Insights | Blog
City of Detroit Bankruptcy
Judge Rhodes, several months ago, expressed concern about whether the City could meet its obligations under the Plan. Since the City and almost all of the creditors were in favor of the spoils provided them in the restructuring plan, the Judge figured he wouldn’t get much push back or analysis in understanding the risks associated with the City actually achieving the results necessary to meet its new restructuring plan. The Judge was being thoughtful in considering this risk. In my opinion, for many reasons, the City will encounter difficulty in meeting its payments unless it can develop a sustainable tax base which has eroded over the last 50 years. The City Council couldn’t wait to get its power back when Kevyn Orr’s term as EM ended. But with power comes responsibility. The City has momentum for redevelopment built over the last few years. But Rome was not built in a day and neither will Detroit’s Renaissance. It will take decades of hard work by calculated risk takers to employ capital to build the City’s tax base. The latest effort by City Council with their proposed Community Benefit Agreement to put restrictions and conditions on future development will retard the City’s growth. It will be difficult for the Judge to assess all the future political roadblocks to the City’s Plan. However, Council wasted no time in demonstrating its lack of concern and foresight into the solutions for creating a sustainable tax base. Businessmen vote with their pocketbooks. If they cant get a return on and of their capital, they move to places where they can. Cities that understand a strong business environment, development and tax base provides resources for good housing stock,education and public safety, thrive. My fear is that there has not been enough emphasis in developing a plan for real estate development within the City. The Future Detroit Plan which has many good ideas does not have a defined start or a dedicated champion to fulfill its mission. The political leaders of Detroit have a demonstrated history of suppressing an economic environment to attract a critical mass of champions of commerce and development. The risk to Detroits future and the required safeguards do not appear to be properly analyzed by the legal and financial engineers. It will be interesting to see how Judge Rhoades will assess this risk in approving Detroit’s plan especially in light of City Council’s preemptive action.