Obama Administration Commits $320 Million for Bankrupt Detroit

With $320 million of federal, state and private aid in hand, top White House officials came to Detroit and vowed to help the bankrupt city fight crime, improve mass transport and eradicate blight.

The money is mostly grants from federal or state programs for which the city is qualified, or for which it needed red tape cut to speed access. Some is expected from private businesses and philanthropy groups. President Barack Obama also has appointed Don Graves deputy assistant secretary of the U.S. Treasury Department, to oversee Detroit’s recovery, said Gene Sperling, director of the National Economic Council.

“We only have one goal, and that is to have all of Detroit working together for one Detroit, with the Obama administration as a key partner,” Sperling said today.

The city, once an auto-manufacturing powerhouse, declared the largest U.S. municipal bankruptcy in history on July 18 after years of decline in which its population fell by more than half, to 700,000 from 1.8 million. The city has more than $18 billion in long-term obligations and is plagued by unreliable buses, broken street lights and long waits for police and ambulances.

Sperling led a delegation that included Attorney General Eric Holder, Housing and Urban Development Secretary Shaun Donovan and Transportation Secretary Anthony Foxx. They met for more than two hours privately with about 70 city and state officials, as well as community leaders who included Mayor Dave Bing, a Democrat; emergency manager Kevyn Orr and Republican Governor Rick Snyder, who appointed Orr in March.

Civic Singularity

Asked at a press conference why it took so long for the federal government to intervene in a city that has declined for decades, Sperling replied, “With bankruptcy, this is an exceptional thing that requires exceptional effort.”

The actions underscore the fine line the administration and state officials must walk, tapping existing programs and unused or underutilized funds, while not asking Congress for federal dollars. Top lawmakers and administration officials have said there is no pathway for a federal bailout of the city.

Donovan said it doesn’t matter whether the aid to Detroit is considered new or redirected money.

“A family living next to a blighted house, they don’t care whether it’s new money or old money they never would have seen,” Donovan said. “It’s money that will make a difference in their view.”

Heavy Lift

Sperling said another meeting is planned this year to discuss education and job training.

“We don’t expect this to be easy, but we expect this to be successful,” he said

Bing said Detroiters will see positive change in two or three years.

Some city debt rallied today. General-obligation bonds maturing in April 2028 traded at about 94 cents on the dollar, the highest since July 18, when the city filed for bankruptcy. The yield on the securities, backed by Assured Guaranty Corp., is 2.23 percentage points more than top-rated bonds, the smallest gap since July 15.

The White House will commit $150 million for demolition of blighted properties and neighborhood redevelopment, in federal and other funds.

Empty City

Grants of $65 million and $25.4 million from public and private sources will be used to tear down and refurbish buildings. Detroit has almost 70,000 empty and abandoned homes and 80,000 empty lots, amounting to 20 square miles of vacant land, about the size of Manhattan, according to a Detroit Future City report.

The demolition money is welcome, though with a typical cost of $10,000 to tear down each forsaken structure, much more is needed, said John George, founder of Motor City Blight Busters Inc. His group is working to secure and remove empty structures primarily on the northwest side.

“We’ll take what we can get,” George said in an interview. “Blight is like a cancer: If you don’t nip it in the bud, it spreads and kills everything. You’ve got to start chemotherapy, if you will, especially in the neighborhoods.”

The Obama administration also announced $3 million from the Justice Department for additional police officers, establishing a bike patrol and supporting youth anti-violence programs. The Federal Emergency Management Agency will expedite access to $25 million to hire 150 firefighters and to buy equipment.

First Step

Police take an average of 58 minutes to respond to priority calls, compared with a national average of 11 minutes, Orr said in a June report. The department’s roster has shrunk by 40 percent since 2003, he said.

“The only way to rebuild the city is to provide a safe environment for residents and businesses,” said Mark Diaz, president of the Detroit Police Officers Association. “We need a lot of work. It’s going to take more than one gesture, but we’re excited about the recognition by the White House.”

The Obama administration will deploy almost $140 million in transit funding, by ensuring access to more than $100 million in Transportation Department grants, including $24 million for bus repairs and security cameras, according to the announcement. Another $25 million in grants will be made available to help a streetcar project.

“These are funds that are greatly appreciated,” said Megan Owens, executive director of Transit Riders United, a Detroit-based nonprofit organization. Typically, one of every six buses is off the road for repairs, Owens said.

“It results in extremely overcrowded buses, people left at bus stops,” she said. “In recent months it feels like it’s getting worse.”