Exploitation of Detroit's debt

"JPMorgan Committing $100 Million Over 5 Years to Aid Revitalization in Detroit"
2014-05-20 by Steven Yaccino and Jessica Silver-Greenberg from the "New York Times" [www.nytimes.com/2014/05/21/us/jpmorgan-committing-100-million-over-5-years-to-aid-revitalization-in-detroit.html]:
JPMorgan Chase, the nation’s biggest bank, will provide $100 million to help debt-ridden Detroit with housing repairs, blight removal, job training and economic development projects over the next five years, according to two people with direct knowledge of the plans.
The investment, a mix of loans and grants, will add to a growing pile of money from outside private institutions as the city nears the final, painful stages of the nation’s largest municipal bankruptcy proceeding. Detroit filed for bankruptcy protection in July, with an estimated $18 billion in long-term debt. This summer, a federal judge will decide whether to approve a plan that would allow the city to exit bankruptcy court by mid-October.
In recent days, the city has been lobbying to secure nearly $200 million in funding from Michigan lawmakers, who are wary of setting a precedent by using taxpayer dollars to bail out a major metropolis. If approved, the state funding would be part of a so-called grand bargain that would also include hundreds of millions of dollars from philanthropic foundations. The money would be used to cushion pension cuts for Detroit retirees and avert the sale of the city’s art collection. The Legislature is weighing a package of bills regarding the outside funding this week.
JPMorgan’s support, previously reported by Detroit newspapers, will focus on city revitalization efforts and may help ease concerns by some legislators that Detroit could find itself in financial trouble again down the road. The institution’s chairman and chief executive, Jamie Dimon, will make a public announcement about the money with state and city officials on Wednesday. A spokesman for the bank would not discuss the matter before then.
“The city’s challenges remain significant — unprecedented, in some regards — but JPMorgan Chase believes that Detroit has the ingredients and intrinsic strengths to reshape and rebuild a dynamic modern economy and make the city a great place to live, work and invest,” said a company document detailing how the $100 million would be spent, which The Detroit Free Press posted online on Tuesday. “We are committed to helping make that future a reality.”
The bank will direct half of the money to community projects that would otherwise lack access to capital. It will put $25 million toward assisting groups like the Detroit Land Bank Authority and the Detroit Blight Removal Task Force, which have begun aggressive demolition campaigns to rid the city of its estimated 78,000 vacant structures. The rest will be diced up: $12.5 million for work-force training, $7 million for small-business assistance and $5.5 million toward economic growth projects such as a new streetcar system.
The company announced another five-year initiative in December that infused $250 million into Detroit and other big cities for job-skills training. Both efforts come as JPMorgan emerges from a period of intense scrutiny. The bank reached a $13 billion settlement in November over its sale of questionable mortgage securities in the prelude to the financial crisis.
Goldman Sachs, another bank that has been buffeted by regulatory woes, pledged $20 million to Detroit in November for job creation and economic development.


"Detroit Urged to Tear Down 40,000 Buildings"
2014-05-27 by Monica Davey from the "New York Times" [http://www.nytimes.com/2014/05/28/us/detroit-task-force-says-blight-cleanup-will-cost-850-million.html]:
DETROIT — A task force convened by the Obama administration issued the most detailed study yet of blight in Detroit on Tuesday and recommended that the city spend at least $850 million to quickly tear down about 40,000 dilapidated buildings, demolish or restore tens of thousands more, and clear thousands of trash-packed lots.
It also said that the hulking remains of factories that dot Detroit, crumbling reminders of the city’s manufacturing prowess, must be salvaged or demolished, which could cost as much as $1 billion more.
If carried out, the recommendations by the Detroit Blight Removal Task Force would drastically alter the face of the nation’s largest bankrupt city. They would also cost significantly more than the approximately $450 million that the city already plans to spend on blight, raising questions about the feasibility of the vast cleanup effort, which is part of its larger campaign to emerge from bankruptcy by fall and begin remaking itself.
And the recommendations are certain to raise even more questions on the streets of Detroit about which neighborhoods will be helped first, and which will have to wait.
The blight study, which is perhaps the most elaborate survey of decay conducted in any large America city, found that 30 percent of buildings, or 78,506 of them, scattered across the city’s 139 square miles, are dilapidated or heading that way. It found that 114,000 parcels — about 30 percent of the city’s total — are vacant. And it found that more than 90 percent of publicly held parcels are blighted.
All in all, the report provides a remarkably gloomy, block-by-block portrait of the hollowed-out city’s misery and a virtual record of how Detroit’s population, once 1.8 million, has fallen to fewer than half that.
“Blight is a cancer,” Dan Gilbert, a business executive and leader of the blight task force, said on Tuesday, laying out highlights of the report, more than 300 pages and months in the making. “Blight sucks the soul out of anyone who gets near it.”
Using state law as a starting point, the authors defined blighted lots in a number of ways, including properties that are no longer structurally sound, have been damaged by fires, or become neighborhood dumping grounds. Hundreds of workers spent months driving around the streets here, observing and photographing the city’s approximately 377,000 parcels and feeding that detailed information into what is now, in essence, a complete computerized census of its buildings and lots.
“Detroit needs to act aggressively to eradicate the blight in as fast a time as possible,” the report concluded, noting that the city needed to move faster than any other city contending with a high level of decay to keep matters from growing even worse.
City leaders call for ending blight in the city’s residential neighborhoods in five years, while acknowledging that dealing with big empty industrial buildings — some 559 of them — could take longer.
“These structures are unique because of their larger size and their potential for greater environmental issues than other structures,” the report said, noting that the cost of demolishing just a single large industrial building can run into the tens of millions of dollars.
“Without a solution,” the report said, “they will continue to exert a downward pull on any efforts to restore the neighborhoods in which they are located, and as well as on the city as a whole.”
The report also made several recommendations for preventing blight in the future, including changes to property tax and foreclosure laws, and heavy fines for scrap metal theft.
Kevyn D. Orr, Detroit’s emergency manager, said that the city’s problem with blighted buildings had mounted since the Great Depression, despite being the subject of multiple studies by previous city administrations. The current report, which has the backing of federal, state and local officials, was finally a detailed and unified answer, Mr. Orr said. “This is an unprecedented time and an unprecedented day,” he said. “Here we are, 83 years later, with the tools to address it.”
Still, the challenges ahead are enormous. A tangle of rules can make it difficult to even secure run-down buildings so they can be torn down or fixed up. Actually demolishing a building is time consuming, too, particularly at such a scale. And while the city has plans for how to pay for about $450 million of what is needed, including some already dedicated federal funds, much of that still needs federal court approval as part of the bankruptcy process.
Another $400 million — and perhaps more for the industrial sites — could be sought later from foundations, private donors and the government, officials here said.
“This money will come,” Mr. Gilbert said.
But officials acknowledged that they currently have no particular plan for securing so much money in such a short time, particularly given all of Detroit’s other looming needs, such as improved police services and firefighting equipment.
The survey grew out of a task force convened in September by the Obama administration, which was seeking options for ways Detroit could remake itself after it became the nation’s largest city to file for municipal bankruptcy. The task force, which included business, academic and foundation leaders from Detroit, offered measures for sorting out which neighborhoods to tackle first, an issue that has long been a concern for some of the city’s most troubled blocks, which in some cases have just a few families in homes on otherwise empty streets.
The basic plan, Mayor Mike Duggan said, is to clean up neighborhoods with the fewest blighted structures first to prevent them from falling into more widespread decay. Neighborhoods with numerous dilapidated houses on every block will come later, he said.
“Everybody understands you can’t do every place at once,” Mr. Duggan said, adding that the data from the task force survey was driving those choices. “I think people are pretty pleased at the fairness with which we’re doing it.”
One question the blight task force report did not answer was what should become of the more than 100,000 empty lots that exist now and the many more that will be left behind with more demolitions.
For years, some here have contemplated consolidating some of the city’s neighborhoods to allow the city to provide services to a smaller area, more suited to its shrunken population. But the report — named, in part, “Every Neighborhood Has a Future” — takes no stand on the notion of shrinking the city’s footprint.
Mr. Duggan, who took office in January, said that he was focused on answering the blight issue now and had no intention of ever forcing anyone from a home.
“We’re not talking about cutting off services to anybody,” he said. “But at some point are we going to create positive incentives for people to move from the less populated areas into the more populated areas? At some point we’ll get to that.”