manager for the City of Detroit. See "Kevyn Orr confidently tackles Detroit EFM job: 'This is the Olympics of restructuring'" from the Detroit Free Press.

Last week, I was reading in Christian Science Monitor about the trial of former Detroit Mayor Kwame Kilpatrick and a past story link ("Detroit retooled") mentioned my old neighborhood, North Rosedale Park, so I was looking up my old neighborhood in terms of real estate values.  I was shocked, flabbergasted, distressed.

Recognize that in the mid-1960s, when we lived there, our Congresswoman lived one or two blocks down our street (which is probably why we had great snow removal services for our street and sidewalk, although sidewalk clearance may have been paid for by the resident association) and one of my fellow Cub Scouts was the son of a future Mayor of Detroit. My old house, over 1,900 square feet on a lot that is 1/5 of an acre, is worth less than $60,000. Although back when I lived there, we had big trees in the front yard--although this was also the period when American Elm trees were dying.
16525 Warwick Street, Detroit, Michigan

If that doesn't tell you that Detroit's economy is irreparably broken, I don't know what does.

The Main Street commercial district revitalization program is historic preservation based, but mostly focused on the economic elements of a commercial district.

Although the first Downtown manager position was created in the early 1960s in Corning, New York, in response to the impact of the creation of shopping malls, which were known for both common property ownership and management, it was not until the late 1970s, when the National Trust for Historic Preservation, in response to calls for action from small towns in the Midwest seeking a way to rebuild their Downtowns, created the Main Street pilot program.

Going into the project and into the cities, they thought they were dealing with a historic preservation issue, but quickly they realized the issue was more about the functioning of the Downtown business district as a successful or failing economic entity.

But the Main Street Approach calls this function "economic restructuring" and many Main Street groups find the term and the process more harsh than they'd like.

But economic restructuring is what it is.  And you either do it when you see the writing on the wall, or you don't do it and you fail and then it happens anyway.

That's what's happening with cities like Detroit on a much larger scale, although just as the failure of US steel companies in the 1980s presaged the failure of the US-based automobile industry in 2008, the failure  New York City in the 1970s, and later, various cities around the country, including Washington, DC in the 1990s.  Economic restructuring.

The movie, "Citizen Koch," out now on former Mayor Ed Koch of New York City reminded me about this process, and so I was poking through City Limits by Paul Peterson, which has a discussion about NYC's financial straits--due to rising wages and pensions, rising social expenditures (not just the local hospital system, but then they paid the full costs of the City University of New York system as well), and falling revenues.

Because it's very difficult for local politicians to make the kinds of restructuring decisions that they need to to get local budgets in balance, plus they can't usually assess income taxes, cities with massive population and business losses and limited options are likely to tumble into bankruptcy.

A way forward for local income taxes

Some cities levy an income tax or other taxes.  This can be very damaging on a regional basis, when cities have such taxes and suburban jurisdictions do not.  Philadelphia has this problem with their "wage tax."

What Maryland does is probably the best option for localities.  My understanding is that what people consider the State Income Tax in Maryland is actually split 50/50 between the state and the counties (and Baltimore City).  That means that Maryland localities have access to a more regular and stable funding stream.

I think more states should move in this direction.

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At 8:56 AM, Anonymous charlie said...

My parents old house in Cleveland Heights, which they bought in 1971 for about 20,000, recently sold for 80K.

It isn't detroit, it is 4 blocks from a whole foods, and although small, still has decent tree cover.

1. Urbanism is ultimately tinkering on the edges, there is only so much you can do. Clevelanders love to compare themselves to Toronto, which was smaller in 1970, but the reality is Toronto has a lot of advantages (center city, finance) which fled the rust belt.

2. Yes, even in the declining areas there is substantial redistribution but it more a question of what you can do to do the new right rather than saving the old. Going to be an issue with DC as the city gradually shifts east. I've been harping on office vacancies in the west end/foggy bottom/georgetown for a while now and you do have to re-invest yourselves.

3. Invest in upscale. Which is why the micro-apartment/no parking debate is so stupid -- those places aren't going to be very useful or valuable in 20-30 years. I don't expect developers to think 100 years ahead, but this is what we get when we build real estate for one generation.

At 1:26 PM, Blogger Richard Layman said...

Toronto benefited from Quebecois separatism, as the English-based businesses located in Montreal decamped.

2. ... this is always a problem, but do you think an element is that west end/georgetown/foggy bottom is a secondary district? It's not because of Metro because WE and FB have it.

3. You could be right, but I hope not. Not your general point. But I hope about microapartments.

I think there is a place for them in the market generally, and while maybe not a great investment to buy as an individual, I think as a starter place, etc., there is a place for microapartments in the overall market.

However as a product, maybe ADUs make more sense to meet the demand for this market. They would be decentralized rather than centralized, which could make a difference.

At 1:55 PM, Anonymous charlie said...

Yep, good point about business leaving Montreal. In any case, it was about larger national trends and how cities can't do much to change that.

(except preserve their historical character and nature so it isn't a bunch of costco/walmarts and people find it charming in 25 years.)

What killed that market was law firms moving out, and nonprofits moving in. It just shows how small the DC commercial real estate market can be. I do think if we could reposition the Golden Triangle as a residential area it would solve a lot of problems. There is already some stuff going on there and would be a reversion to the norm.(1)

Yes, I don't see microapartments (and the current trend to build smaller fake luxe apartment for first timers) as a good move. They only make financial sense if you buy them then rent them out.* Madrid is chock full of them and they are more evidence of sloppy financial markets than anything else..even with 50% down payments.

(1) I think you wrote about the idea to have Conn. Ave as a "luxe retail" row. We'll see.

* including "intern housing" as part of IZ -- rather than the idiot idea of helping people with 30% AGI -- would be similar.

At 6:18 AM, Blogger Richard Layman said...

You're a lawyer so you know the mechanics of this better than I, why it isn't happening now, but the NoVA developers are agitating really hard for the big DC-based law firms to do a kind of rightsizing, and put only the lawyers that really need to be in Downtown all the time downtown, and create a secondary much larger office in Arlington, not unlike how Manhattan financial firms relocated back office functions outside of their main facilities to lower rent locations.

If that happens, DC gets screwed.

Similarly wrt nonprofits, lots of those organizations have relocated to Alexandria especially, again rents.

2. Interesting point about doing a housing conversion or two in the Golden Triangle.

At 9:58 AM, Anonymous charlie said...

While I am sure the Nova developers would love DC law firms to come out to R-B or Tysons, somehow I doubt this will happen.

The cost savings on "back office" isn't from moving to Rosslyn -- it is moving to West Virginia or India. (i.e. wage, not rent)

(A lot of document discovery etc is already done by contractors in Arlington and elsewhere. Lots of uneremployed lawers in dc?.)

Also, the back office on Wall Street is much larger than any law firm. Bear Stearns had 20K employees? Hogan maybe has 2000?

I have no doubt the legal real estate market will change in 10 years, but again Virginia is not likely. Unless DC imposes a commuter tax...


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