Is Detroit finally turning the corner?

Detroit is heavily subsidizing big-ticket items such as Little Caesars Arena in the hope that downtown and Midtown revivals will boost commercial tax values and create momentum to help surrounding neighborhoods. (Courtesy photo)

The word came up, as it almost always does in Detroit these days, less than two minutes into the conversation.

“Detroit is at the forefront of this thing called gentrification,” Simone Lightfoot, national director of urban initiatives for the National Wildlife Federation, said at a housing summit on Detroit’s east side in late April.

“Some people aren’t even willing to say it’s happening. In black circles, it’s talked about all day. But in white areas, it’s called development.”

Five days later, at a very different gathering – the Urban Land Institute’s spring conference at Cobo Center – two billionaires redeveloping downtown and Midtown, Dan Gilbert and Chris Ilitch, offered a radically different vision of Detroit, one they say benefits all.

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“Detroit is at a special moment in time, ripe with opportunity and promise,” said Ilitch, whose firm, Olympia Development, is remaking large swaths of Midtown with its $1 billion mixed-use development, The District Detroit, which includes the sports and entertainment venue Little Caesars Arena.

Three and a half years after emerging from bankruptcy, Detroit’s changes are undeniable: Tax values are up, access to loans has increased, and a 60-year population skid has slowed to a trickle. But the comeback is accompanied by lingering questions about whether all residents benefit from the revival of downtown and Midtown.

Much of Detroit’s progress has come through heavily subsidized developments and tax breaks that represent a bet that development in a few areas will create enough momentum to revive long-suffering neighborhoods in the 139-square-mile city.

    It’s a debate that no doubt will intensify with last week’s announcement that Ford Motor Co. bought Detroit’s most visible symbol of decay, Michigan Central Depot, which has been closed for three decades. Ford plans to redevelop the building and bring 2,500 employees to the Corktown neighborhood, a deal that will require significant tax credits.

    The discussion about seismic changes in Detroit is often accompanied with a loaded buzzword – gentrification – that doesn’t adequately describe what’s happening, argues Alan Mallach, an urban scholar and author of the new book “The Divided City: Poverty and Prosperity in Urban America.”

    Classic gentrification involves an influx of newcomers that raises rents and home values and prices out longtime residents, Mallach said. By and large, that isn’t happening in Detroit, he said.

    Despite the sale of $1 million lofts and six-month waiting lists for Midtown apartments, “the broad data indicates there’s no displacement (of residents) and we have to make sure displacement does not take place,” said David Egner, CEO of the Ralph C. Wilson Jr. Foundation that helps finance Midtown development.

    “The recovery of Detroit has got to stretch to the neighborhoods,” said Aaron Seybert, social investment officer of the Kresge Foundation, which has a leading role in funding and planning Detroit’s revival.

    “If all we ever did was invest in downtown and Midtown, it would be one thing. But we have a strong belief we need a strong nucleus (in these areas) we need to grow out of.”

    Kresge is one of the funders of the city’s recently expanded Strategic Neighborhood Fund, a $130 million venture that funds neighborhood streetscapes, park improvements, vacant home rehabs and financing for mixed-use developments. (Disclosure: The Ralph C. Wilson Jr. Foundation and Kresge Foundation donate to The Center for Michigan, the nonprofit that operates Bridge Magazine.)

    Booming values. Static bottom line

    How divided are opinions about what’s happening in Detroit? Even opinion surveys disagree.

    In April, the University of Michigan released a survey of residents that was overwhelmingly pessimistic.

    Asked about who benefits most from downtown and Midtown investments, more believed it was non-residents (38 percent) than city residents (20 percent); white people (47 percent) as opposed to black people (2 percent); and wealthier people (70 percent) over poorer people (2 percent).

    “The negativism is a little starker than we thought,” said Jeffrey Morenoff, director of the University of Michigan’s Population Studies Center, which conducted the study.

     

    Before and after: These two homes are on Greensboro Street on Detroit’s east side, a block where all but five of 38 homes went into foreclosure since 2006. At left are the homes in 2014. At right are the homes this month. Some neighbors say they are still awaiting the revival in Detroit’s downtown and Midtown to spread. (Bridge photos by Joel Kurth)

    Three weeks later, the Kresge Foundation –  which partially funded the U-M survey – released its own study that found residents in the overwhelmingly black and poor city are optimistic: 94 percent of believed Detroit could be great again, while 76 percent felt retail offerings improved in the past 10 years.

    “People are seeing progress in their neighborhoods and they’re getting excited,” said Chantel Rush, a program officer for Kresge’s American Cities program.

    Some of the difference of opinion perhaps could stem from Mayor Mike Duggan’s strategy of investing heavily at first in a handful of promising neighborhoods rather than distributing funding equally across the city.

    By one measure, the strategy is working: The city’s commercial tax base is booming, spurred largely by downtown and Midtown investment.

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    Assessed values of commercial properties grew 15 percent to $2.7 billion from 2014 to 2017 (which doesn’t include the construction of Little Caesars Arena.) Income tax collections jumped 11 percent to $285 million over that time.

    But the growth hasn’t much helped the city’s bottom line: Property taxes revenues have flatlined since 2014 at $129.5 million.

    That’s partly because home values plunged 43 percent to $2.4 billion since 2014, caused in part by Duggan’s dramatic re-appraisal of city property after the real-estate meltdown.

    But city revenues are also flat because so much of the growth in Detroit is in areas where taxes never make it to the city’s general fund that pays for police, parks, street sweeping and other services.

    A Bridge Magazine analysis of city and state records shows that one-third of the $1 billion in increased commercial value is located in tax-increment financing zones whose taxes are used to repay development bonds.

    Knows as TIFs, the zones allow developers to divert property tax increases to pay off projects. The zone around Little Caesars Arena, for instance, will divert $726 million in taxes by 2051.

    Last year, $30.6 million in taxes was collected by the downtown TIF.

    That means nearly a fifth of city property tax revenues never made it into the community.

    Downtown becoming self-sustaining

    The downtown and Midtown boom is prompting banks to lend more freely in a city that once was a risky bet for lenders, said Elizabeth Luther, Detroit program manager for Capital Impact Partners, a mission-driven investment firm.

    And the loans are beginning to flow into neighborhoods, Luther said.

    This year, she said she was preparing to write a press release for the $8.3 million 7.Liv project to create 10 apartments and 21,000 feet of commercial space for the long-closed B. Siegel store in Northwest Detroit.

    “We kept wanting to say it was the first project in the neighborhood in X-number of years, but we gave up because we couldn’t find anyone who remembered when the last one was done,” said Luther, Detroit program manager for Capital Impact Partners.

    Loan officer Nick Pohl came to Capital Impact Partners in 2016 from a commercial lender that he said “would never lend in Detroit.”

    “Now, I would argue that downtown is becoming self-sustaining,” Pohl said. “The real opportunities are to move more out to the neighborhoods now.”

    Changes in Midtown, downtown

    New lofts, apartments and a revitalized retail sector have drawn thousands of new residents to Detroit's core along Woodward, even as the city as a whole continues to lose population. The growth is largely fueled by white newcomers, but both areas remain majority African-American.

    Midtown

    Group 2016 Change from 2011 Percent
    White 5,490 2,476 82.1%
    Black 13,412 -237 -1.7
    Hispanic 455 215 89.6
    Total 21,660 2,861 15.2

    Downtown

    Group 2016 Change from 2011 Percent
    White 2,062 817 65.6%
    Black 3,327 -165 -4.7
    Hispanic 323 205 173.7
    Total 6,259 1,158 22.7

    Population increase brings demographic shift

    With an increase in population, the racial breakdown of Midtown and downtown has changed. Though the areas are still majority African-American, white residents now make up a larger share of the population.

    Midtown

    Demographic 2011 2016 Change
    White 16 25.3% 9.3%
    Black 72.6 61.9 -10.7
    Hispanic 1.3 2.1 0.8

    Downtown

    Demographic 2011 2016 Change
    White 24.4 32.9% 8.5%
    Black 68.5 53.2 -15.3
    Hispanic 2.3 5.2 2.9

    Source: U.S. Census American Community Survey

    Seybert of the Kresge Foundation said improvements in neighborhoods don’t get as much attention as dramatic changes in downtown and Midtown.

    “It’s a very tired cliche to say nothing is happening in neighborhoods. It’s terribly insulting,” Seybert said.

    But even as lenders become more comfortable in Detroit, they’re often less so in neighborhoods, where projects require “multiple layers of financing” and “every project is complicated,” Luther said.

    It remains that way in Midtown as well, said Egner of the Wilson Foundation.

    Even with surging interest and demand in Midtown, rents in the neighborhood are typically about $2 a square foot, or roughly $1,500 a month for a 750 square-foot-apartment, about double the citywide average of $820 a month, city records show.

    Even so, rents aren’t high enough to offset rising construction costs, and developers need to charge $3 per square foot to develop housing without subsidies, Luther said.

    Add in Detroit’s high tax rate (32 mills compared to 9 in Grand Rapids) and experts say tax breaks and other financing assistance are still required in Midtown to make projects viable.

    “This neighborhood is far from being done,” said Susan Mosey, executive director of Midtown Detroit Inc., a redevelopment group. “It’s still very fragile.”

    What is affordable?

    City officials and private investors say they’re confident Detroit can pull off a unique coup: Reviving the city and neighborhoods without forcing out long-time residents.

    Detroit last year passed an ordinance requiring housing developments subsidized with $500,000 or more federal funds to set aside 20 percent of building units for “affordable housing.”

    “Keeping people in affordable housing is very important to us,” said Arthur Jemison, Mayor Duggan’s executive in charge of housing and infrastructure, told a public forum in late April.

    Arthur Jemison, a top aide to Detroit Mayor Mike Duggan, says the city is committed to ensuring all residents benefit from Detroit’s revival.

    But the ordinance caused controversy because of how it defined “affordable housing.” Recipients of discounted rent can’t make more than 80 percent of the average income of the metro region, or $38,450 for a single resident.

    Backers had sought a lower limit, arguing that Detroiters –  whose median household income is about $26,000 –  couldn’t afford rents of supposedly “affordable” complexes.

    And plenty of skeptics remain.

    Jemison spoke in April at the Eastside Community Network’s affordable housing forum at Southeastern High School, a gorgeous school in an east-side neighborhood full of empty lots and vacant homes that is still awaiting the Detroit comeback.

    The response from the crowd in the auditorium was overwhelmingly negative. Jemison listened as speakers accused the city administration of ignoring poor people, driving out residents and likening Mayor Duggan to President Trump.

    “Some of the things I'm hearing are untrue,” Jemison sighed to the crowd. “We are serious about helping everyone.”

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    Comments

    John Q. Public
    Wed, 06/20/2018 - 1:11am

    You have pointed out again the scourge of economic development administration: tax increment financing. This incentive, intended to use the taxes generated by new development as a source of capital to fund it, has been so bastardized by the legislature, through both manipulation and benign neglect, as to be a detriment to the growth of a general community tax base.

    In order for it to work, once the project a TIF funds is paid for, the TIF plan is supposed to end and the new revenue generated by the increased base is supposed to flow to the taxing jurisdictions. That day never comes because with state oversight practically nil, cities extend both the breadth of the geographic boundaries and the duration of TIF plans without limits. They are creating separate "shadow municipalities" of their commercial districts, distinct from the residential areas and capturing ever increasing shares of tax revenue to be administered by unelected appointees, who in many instances are required by statute to have inherent conflicts of interest in spending the funds.

    Little Caesars Arena is probably the most egregious misapplication of how TIF is supposed to work. When Proposal A passed in 1994, school taxes were supposed to be off limits to TIFs except to pay off pre-existing debt. When that debt was paid off, school taxes were then supposed to be walled off from capture. Detroit's DDA paid off its debt in 2009, and more than $10 million per year in revenue was supposed to flow back to Detroit schools, The Wayne ISD, and the state school aid fund. Instead, during 2012 lame duck and with the media and everyone else focused on the imposition of right-to-work legislation behind the wall of state police-cum-Republican Party private security force, two things happened: Detroit expanded its DDA boundaries to include the arena district, and the legislature amended the DDA Act to allow the Detroit DDA to continue to capture school taxes. This was done purposefully to keep the $10 million-plus from returning to the taxing jurisdictions as was intended by theretofore existing law (and would have been in a responsibly administered TIF program), and instead use the revenue, which was not even generated by the arena district, to be used to fund it. The DDA can’t even claim, as DDAs nearly always do, that this is new money that didn’t exist without the project, so won’t be missed by the schools. It was a flat-out gift to the Ilitches from the legislature and the politically appointed members of the Michigan Strategic Fund. The Detroit schools are reimbursed by the school aid fund for their lost operating revenue, so effectively, every school district in the state operates with a little less so that they can contribute a share to paying off the arena bonds.

    Industrial and commercial development has historically been desirable because it generates tax revenue in excess of the cost of additional services it demands, allowing the overage to be used to provide services elsewhere in the city. Now, TIFs are self-contained mini-municipalities whose success has little effect on the rest of the city, but whose failure must be borne by it https://www.bridgemi.com/public-sector/taxpayers-hook-captures-gone-wrong (ask the city of Troy about that). http://www.candgnews.com/news/council-takes-first-step-bail-out-dda-bonds

    Development occurs for the sake of development, the bank accounts of the developers, and the egos of city planners and elected officials who relish the opportunity to say, “Look what we did!”—even though in terms of bettering the life of the average citizen, they didn’t do anything at all.

    William C. Plumpe
    Sun, 06/24/2018 - 11:21am

    I heartily disagree.
    Tax increment financing has been a linchpin of Downtown Development
    for years and while not perfect has proven to be a viable option if managed
    and administered properly. That is the rub and why citizen involvement and
    State oversight---but not too much involvement and oversight---
    are necessary to make sure projects proceed properly and are successful.
    Not easy but definitely doable. And to badmouth all such projects because
    they don't fit your radical political-economic dogma is brutally short sighted
    and excessively self serving just for the sake of being contrary.
    Exactly like President Trump.

    maureen
    Wed, 06/20/2018 - 8:41am

    I would look carefully at the candidates for Governor who are for and against tax (monetary) incentives and see who might wish to abolish them and who is inclined to think they are so necessary.

    William C. Plumpe
    Sun, 06/24/2018 - 5:06pm

    Yes be more careful and rigorous with applying tax incentives but what do you have to replace such programs? The vaunted "free market" which is nothing but a sad theoretical construct so difficult to identify and track that it only has real life in the minds of conservative and reactionary economists? "Free market" sounds good and looks great on paper but fails the reality test when confronted with the vagaries of the real world.

    William C. Plumpe
    Sun, 06/24/2018 - 11:12am

    I think that for the first time in many years there is a good possibility that Detroit has turned the corner after much work and many false starts over the years. And of course you're going to start with Downtown because it is a major driver of the economy and the most visible neighborhood in the City. But some way must be found to try to bring that enthusiasm and funding to the neighborhoods. I am not as up to date on neighborhood initiatives as I should be but the new street lights and improved garbage pick up, first responder response times and demolition of abandoned homes are big pluses for all neighborhoods. And prime neighborhoods like Downtown, Indian Village, Corktown, West Village and around Belle Isle need less help because they have more to work with to begin with. Less affluent neighborhoods like Mexicantown and the area around the Capuchin Monastery have historical significance that can be parlayed into development. And gentrification and development often go hand in hand because gentrification is almost always a byproduct of development. It's not necessarily good or bad but a pretty sure result of development and almost impossible to control. I would like to see some major African American players with funding---Magic Johnson and Herb Strather come to mind---and take the lead and go into the less affluent neighborhoods and start developing. I am sure it is happening already with churches and developers partnering to revamp neighborhoods. That would be something to investigate and report on in the future.