Detroit

Will Crony Capitalists Make Detroit Great Again?

Their schemes to bilk taxpayers in the name of development are getting more outrageous.

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Dan Gilbert, the owner of Quicken Loans (and the Cleveland Cavaliers), walks around Detroit with a veritable halo around his head. He is

Detroit Ruins
Foter.com

credited with having put this Rust Belt city, which only recently emerged from the largest municipal bankruptcy in U.S. history, on the path to revival. He saw opportunity where others saw ruin, scooping up vacant old gems facing demolition. And he didn't just sit on them hoping to dump them when their value inched up. He actually led the comeback, moving his headquarters, along with thousands of employees, to a struggling city at a time when others were streaming for the exits. And now, voila, thanks to his efforts, Motown is back.

It's a nice story. If only it were true!

Alas, the reality is that Detroit's renaissance exists, but only on a seven-mile stretch of this 140–square-mile city. And even this has less to do with Gilbert's visionary capitalism and more to do with his (and his fellow businessmen's) crony capitalism. The latest example is the outrageous "transformational brownfield projects" bill that Gilbert is pushing in the Michigan legislature to collect taxpayer dollars for a skyscraper he wants to build where Detroit's famous Hudson store once stood.

Now, businesses routinely hit up taxpayers for money. They obtain subsidies, tax breaks, special tax write-offs, and low-interest loans backed by state bonds. But this legislation, which has already sailed through the state Senate and is now awaiting a vote in the House, is particularly egregious.

The bill would allow five developers in five cities every year to not just capture part of the property taxes from the brownfield (which is a site contaminated or environmentally damaged by previous users) they are redeveloping, but also $40 million worth of income taxes for 20 years. Whose income taxes? Remarkably, as soon as work on the site begins, the developers will be able call dibs on the income taxes paid by their own construction workers. And once the project is completed, a portion of the income taxes of the residents and the sales taxes of the businesses will be handed over to these developers as well.

The real kicker is that the bill would allow only developers who are planning "mixed use" residential and commercial projects to be eligible — and only if they make out-of-pocket investments worth $500 million in cities with a population of over 600,000. This basically means that in Detroit, only Gilbert's Hudson redevelopment project would fit the bill. This bill is custom-built just for him.

This is galling. The bill will change the tax code to deliver a guaranteed revenue stream directly into the pocket of a rich developer without even subjecting it to the normal budgetary process where the needs of ordinary mortals are considered.

Gilbert justifies this largesse by noting that brownfield cleanup is expensive, and without such offsets, the site would remain vacant and unproductive, doing no good for the city. He also claims that the 734-foot high-rise he is planning would potentially open $2 billion-plus worth of projects from his company alone, presumably offsetting the handouts he receives.

If this were the only government assistance that Gilbert and his business cronies had received in the name of redeveloping Detroit, it would be bad enough. But every major project they've undertaken is chockfull of subsidies.

Gilbert's boosters like to emphasize that he has bought scores of properties and spent several billion dollars of his own money to redevelop them, even arranging for his own security because he couldn't count on the cash-strapped city to provide it. What they forget to note is that he received $50 million in state tax breaks to relocate the Quicken headquarters from the suburbs to Detroit. And his partner in the proposed construction of a soccer stadium, Pistons' owner Tom Gores, received $34.5 million to relocate his basketball team from Auburn Hills to Detroit.

Gilbert and Gores want to build their soccer stadium where county courts and a half-finished jail currently stand. They want authorities to hand over the entire criminal justice complex for their new stadium. Given its prime location, they argue that this would strengthen their bid to land a Major Soccer League franchise. In exchange for this land, along with an additional $300 million in cash and credit for the savings from the new jail, they are offering to build the county another criminal justice center "worth" $420 million elsewhere in the city. This deal is so fishy that even the liberal Detroit Free Press, generally a reliable Gilbert cheerleader, declared itself skeptical that the math would work out for taxpayers.

Gores and Gilbert aren't the only ones hitting up Michigan taxpayers for their stadium fetish. The late Mike Ilitch, the founder of Little Caesars Pizza, obtained $440 million from city and state taxpayers to build a snazzy new ice arena for the Red Wings. Pre-bankruptcy, taxpayers also poured hundreds of millions into building Comerica Park, a baseball stadium for the Detroit Tigers, and Ford Field, a football stadium for the Detroit Lions.

All of this means that if Gilbert and his fellow billionaires now get everything on their wish list, a city with less than 680,000 people (down from 2 million at its peak) will house four new sports stadiums and several new high-rises — all at the partial expense of taxpayers. Oh, and then there is the $187.3 million light rail system that begins operations in a couple of weeks, for which Uncle Sam alone coughed up over $40 million. Gilbert intensely lobbied for the light rail, which will link Detroit's downtown, dubbed Gilbertville because it houses the Quicken office and other buildings where Gilbert's employees live, with the midtown area, where the entertainment district is. Never mind that Detroit's jobless and carless residents would have much more use for bus lines transporting them to jobs outside the city.

But here's the multi-billion dollar question: Will lavishing all these resources — public and private — on such flashy projects work to lift the whole city?

Gilbert and Co. insist that it will. And there is no doubt that the area that they have targeted for redevelopment is showing signs of life. On Woodward Avenue, the main drag that cuts through the city and where the stadiums and other buildings are located, many cool new eateries, night clubs, apartment complexes, and retail shops are cropping up.

However, the whole argument for pouring taxpayer dollars into this area is that its growth will spill over to the rest of the city, opening up jobs and business opportunities for all Detroiters. But research by Michigan State University's Laura Reese and Wayne State University's Gary Sands published earlier this year suggests that on virtually every metric, life outside the targeted zone is worse than it was even in 2010, when the alleged renaissance began.

Detroit's overall population actually declined by 2.6 percent between 2010 and 2014. The unemployment rate among Detroiters increased by 2.4 percentage points between 2010 and 2013. This may have been because of the bankruptcy-induced layoffs of city employees, but Sands maintains that the trends don't seem to have changed much in 2015. "About half of the neighborhoods in the periphery saw employment and payroll declines," he notes. What's more, although the overall number of Detroit businesses remained unchanged between 2014 and 2015, 13 of the more peripheral city zipcodes saw a decline.

In other words, far from the city core leading a comeback, it is at best siphoning — and at worst destroying — business and employment in the rest of Detroit, perhaps because smaller enterprises are having trouble competing with powerful billionaires who can dip into taxpayer pockets and divert other public resources toward their grand designs.

It is too early to declare Detroit's renaissance a failure. But there is every reason to be skeptical of the hype. So far, at least, it seems, if anyone is significantly benefiting in Detroit, it is Gilbert and his fellow crony capitalists — not average Detroiters.

This column originally appeared in The Week.

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  1. Wait until the cars stop selling so well…

    Oh, wait, that’s starting to happen.

    Fun Fact: I attended the demolition of that old Hudson’s building. It was impressive, and if you haven’t seen a building implode in person, I would recommend it.

    1. I saw the Three Rivers stadium in Pittsburgh implode; very cool.

      1. I’m making over $7k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life.

        This is what I do..,.,.,.,.,. http://www.careerstoday100.com

      2. I’m making over $7k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life.

        This is what I do,.,.,.,.,… http://www.careerstoday100.com

    2. The success or failure of the city of Detroit really doesn’t have that much to do with cars. There’s not that much automotive business left in the city itself. Detroit hit its peak population and declined throughout auto boom and bust periods alike.

  2. I predict we are not gonna see too many comments on this article, because the yokels already got their dopamine kick today on the Chapman article.

    1. OK,then, lemme add mine to the “too many comments”…

      Not only corporate CEO fatcats and Government Almighty fatcats can be too greedy… Low-level grunt workers can be too greedy as well!

      Witness auto workers demanding $50-per-hour wages, for decades, while doing nothing more challenging than driving lug nuts… While third-world workers were willing to do the same for $5 per hour, or often much less. The chickens have come home to roost! But the roost has rotted to the ground now, and we the taxpayers are gonna hafta make it all right again, by enriching some fat corporate fatcats! Whoa! Does this make ANY sense at ALL?!?!?

  3. Maybe Detroit could offer Elon Musk a big bag of money to move Tesla and SolarCity to Detroit. I’ve heard green energy is creating tons of jobs.

  4. There was some show on The Weather Channel a couple weeks ago that was showing nature reclaiming the uninhabited bits of Detroit. It was actually pretty cool. But anyway, I was telling my wife how lucky a lot of people would be since Detroit has just become the place where you dump the bodies.

  5. Meanwhile in neighboring Flint, some 8,000 residents got foreclosure notice for failing to pay for water they say is contaminated.

    1. How could anyone foreclose on property due to non-payment of a water bill?

  6. I moved to Michigan a couple of years ago. Overall I like it, but I still find it funny how people born and raised like to talk up Detroit and how it’s coming back.

    I spent a few years in Sao Paulo, Brazil, one of the ugliest cities in the world and it looks like the Vatican compared to Detroit.

    1. Also, somewhat related to the article, the Gov. of Michigan passed what could have been the most “liberal” laws for testing driverless cars throughout the state, and they managed to screw it up in the end providing protections to GM and the other incumbents.

  7. Downtown Detroit has significantly developed since I used to hang out there (say, 10 or so years ago). If the “goal” here is revitalize the city, or at least downtown, say suffer the cronyism. The trendiness of living downtown has be trending up, albeit slowly, but absent a legitimate public transportation system bringing people in from the ‘burbs, companies will be loathe to relocate as there won’t be people / employees commuting – further cleaning the city up make living downtown more attractive and give potentially-relocating employers more incentive to relocate. Somebody has to break the cycle, no?

    1. The idea is to follow the French model – shove all the untermensch into the outlying areas.

      So instead of Vomit Island you’ll have Beautiful City – located in Vomit State.

  8. They tried subsidizing companies and unions on the backs of Detroit taxpayers. Slowly but surely the taxpayers left Detroit and the subsidy schemes went bankrupt.

    The next logical “solution” was to simply subsidize the exact same schemes on Michigan taxpayers. So while “Detroit” may look good, cities like Flint, Sagniaw, etc. all get even worse.

    Eventually Michigan will have Detroit and its handful of taxpayers and nothing else. And the subsidies will go bankrupt again. That’s when the next scheme of a larger pool of taxpayers – the entire US – gets floated.

    If Americans can’t learn from Obamacare, they’re simply too stupid to learn anything.

    1. Unfortunately, most people are too stupid to learn this lesson. Even after Kwame, which is pretty impressive on it’s own.

      1. If Kwame was paroled and ran for mayor today, he would win.

        That’s how fucked up Detroit is.

  9. Bwahahahahaha

    32 comments on morning links

    and look at those stats…

    http://www.alexa.com/siteinfo/reason.com

    So reason, hows that SJW turn working out for you?

    1. Hey look, in terms of global ranking you’re only 955,000 places behind!

      Great job!

    2. That’s mean.

      I have no idea how to interpret the graph. What are the numbers on the vertical axis? Oddly they decrease in the upward direction, which seems to suggest that visits to the site have increased (though that seems unlikely).

    3. Oh, it’s rankings. Nevermind. You’re still being mean. “SJW” is a low blow.

      I think Reason has been doing a rather good job in the past several months. I think Glibertarians is doing good stuff too, but I’ve been avoiding it as part of my plan to waste less time dicking around.

      1. Yes it is global ranking which is not as useful as actual number of clicks per day tracked over time, I suspect you can only get that with their paid accounts.

        What it shows is that relative to all other sites on the internet Reason’s daily unique visitors plunged starting in mid summer of last year, rebounded slightly after the election, then fell off a cliff basically when the other site was founded. Overall in the last 9 months they fell from being in the top 8200ish sites on the internet town do the ~13000ish site on the web

        Now it is possible that some and maybe even most of this decline is related more to increases in traffic elsewhere than declines in traffic at reason but given that their user engagement stats are also all down (and have been consistantly so) and given the timeline of the declines it is pretty clear that if the commentariat did not make up the majority of their daily clicks the views and opinions of the commentariat did match their readership as a whole and therefore they have lost a significant portion of their daily traffic.

        1. I’m sure they have lost a lot of traffic. I’m not sure how important comments really are to them, but they sure did drive a lot of page views, returning users and clicks.

        2. I’m not sure comment count is necessarily a useful metric. If 20 people leave and those 20 people were responsible for 400 comments then that only means you lost 20 chatty people. I’m not sure why anyone would assume that a loss in 400 comments means a loss in 400 viewers. As Zeb noted, it does result in fewer page clicks but that just means that that also isn’t a necessarily useful metric.

          1. That is why I posted the alexia metrics.

            The show a massive drop in clicks (the drop is too large and too precipitous to be increases in popularity in every other site) exactly in response to the problems people had with their editorial direction.

            As their TDS ramped up through last summer it drove some people away, a large number of them came back following the election, then in late January in the period of just a week or two right as the schism happened the dropped 3000 spots that is pretty unambiguous evidence that if the commentators who left were not a sizable percentage of their total clicks a sizable percentage was of a like mind and driven away in silence.

            Anyway you cut it by driving the bulk of the commenters away they have cost themselves a huge chunk of their traffic

            1. I wish we had more history. Because a third possibility is we are seeing drop off from the highs of an election year news cycle. News sites tend to get a lot during presidential cycles. So is the drop off a return to norm, or a true drop.

              Wish we could see 5 years out.

          2. Last I saw isn’t online ad revenue per click? Maybe it’s per click per unique visitor now, I don’t keep up with it like I used to.

  10. http://www.alexa.com/siteinfo/reason.com

    Wow look at those stats plummeting.

    And look, not a single thread with more than 30 comments, not even AM links.

    So Reason, hows the SJW turn working out for ya?

    1. well that and your stupid borked tech

    2. I’m curious, do you guys do it on a dare? Is it just the standard “look at how cool I am”?

      1. You are presuming I am “you guys” I am not, I am just me.

        I have no affiliation with the other site other than commenting there and I still come here, and read the articles and comment from time to time.

        As for why I do it, well I am assuming that the Reason staff still occasionally reads the comments as they used to in the past and I am holding out hope that they may actually learn a lesson and improve back to what they were before their editorial tone changed and they no longer stood as a beacon of, for lack of a better word, reason.

  11. “They are all collaborating like never before to build stadiums, high-rises, light rail, and more, all of which will bring growth and jobs . . .”

    So who’s going to be the one to tell them that high-rises, etc. are the RESULT of growth and jobs, not the cause?

    1. And that’s exactly why they are building new condos and rehabbing office buildings into condos at a furious rate. The vacancy rate in the downtown and midtown area is something under 1% at this point. It’s true that most of the outlying neighborhoods are not getting in on the rebirth, but it’s also not true that nothing is happening outside the reviving core. What’s happening is that the gentrification is creeping both eastwards towards Grosse Pointe and westwards into Corktown. I usually agree with my friend Shikha, but while she’s right about the cronyism, she’s wrong about the lack of substance of the revival.
      The Whole Foods between Wayne State and downtown is full all the time (I hate going there because the parking lot is a madhouse). New restaurants are opening pretty much every week. I went to a fancy burger bar across the street from Avalon Bakery (which pretty much started the revival, long before Gilbert thought of relocating downtown) that opened just a week ago.
      Yes, some of the outer neighborhoods are still war zones, but I’ll disagree with my esteemed colleague quoted in the article that it’s not getting any better outside downtown.

      1. Two other things. The picture is, I think, the old Packard Factory site, which has been a disaster area for years, but was bought by a developer a year or so ago and he plans to convert it into a combination condo/restaurant/art studio site. http://packardplantproject.com/
        Also, remember that while the City of Detroit indeed has only 700K or so residents, the metropolitan area has about 4 million, most of whom consider themselves ‘Detroiters’ and take advantage of what the center city has to offer–the Detroit Symphony, the Opera, the Tigers, the Lions, the Wings and shortly, the Pistons.
        Also, although she didn’t mention it, while the QLine is indeed receiving subsidies from the feds, it’s also receiving enormous subsidies from private sources such as the Kresge Foundation ($50 million) and $10 million from Dan Gilbert. Not your prototypical public works project.

        1. Kresge Foundation? Any relation to Sebastian Spering Kresge, the founder of the S. S. Kresge Company, which was renamed Kmart?

      2. There is a revival in downtown and midtown. It’s being driven by huge tax breaks that will expire:

        http://www.detroitnews.com/sto…../86268916/

        When that happens, the real cost of living in Detroit is going to whack the property values of all the shiny new condos as it did all the legacy buildings in Detroit. The problem is this. Living in Detroit is way too expensive for what you get. Property tax rate of 3.5%. City income tax of 2.5%. The most expensive auto insurance in the nation:

        “Detroit ranked first in the country for car insurance cost with an average annual premium of $10,723.22. The next highest city on the list was New Orleans, at $4,309.61. ”

        http://www.mlive.com/business/…..nsura.html

        Which is why a huge percentage of Detroit drivers go uninsured (they carry insurance just long enough to renew their plates). Homeowner’s insurance is through the roof as well. None of these issues have been fixed, they’ve just been papered over temporarily with tax abatements.

        I will say this about the downtown revival, though — it does demonstrate that there is a demand among the 5M people in the metro area for more urban lifestyle than is currently being met. But all those people didn’t move from Detroit to the suburbs in the first place for no reason, and those reasons still exist.

  12. All the new building and rehabbing in downtown Detroit is being driven by massive property tax breaks. Detroit property tax rates are…wait for it…70 mills. In Michigan, that applies to 50% of the market value, which works out to 3.5% per year. Tax on a $500,000 downtown condo at ‘normal’ Detroit rates would be $17.5K a year, but some of these folks are paying $500 a year for the first 15 years. What’s going to happen to the value of those properties when the tax breaks expire? Ouch.

    And who’s providing the subsidies? Partly other taxpayers in the city, but mostly taxpayers in the rest of the state. Most property taxes go to K12 school funding and in Michigan K12 school funding is centralized, so those tax breaks are coming directly out of the state school aid fund. It’s all a pretty slick trick, though — I don’t think most Michiganders realize how they’re being taken to the cleaners on this stuff.

  13. I’m pretty sure nothing will make Detroit great again this century. It would need an entirely new economy, and you would need to clear away all the debris from the old one would cost more than it’s worth.

    You could literally build a new city right down the road cheaper than the cost of clearing away Old Detroit.

    1. I disagree. What they need is a modern version of Hazen Pingree – who can take on the public sector union cronies and the corporate cronies. He’s the mayor who turned Detroit around in the 1890’s by getting rid of cronyism. And the Georgist tax reform he put in place for Detroit is what created a great half-century there until they ‘reformed taxes’ again in the early 1950’s.

    2. It’s not the (regional) economy, which has been doing fine in recent years. Ann Arbor (about 50 miles west of Detroit) is booming — high rise apartments are being built at a fast clip (without subsidies). Washtenaw County (where Ann Arbor is located) has an unemployment rate of 2.6%. Oakland County north of Detroit is at 3.7.

      There’s more than enough money in the region and Detroit would be redeveloped…if it made sense economically. But it still just doesn’t. Absent big subsidies, the city is a lousy deal. Taxes and other costs are much higher than in the suburbs and exurbs while city crime rates are still very high and the schools are in really bad shape.

  14. Of course crony capitalists will make Detroit great again. Crony capitalists made Detroit great before. Why wouldn’t crony capitalists make Detroit great again?

  15. Crony Capitalists can;t even make the Lions any good. And they’re in the same division as the retarded McCaskey family.

  16. Take the “rewilded” suburbs and split them up into areas for towns able to hold around 6,000 people. Develop them like the Levittowns were done. Build fast so costs can be kept down. Control the unions by cutting the pay for the jobs for taking more time than allotted, and for anything found not built properly.

    Each townsite should have a downtown business zone, schools, local government center etc.

    To keep it working, they’d have to be completely separate from Detroit. Not suburbs, no rules from on high. No homeowner’s associations allowed!

  17. One guy archived this politically incorrect blog rant who’ll trigger lots of trigglypuffs as well as Al Sharpton and Jessie Jackson about the gentrification of Detroit. https://archive.is/9oEjv

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