Comparing the City of Brotherly Love with Motown: Reflections on How to Effectively Transform Urban Economies

By Martin Lavelle

When I think of Philadelphia, the following subjects come to my mind: Benjamin Franklin, Betsy Ross, the Liberty Bell, Independence Hall, the Declaration of Independence, and the Constitution. Also, being a sports fan, I think of what a great sports city it is: There’s quite a passionate fan base for its professional teams, as well as Big 5 college basketball at the Palestra. Admittedly, as someone who works in and studies Detroit, it doesn’t naturally occur to me to compare Detroit and Philadelphia like I would Detroit and Pennsylvania’s other major city, Pittsburgh, with its historical reliance on one manufacturing sector, steel. However, as I looked more deeply into Philadelphia’s history, I found myself drawing multiple parallels between the Motor City and the City of Brotherly Love.

On September 21–23, 2016, the Federal Reserve Bank of Philadelphia, other Federal Reserve Banks, and additional sponsors and supporters convened the Seventh Biennial Reinventing Our Communities Conference. The theme of this year’s conference was how to transform our economies. The conference’s sessions covered topics such as how to increase access to capital, how to supply a greater stock of affordable housing and address workforce needs, and how to make philanthropic foundations play a more effective role in communities’ economic transformations. This conference provided an opportunity for me to learn about initiatives in other communities and compare them with developments in Detroit. This will be the first of two blog entries in which I discuss the conference and some of my own analysis inspired by it. Here I will draw some historical and current comparisons between Detroit and Philadelphia. In my follow-up blog post, I will recap the conference and compare Detroit’s efforts to transform its economy with ongoing efforts occurring across the country.

Background

As part of my usual preparation for a conference (especially when a city tour is included), I did a statistical comparison of Detroit and Philadelphia. The table below shows the statistical similarities and differences I found most interesting between the two cities.

portland-chart-1

Note: MSA means metropolitan statistical area.
Source: QuickFacts Beta, U.S. Census Bureau.

The population figures stand out for many reasons. First, it’s easy to forget that back in 1950, when their populations peaked, Detroit and Philadelphia were similarly sized cities. Nowadays, just six and a half decades later, Philadelphia has almost two and a half times as many people as Detroit. Back in the middle of the twentieth century, the population of each city made up around 57% of its respective metropolitan area. But as of last year, Philadelphia’s population share of its metropolitan area (26%) was noticeably larger than Detroit’s population share (16%) of its metropolitan area. The fact that Philadelphia’s population increased over the past 15 years boosted the divergence in population trends. Over the period 2000–15, Philadelphia added almost 50,000 people, while Detroit lost 274,154 people. In terms of demographics, Philadelphia is much more diverse. Also, a higher percentage of Philadelphia’s population has attained a bachelor’s degree or higher—thanks in part to the University City neighborhood, anchored by the University of Pennsylvania and Drexel University, and the presence of many other institutions of higher learning within the city’s limits. Given the divergence in demographics, the difference in home values isn’t surprising, but it still jumps off the page.

Philadelphia’s Financial Challenges

Like Detroit, Philadelphia has encountered fiscal challenges. And like Detroit, Philadelphia’s financial problems simmered for many years before boiling over in the early 1990s. The City of Brotherly Love became the first U.S. city to impose an income tax when it did so in 1939. (1) Philadelphia’s income tax remained in a range of 1.0% to 1.5% until the 1960s, when it started to increase, eventually reaching 3.0% in 1970 and almost 5% in 1985. (2) The increase in the city’s income tax rate was one of the leading factors in city residents deciding to leave for suburban communities. Philadelphia’s fiscal crisis peaked in 1990–91 when a structural budget deficit of $154 million was revealed, with expectations of deeper budget deficits in future years. (3) The city received financial assistance in the form of the Pennsylvania Intergovernmental Cooperation Authority (PICA). PICA sold bonds on Philadelphia’s behalf. It also required the city to adopt a five-year financial plan that had to be approved in order to gain access to capital markets and state funding. (4) Led by Mayor Ed Rendell, the city followed its five-year plan while privatizing selected services, introducing more competitive bidding for city projects, and freezing wages for city employees, all of which helped lead to Philadelphia’s recovery in the late-1990s. (5) Philadelphia also began lowering its commuter tax in 1995, converging city and suburban residents’ respective tax burdens. (6) It has been estimated that increases in Philadelphia’s city wage tax cost the city 207,000 jobs from 1973 to 2003. (7) Two separate tax commissions created in the 2000s concluded Philadelphia’s tax system was outdated and needed to be reformed. (8) In 2014, the Greater Philadelphia Chamber of Commerce released a public/private collaborative plan with the aim of organizing growth-based activity in and around Philadelphia. The chamber’s plan called for improving the city’s competitiveness, producing a well-educated workforce, creating an environment for business growth, and enhancing Philadelphia’s infrastructure. Such efforts will have a familiar ring to Detroiters too.

West Mount Airy: A Gift to Philadelphia from Detroit

The conference began with a tour of Philadelphia’s West Mount Airy neighborhood, one of the nation’s first intentionally racially integrated neighborhoods. The effort to preserve racial diversity within West Mount Airy was led by West Mount Airy Neighbors (WMAN). WMAN was founded in 1959 to deal specifically with the issue of racial integration. (9) One of the founders of WMAN was George Schermer, who tried to organize a similar effort in Detroit before coming to Philadelphia.

After Detroit’s 1943 Belle Isle uprising, Mayor Edward Jeffries formed an Interracial Commission and appointed Schermer as its director. (10) In the early 1950s, Schermer lobbied for an integrated housing development in Detroit’s west side. The development was to be called Schoolcraft Gardens. The Schoolcraft Gardens development attracted private funding and the United Auto Workers (UAW) as a partner. (11) Unfortunately, multiple forces prevented the integrated development from taking shape. First, the neighboring, all-white Tel-Craft homeowners association opposed the Schoolcraft Gardens development. Also, later on, a different Detroit mayor, Mayor Alfred Cobo, vetoed the approval of the development project. Soon afterward, the Interracial Commission was dissolved and replaced by the Commission on Community Relations, whose members would be appointed and could be removed without cause by the mayor. (12) Not surprisingly, when the City of Philadelphia offered Schermer the opportunity to head its newly created Commission on Human Relations, Schermer left Detroit. (13)

Under Schermer’s leadership, WMAN fought housing and education policies that advocated for segregation. WMAN and the neighborhood itself consisted of high-achieving, well-educated, progressively minded people, who were the demographic they looked to attract to the neighborhood. One might argue this allowed integration to work, whereas Detroit saw comparatively less educated groups across different races compete for similar jobs and economic standing, putting the groups at odds with each other.

Impressively, the commitment to diversity in West Mount Airy remains strong. Since 1980, at least 40% of West Mount Airy’s residents have been African Americans. (14) According to Sarah Zelner, who presented background information about West Mount Airy during the conference tour, the neighborhood has a strong LGBTQ presence, in addition to being diverse in terms of race and education. Efforts to maintain the neighborhood’s diversity and affirm its commitment to open dialogue include the long-running Mt. Airy youth baseball league and, more recently, monthly conversations about racial issues. In the evening of the day of the tour, the neighborhood’s main thoroughfare shut down and turned into a street fair that showcased West Mount Airy’s diverse restaurant community.

All that said, the neighborhood isn’t without its challenges. Between 1950 and 2010, West Mount Airy lost around half of its population. This loss in population has impacted the dynamics of the neighborhood in many ways, especially in terms of its educational offerings. The high school located in West Mount Airy closed in 2013—a direct result of the population loss, as well as more-affluent students enrolling in private schools in other neighborhoods. In addition, while the overall racial diversity of West Mount Airy has been maintained, African Americans have been clustering closer to the East Mount Airy and East Germantown neighborhoods, which are both predominantly black. (15) While traveling through the area, I noticed a contrast between West Mount Airy with its homes constructed of stone native to the area and East Mount Airy with housing stock of relatively poorer quality. To combat population loss and preserve the neighborhood’s identity, West Mount Airy is trying to attract more immigrants, highlighting the neighborhood’s cultural history and mixed small business community as selling points.

Gifts in Return from Philadelphia? Possible Lessons for Detroit

The background material I read on Philadelphia’s West Mount Airy neighborhood discussed housing density (as measured, for example, by homes per city block) and its correlation with racial integration. The material cited multiple studies that suggested lower housing density is more amenable to achieving greater racial diversity. (16) This might be one lesson from Philadelphia’s experiences that Detroit might want to apply as it remakes itself. The Motor City is seeking to create dense and diverse population centers within its borders, as it once had decades ago. Part of this goal is being achieved by removing blight. But as neighborhoods are reorganized, city officials may want to keep in mind how racial integration was achieved in Philadelphia and not make the housing density of newly configured neighborhoods too high. Striking the right balance between population and housing density to achieve better racial integration and higher-level services for all citizens than at present will be a challenge, but Detroit can look to some of Philadelphia’s neighborhoods for some examples to follow.

Widening the focus back to the entire city, I think the topic of city residents’ tax burdens should be explored in greater depth. As mentioned previously during my review of background material on Philadelphia and as discussed somewhat during the conference, Philadelphia has reformed its tax system in order to have the tax burden of its citizens be more similar to that of residents in the surrounding suburbs. This is yet another lesson Detroit officials might learn from Philadelphia in order to draw more people to reside within its borders. Indeed, Detroit may want to look to reform its tax system as well. When studying the tax burdens of the largest city in each state and Washington, DC, (17) the total tax payments expected from Detroiters as a percentage of their income rank in the top five. (18) When breaking down tax payments by category, Detroiters’ income tax burden ranks near the top for families making $50,000 or more, and their property tax burden is the highest among the states’ largest cities and Washington, DC. (19) While Detroiters’ sales, use, and gasoline tax burdens rank relatively low, significantly high auto insurance premiums more than make up for it. Detroiters pay more than twice as much as the next city (New Orleans) and over three and a half times more than Philadelphia, which ranks tenth. (20) Current Detroit Mayor Mike Duggan has proposed legislation that would create an auto insurance product specific to Detroit, though this proposal has its critics. (21)

Following what initiatives are and aren’t working in other cities and informing city officials and stakeholders about the results of those different initiatives is important to Detroit’s rebound. This is one of the main reasons why I attended this year’s Reinventing Our Communities Conference. The Detroit Branch of the Federal Reserve Bank of Chicago serves the function as information gatherer for the mayor’s Post-Bankruptcy Working Group, as well as the city’s group that works on affordable housing efforts. Efforts to strengthen communities in Detroit and elsewhere through philanthropic, private, and public partnerships have become more widespread in recent years. The Federal Reserve—especially the Detroit Branch of the Federal Reserve Bank of Chicago—has played a major role in bringing different types of organizations together generate solutions that will benefit those communities for years to come.

Read my next blog entry to get more details on the conference panels that I participated in.

References
(1) See p. 3 of http://economyleague.org/uploads/files/783716581668902685-the-sterling-act-a-brief-history.pdf
(2) Ibid.
(3) See p. 5 of https://www.philadelphiafed.org/-/media/research-and-data/publications/business-review/1992/brso92rl.pdf?la=en.
(4) See p. 1 of http://www.picapa.org/docs/SRFYP/SRFYP_FY16FY20.pdf.
(5) See http://www.nytimes.com/1994/05/22/magazine/mayor-on-a-roll-ed-rendell.html.
(6) See p. 31 of http://www.philadelphiafed.org/research-and-data/publications/business-review/2003/q2/brq203ri.pdf.
(7) See p. 27 of http://www.philadelphiafed.org/research-and-data/publications/business-review/2003/q2/brq203ri.pdf.
(8) See p. 15 of http://www.centercityphila.org/docs/CCR14_employment.pdf.
(9) See p. 42 of Barbara Ferma, Theresa Singleton, and Don DeMarco, 1998, “Chapter 3: West Mount Airy,” Cityscape: A Journal of Policy Development and Research, Vol. 4, No. 2, pp. 29–59, https://www.huduser.gov/Periodicals/CITYSCPE/VOL4NUM2/ch3.pdf
(10) See p. 1 of https://libdigital.temple.edu/pdfa1/Oral%20Histories/AOHWMPJZ2015030001Q01.pdf.
(11) See p. 76 of Lloyd D. Buss, 2008, “Chapter 2: City Influences Religion’s Response,” The Church and The City: Detroit’s Open Housing Movement, University of Michigan, PhD dissertation, https://deepblue.lib.umich.edu/bitstream/handle/2027.42/61748/ldbuss_1.pdf?sequence=1&isAllowed=y.
(12) See Buss (2008, p. 77).
(13) See Ferma, Singleton, and DeMarco (1998, p. 42).
(14) The share of African Americans residing in West Mount Airy was 41% as of the 2010 U.S. Census.
(15) See http://philadelphiaencyclopedia.org/archive/mount-airy-west/.
(16) See Ferma, Singleton, and DeMarco (1998, p. 41).
(17) See pp. 12-21, 24 of http://cfo.dc.gov/sites/default/files/dc/sites/ocfo/publication/attachments/2014%2051City%20Study.final_.pdf.
(18) This ranking does not apply when examining families making less than $50,000 per year. A family is assumed to be made up of two income earners and one school-age child. See p. 13 of http://cfo.dc.gov/sites/default/files/dc/sites/ocfo/publication/attachments/2014%2051City%20Study.final_.pdf.
(19) See pp. 16, 31 of http://cfo.dc.gov/sites/default/files/dc/sites/ocfo/publication/attachments/2014%2051City%20Study.final_.pdf.
(20) See https://www.nerdwallet.com/blog/studies/expensive-cities-car-insurance/.
(21) See http://www.detroitnews.com/story/opinion/2016/03/23/detroit-insurance-cut-rate-policy/82194396/.

Are Businesses Returning to Detroit?

by Martin Lavelle, business economist

Introduction

Detroit’s population fell by almost 50% from its peak of 1.85 million in 1950 (1) to around 950,000 in 2000. Since 2000 (2), Detroit’s population has declined at a faster rate. The U.S. Census Bureau reports that Detroit’s population stood at 680,250 as of 2014 (3). As Detroit’s population migrated elsewhere, so did many of its businesses. How many businesses have left the Motor City since around the turn of the twenty-first century? And are new businesses replacing them in the aftermath of the Great Recession (which ended in mid-2009)?

In this blog entry, I will address these questions by using the County Business Patterns (CBP) data series from the U.S. Census Bureau. The CBP data series provide the number of business establishments (4) by county and zip code. The business establishments reported in the data are sorted by employment size classes. In addition, CBP data sets provide employment and payroll data. CBP data are collected on an annual basis, but with a two-year lag. Here I will analyze business patterns by geography and industry among Detroit zip codes (and elsewhere) between 1998 and 2013.

Analysis

Figure 1 shows a map of Detroit by zip code. The zip codes shown below were used to analyze the change in the number of business establishments in Detroit over the period 1998–2013 (5).

2016 0208 figure 1

Figure 1. Map of Detroit zip codes
Source: Lowell Boileau, available at http://www.atdetroit.net/forum/messages/107211/106465.jpg.

Table 1. Percent change in number of Detroit business establishments, by zip code, 1998–2013
2016 0208 table 1

Source: Author’s calculations based on data from the U.S. Census Bureau, County Business Patterns.

For each Detroit zip code area listed in table 1, I include the prominent neighborhoods and/or landmarks found within it.

Overall, the number of Detroit business establishments decreased 22.3% over the period 1998–2013, according to my calculations using CBP data. As of 2013, the city of Detroit was home to 8,817 business establishments. Approximately one-eighth of these establishments can be found in Downtown Detroit—which saw a similar share of its businesses depart as the city as a whole did over the sample period. Zip code areas that fared relatively better than the city in terms of business retention between 1998 and 2013 contain the Midtown/New Center area along Woodward Avenue, Eastern Market, some areas along East Jefferson Avenue parallel to the Detroit River, and southwest Detroit (including Corktown). These centers of commercial activity are now leading Detroit’s turnaround. Zip code areas that saw a larger percentage of their businesses leave relative to what the city as a whole experienced contain some of Detroit’s struggling neighborhoods—which include East English Village adjacent to Harper Woods and the Grosse Pointes, as well as areas near and around the old Packard plant in Detroit’s eastern industrial corridor (6).

Anyone familiar with Detroit’s narrative will likely be able to give several reasons why its business activity has declined over the past few decades. Besides the outward migration of the residential population, the downsizing and suburbanization of the local manufacturing industry, the deterioration of the city’s talent base as a result of the struggles of the Detroit Public Schools (DPS), government corruption, and the worsening condition of the city’s infrastructure are just some of the contributors to Detroit’s downward trend in business activity.

Given the narrative about Detroit, it is natural to wonder how its recent business losses compare with those of its surrounding areas. Table 2 shows the change in the number of establishments by selected areas in 1998 versus 2013. The national numbers are also given to provide another basis of comparison.

Table 2. Number of business establishments, 1998 versus 2013, and percent change in the number of business establishments, 1998–2013, by selected areas

2016 0208 table 2

Note: MSA stands for metropolitan statistical area; for further details on the Detroit MSA, see http://www.census.gov/population/estimates/metro-city/0312msa.txt.
Source: Author’s calculations based on data from the U.S. Census Bureau, County Business Patterns.

Table 2 shows that despite the 2001 and 2007–09 recessions, the number of business establishments in the nation as a whole increased over the period 1998–2013. However, the number of business establishments declined throughout most of Michigan during this time. Wayne County (including Detroit) and the Detroit metropolitan statistical area (MSA)—encompassing Macomb, Oakland, and Wayne counties—experienced less severe business losses than the city of Detroit. Nearby Washtenaw County, whose county seat is Ann Arbor (7), still saw a slight drop in the number of business establishments over the sample period, but fared much better relative to the city of Detroit.

When examining industry business patterns in the city of Detroit, it is not surprising to find that in percentage terms, manufacturing experienced the greatest loss of businesses over the period 1998–2013. Table 3 shows the change in the number of business establishments by industry during the sample period.

Table 3. Number of business establishments, 1998 versus 2013, and percent change in the number of business establishments, 1998–2013, in the city of Detroit, by industry

2016 0208 table 3

Source: Author’s calculations based on data from the U.S. Census Bureau, County Business Patterns.

One may be somewhat surprised by which subsectors of manufacturing experienced the greatest losses of business establishments (not shown). When analyzing the business pattern data by NAICS (8) code, I found that transportation equipment manufacturing—which includes motor vehicle and parts manufacturing—experienced a sizable drop in the number of establishments (41.5%); but this decline wasn’t the largest one. The manufacturing subsector that experienced the largest decline in establishments in percentage terms was printing and related support activities (–75.3%), followed by machinery manufacturing (–69.9%) (9). When just looking at the raw numbers of business losses among the manufacturing subsectors, I found that fabricated metal product manufacturing experienced the greatest losses: this subsector lost 86 establishments from 1998 through 2013 (almost a 50% contraction). Of the 26 zip codes I analyzed, 17 of them saw greater-than-50-percent declines in the number of manufacturing establishments.

Conclusion

During the 1998–2013 period, the city of Detroit lost business establishments every year. Detroit lost a higher percentage of establishments than its surrounding areas, the state of Michigan, and the United States. The most significant sectorial losses of businesses were from the goods-based side of the economy—most notably, from manufacturing. While the most severe manufacturing losses weren’t from direct transportation equipment manufacturing, they were in complementary industries, such as fabricated metal manufacturing, machinery manufacturing, and printing activities. Geographically speaking, establishments close to Detroit’s border with the Grosse Pointes and those around the former Packard automobile assembly plant shut down in greater proportions than those in other parts of the city.

Because the most recent data available are 2013 data, I am unable to provide any definitive insight into any possible changes in the trend of establishments leaving Detroit since the city exited bankruptcy in late 2014. By many anecdotal accounts, numerous new establishments have settled in the Downtown, Midtown, Corktown, and other select neighborhoods where the most significant public and private investment has occurred of late. As we receive more and newer data, it will be interesting to see whether new business establishments are sprouting up elsewhere in Detroit. Will business (and public) investment in Detroit remain concentrated in its high-activity areas or begin to noticeably branch out to the city’s relatively less active neighborhoods?

(1) See http://www.nytimes.com/interactive/2013/08/17/us/detroit-decline.html
(2) See http://censusviewer.com/city/MI/Detroit
(3) See http://www.freep.com/story/news/local/michigan/2015/05/21/census-estimates-michigan/27661485/
(4) See https://ask.census.gov/faq.php?id=5000&faqId=487 for what is considered a business establishment versus a business firm. In this blog entry, businesses refer to business establishments.
(5)Please note, however, that the 48203 zip code area also includes the city of Highland Park and the 48212 zip code area also includes the city of Hamtramck. The 48239 zip code area lies predominantly outside the city of Detroit, so it wasn’t included in the analysis.
(6) See http://archive.freep.com/interactive/article/20121202/NEWS01/120823062/The-Packard-Plant-Then-now-interactive-comparison-photos.
(7) See http://www.annarborusa.org/live-here/facts-rankings
(8) NAICS stands for North American Industry Classification System. For more details, see http://www.census.gov/eos/www/naics/ and http://www.bls.gov/bls/naics.htm.
(9) I only considered manufacturing subsectors with more than 50 establishments in 1998.

Preview of the upcoming Summit on Inner City Economic Development in Detroit

By Martin Lavelle

In a recent blog, I shared my observations about Pittsburgh’s efforts to revitalize its urban core. Then, I analyzed the extent to which Pittsburgh’s turnaround can serve as a model for Detroit as its city leaders and stakeholders look to revitalize the city’s urban core. While Detroit has begun to replicate the efforts of other cities, such as showcasing the city’s riverfront with the Detroit RiverWalk and collaborating with regional leaders and stakeholders, overall its efforts lag those of other Rust Belt cities. The relatively sluggish pace of Detroit’s efforts to revitalize its urban core are also reflected in the slow development of the city’s business clusters, including new business formation. Meanwhile, other parts of the Rust Belt have advanced the development of their respective business clusters, such as West Michigan’s office and institutional furniture cluster and Pittsburgh’s advanced materials and energy clusters.(1)

Policy professionals, researchers, and other experts will gather in Detroit for a two-day summit–“Revisiting the Promise and Problems of Inner City Economic Development,”—at the Renaissance Center on September 15th and the Federal Reserve Bank of Chicago—Detroit Branch on September 16th. The summit will look at new research and best practices in the field of urban revitalization. It is sponsored by the W.E. Upjohn Institute for Employment Research, the Initiative for a Competitive Inner City (ICIC), the Federal Reserve Bank of Chicago, Economic Development Quarterly, and Sage Publications. For those interested in attending, there is no registration fee but advance registration is required here.

Day 1 will focus on what’s currently happening in Detroit, with an introduction by the Chicago Fed’s Regional Research staff and a bus tour of Detroit provided by the Chicago Fed’s Community Development & Policy Studies group. The tour will highlight some of Detroit’s successes and challenges in its effort to revitalize its urban core and how the three levers of growth—business environment, clusters, and individual firms—are promoting and complementing the efforts of Eastern Market and Midtown Detroit. Eastern Market’s food cluster is expanding in part because of greater economic growth within the city of Detroit. Part of that growth is originating from the development of an innovation district along Detroit’s major boulevard, Woodward Avenue, which is helping to draw young entrepreneurs to work and live in Midtown Detroit. In addition, the tour will illuminate some of what Detroit must still overcome on the path to renewal. The first day ends with a presentation by Detroit Free Press writer John Gallagher, who will share his thoughts about the city.

The second day of the summit will feature two keynote addresses. ICIC Founder and Chairman Michael Porter will look back on his research of clusters and their competitive advantages in inner cities. Later on, Matthew Cullen, President and CEO, Rock Ventures LLC, will provide insight into how his firm has helped contribute to Detroit’s recent surge in economic development. Other featured speakers include Carol O’Cleireacain, Deputy Mayor for Economic Policy, Planning, and Strategy, City of Detroit. Sessions on the second day will examine new thinking on the competitiveness of inner cities and opportunities for business in the inner city.

References
(1)See p.5 of http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.199.4104&rep=rep1&type=pdf

Pittsburgh: A Detroiter’s Perspective

Written by Martin Lavelle

For Detroit or any Rust Belt city looking to revitalize its urban core, Pittsburgh is often brought up as a model to follow. Before World War II, Pittsburgh was well known for the black clouds of soot that often hovered over its downtown area. (Given its industrial legacy, it has been dubbed “the Steel City.” ) But more recently, it has been deemed America’s most livable city six times by three different publications since 2000.(1) According to Scott Bricker of Bike Pittsburgh, Pittsburgh is the fourth most active walking/biking city in the United States. Bike Pittsburgh and other civic-minded organizations and stakeholders have been the key to Pittsburgh’s turnaround. They are united by a mission to make their city thrive.

On June 18–19, 2015, the Federal Reserve Banks of Cleveland, Philadelphia, and Richmond sponsored a policy summit on housing, human capital, and inequality in Pittsburgh. This summit gave me not only a chance to experience Pittsburgh for myself, but also an opportunity to hear from some of the people whose efforts have steered the city in a positive direction. In this blog entry, I will share my thoughts on my visit to Pittsburgh and some observations on how Pittsburgh is and is not a model Detroit can follow in its revitalization efforts.

Background
In preparation for my trip, I did a statistical comparison of Detroit and Pittsburgh. The table below displays the similarities and differences I found most interesting.
Det Pitts table 1
Source: QuickFacts Beta, U.S. Census Bureau.

From the table, it’s clear that both cities lost a similar percentage of their respective populations after peaking in 1950. While both cities’ population densities are similar, the size of Detroit’s land mass stands out: Detroit is more than twice the size of Pittsburgh. When adding up the size of each of Detroit’s vacant land parcels, it amounts to 40 square miles—almost 30% of Detroit’s land area, but almost 75% of Pittsburgh’s!(2) Another major difference between the two cities is their racial composition: Pittsburgh’s population today is predominantly white, whereas Detroit’s shifted from mostly white to mostly African-American.
The other statistics in the table depict a higher standard of living in Pittsburgh versus Detroit. A higher percentage of Pittsburgh’s population has a bachelor’s degree, participate in the labor force and possess health insurance. Not surprisingly, per capita incomes are higher and poverty rates lower in Pittsburgh than in Detroit. The chart below shows how median household incomes have steadied and slightly rebounded in Pittsburgh versus the continued decline in Detroit.

Median Household Income: United States and Central Cities of Pittsburgh and Detroit, Select Years
Det Pitts table 2
Note: All values are in 2009 (inflation-adjusted) dollars.
Sources: Author’s calculations based on data from SOCDS (1969, ’79, ’89, and ’99) and the U.S. Census Bureau (2009, 2012); U.S. Census Bureau data adjusted using http://data.bls.gov/cgi-bin/cpicalc.pl.

When looking at the chart, keep in mind that the city of Pittsburgh lost population in this time frame, yet incomes have started to record positive gains in recent years. So even if the city of Detroit were to continue to lose population, positive income gains in the future are attainable as seen in Pittsburgh.

East Liberty
My business trip to Pittsburgh began by taking one of its rapid buses(3) to the neighborhood of East Liberty, located within the East End of Pittsburgh. According to Rob Stephany, director of community and economic development, The Heinz Endowments, East Liberty was Pennsylvania’s third busiest commercial corridor until World War II (only behind the downtowns of Philadelphia and Pittsburgh). However, activity decreased after World War II as consumers headed out to suburban shopping centers to do their shopping. To try and revitalize East Liberty, Pittsburgh’s Urban Redevelopment Authority decided to make the neighborhood’s center more walkable by transforming much of its outer surface streets into a one-way ring road where visitors could park and then walk to nearby shops. Developers hoped that this plan would also spawn development along the ring road. Unfortunately, the ring road deterred further commercial development and prompted businesses to close and residents to leave. The only major development projects along the ring road were large, multifamily apartment towers.

In the late 1990s, then-mayor of Pittsburgh, Tom Murphy, noticed the relatively poor condition of the East Liberty neighborhood when compared with wealthier neighborhoods Highland Park to the north and Shadyside to the south. Mayor Murphy’s recruitment of Home Depot to the neighborhood along with the creation of a new mixed-income housing development helped lead to East Liberty Development, Inc.’s (ELDI) 1999 community plan, which outlined the community’s vision for the neighborhood.(4) In subsequent years, Whole Foods and Target moved into East Liberty, the apartment towers were torn down, an old Nabisco factory was transformed into lofts and office space (where a unit of Google does business), and East Liberty came to symbolize how Pittsburgh has changed recently.

Because I took a rapid bus, my ride to East Liberty from downtown Pittsburgh only took ten minutes. The quick buses have contributed to East Liberty’s renaissance by providing residents fairly easy access to their respective places of employment while improving the neighborhood’s connections with the rest of the city. When I disembarked from the bus, I couldn’t help but notice the large development project taking place at the transit station. When completed, the East Liberty rapid bus transit station will include a retail/residential complex that will allow easier access to the neighborhood from the station.(5) The development of new residential units in East Liberty has made it a trendy place to live, driving up home values and rents. Unfortunately, recent development has made it more difficult for some lifelong residents to remain in the neighborhood. (6)

As I left the transit station and entered the core area of East Liberty, I was struck by the contrasts in the types of businesses and development. Across from the transit station stood the new Target, but as I walked down Penn Ave. away from Target, I encountered a mix of new construction along with blighted storefronts. A similar mix of buildings greeted me when I turned north on Highland Ave., which is also home to the iconic East Liberty Presbyterian Church that dominates the core area’s landscape. East Liberty was truly diverse in that within blocks, I saw signs of a neighborhood on the rise, including trendy restaurants and boutique hotels, while symbols of struggle—such as run-down apartments, check cashing outlets and discount stores—remained. This dichotomy reminded me greatly of Detroit.

Redefining Pittsburgh
During the summit’s panel on redefining Pittsburgh, Bill Flanagan, chief corporate relations officer, Allegheny Conference on Community Development, said that city leaders and stakeholders looking to revitalize their cities must learn to listen, must craft public policy with much forethought, and must be patient because civic engineering takes time to implement. Leaders and stakeholders in East Liberty have learned those lessons, as evidenced by their increasingly providing opportunities for lifelong residents to stay in the neighborhood, thanks to more mixed-income, affordable housing projects. Kendall Pelling, director of land recycling, East Liberty Development, Inc., shared how ELDI is buying up vacant properties, as well as properties home to crime, in order to lower crime rates and make East Liberty an even more attractive place to live. In the Larimer neighborhood, which borders East Liberty’s east side, assisting lifelong residents in their effort to stay was a central piece of their neighborhood development plan. It seems safe to say that leaders in Pittsburgh are following their own advice, especially the listening part.

In a separate panel, Bill Peduto, mayor, City of Pittsburgh, shared some of the policies and programs he’s participated in or promoted during his tenure on the Pittsburgh City Council and now as the mayor. Mayor Peduto’s comments focused on social mobility and neighborhood investment. Mayor Peduto argued the most important factors to social mobility are the chance to earn a quality education and the ability to get to work. According to Peduto, another avenue for greater social mobility is his policy in granting tax increment financing (TIFs)(7) to developers. Mayor Peduto said his administration only grants TIFs if developers agree to pay their workers prevailing wages. Moreover, the Mayor said he sees a lack of investment in a particular neighborhood as sending a negative message to its residents. As a way to circumvent that potential problem, Mayor Peduto shared that his office assists in writing each neighborhood’s master development plan.

Pittsburgh: A Model for Detroit?
It’s easy to draw a comparison between Pittsburgh and Detroit because both cities saw a majority of their respective fortunes rise and fall with labor-intensive durable goods manufacturing industries. The cities’ and industries’ heydays came in the first half of the twentieth century. To the common observer, it may seem that Pittsburgh’s turnaround happened rather quickly and therefore is attainable for Detroit.
What the common observer may not realize is the forethought and diligence Pittsburgh leaders and stakeholders had regarding their city’s future. In the 1940s, the Allegheny Conference on Community Development—along with David Lawrence, then-mayor of Pittsburgh, and Andrew Mellon, the well-known banker and industrialist—started planning and implementing their idea for Pittsburgh’s future.(8)

In contrast, Detroit has lagged behind other cities in its revitalization efforts. For example, the Detroit Riverwalk Conservancy was formed in 2003 to help make the Detroit Riverfront more visitor-friendly. Impressed by what the Allegheny Conference did in Pittsburgh, the Greater Baltimore Committee began implementing its plan to improve Baltimore’s downtown in the 1950s, which eventually encompassed the city’s Inner Harbor in the 1960s.(9) The planning of Chicago’s Lakefront Trail provides an even starker contrast with the city planning for Detroit. Daniel Burnham’s 1909 Plan of Chicago included plans for a continuous lakefront park with a trail that became the Chicago Lakefront Trail, which was resurfaced in 1979. (10) Detroit unveiled its most recent plan, the Detroit Future City plan, in 2010. This plan is the latest attempt at envisioning the path forward for Detroit. Will the Detroit Future City plan come to fruition? Time will tell if it matches the results already realized in places like Pittsburgh.

Bill Flanagan’s advice for cities and their stakeholders most definitely applies to Detroit, especially the two pertaining to listening and public policy. I associate listening in a Detroit context with regional collaboration—which Detroit and its neighbors have improved upon in recent years. For example, regional authorities were created for entities such as Cobo Hall (our convention center), and regional leaders came up with the “grand bargain,”(11) which helped lift Detroit out of bankruptcy (and save the Detroit Institute of Arts’ collection). More regional collaboration will be needed for other solutions, especially public transportation, which has the potential to increase labor mobility and help better match employers with employees. With regard to public policy, Detroit must continue to improve its delivery of police and fire service in order to ensure the safety of its citizens.

The importance of social mobility and neighborhood investment that Mayor Peduto underscored at the summit is shared by Detroit Mayor Mike Duggan, as demonstrated in his 2015 state of the city address. (12) The magnitude of Detroit’s turnaround will be determined by how far it can reach outside of Detroit’s Downtown and Midtown neighborhoods and into other areas of the city. Just as in Pittsburgh, a strong correlation between neighborhood investment and neighborhood condition exists in Detroit. Mayor Duggan has looked to increase neighborhood investment through programs such as the Detroit Blight Task Force and Detroit Land Bank. One of Detroit’s challenges is to better coordinate activity between city government and city neighborhoods as Pittsburgh has done. Mayor Duggan is in the middle of implementing his neighborhood plan, which included the creation of a Department of Neighborhoods, placing neighborhood managers within each City Council District.(13) Plans to improve social mobility, which in Detroit means reforming Detroit Public Schools have been presented by a task force and Michigan Governor Rick Snyder.

Conclusion
Detroit faces the same obstacles Pittsburgh faced and continues to face, though the magnitude of those obstacles appears larger in Detroit. Most of the obstacles will require greater collaboration among community developers, city leaders, and regional stakeholders so that as many Detroiters as possible can experience the city’s rebound. In many ways Pittsburgh’s redevelopment can serve as a model for Detroit’s, but in other ways it cannot. When the Pittsburgh model doesn’t apply to Detroit, Detroit can look to other cities for ideas. Arguably, the biggest take-aways from the policy summit were the many different plans and strategies other cities have executed that are available to help cities such as Detroit return to prosperity.

Footnotes
(1) Those publications are The Economist, Forbes, and Places Rated Almanac; see https://www.clevelandfed.org/~/media/Files/Events/2015/2015PolicySummit/presentations/PechaKucha_Andrews.pdf?la=en.
(2) See http://www.pbs.org/wnet/need-to-know/economy/shrinking-cities-detroit-pays-its-residents-to-move/8819/
(3) See https://www.itdp.org/library/standards-and-guides/the-bus-rapid-transit-standard/what-is-brt/.
(4) See http://www.eastliberty.org/sites/default/files/plan/files/1999%20Communityplan.pdf.
(5) See http://mosites.net/portfolio/eastside-iii/.
(6) See http://www.post-gazette.com/local/city/2013/11/04/New-era-in-E-Liberty-housing/stories/201311040065
(7) TIF is a financial mechanism used by municipalities and other governments to promote economic (re)development. TIF is intended to generate economic (re)development activity that would not otherwise occur. It works by establishing a specifically defined district, using incremental growth in revenues over a frozen baseline amount to pay for (re)development costs. TIF may utilize property, sales, or utility tax revenues.
(8) See p.3 of https://upress.pitt.edu/htmlSourceFiles/pdfs/9780822942825exr.pdf.
(9) See http://gbc.org/about-us/gbc-history/.“>gbc.org/about-us/gbc-history/.
(10) See http://www.northlakeshoredrive.org/about_history.html.
(11) See http://www.pbs.org/newshour/bb/behind-detroits-grand-bargain-emerge-bankruptcy/.
(12) See https://www.youtube.com/watch?v=GYj9h8i5_60.
(13) See http://www.dugganfordetroit.com/wp-content/themes/duggan/DugganNeighborhoodPlan.pdf.

Economic Development in Detroit

By Rick Mattoon

Detroit is the focus of this blog examining economic development issues in the five largest cities in the Chicago Fed’s District. (For a complete profile of all five cities see “Industrial clusters and economic development in the Seventh District’s largest cities”. Relative to the other large cities, Detroit faces some special challenges. Home to the domestic auto industry, Detroit grew and flourished until increased foreign auto competition began to erode the dominant position of Detroit-based auto producers. With a challenged industrial base and increasing racial strife culminating in the 1967 riots, Detroit began a long process of population out-migration. The city’s population fell from a high of 1.8 million in 1950(1) to the most recent estimate of just under 700,000(2). This combination of industrial and population decline severely challenged the fiscal condition of the city. The city’s large geographic footprint (140 square miles) and declining tax base made it increasingly difficult to provide city services, culminating in a 2013 Chapter 9 bankruptcy filing, which is still being resolved. Not surprisingly, the city’s immediate economic development plans aim to stabilize its population, restore government services, and attract new businesses that should find its relatively low property prices attractive.
Detroit’s Industry Structure

Figure 1 shows Detroit’s employment structure and industry concentrations (location quotients or LQs) relative to the U.S. Detroit has five industries with above U.S. average employment shares and location quotients above 1. These industries are manufacturing (LQ of 1.29 or 29% above the U.S. average), professional and technical services (LQ 1.45), management of companies (LQ of 1.34), administrative and waste services (1.15), and health care and social assistance (1.09). This reflects recent efforts by the city to develop business and professional services in the downtown business district, which has led to investments by Quicken Loans and Compuware.

Figure 1
Notes: ND indicates nondisclosure rules prevent reporting of the data. * Denotes employment shares above the U.S. average.
Source: U.S. Bureau of Labor Statistics.

Economic Development Strategy in Detroit

In December 2012, the Detroit Strategic Framework Plan was released.(3) The long-term planning aspect of the report was produced by a mayor-appointed, 12-member steering committee drawn from the business, community, faith-based, government, and philanthropic communities. The Detroit Economic Growth Corporation managed the project. The plan is designed to recognize core assets that the city has and to examine ways to leverage those assets to restore and stabilize the Detroit economy. The plan creates four benchmark goals for the city to achieve by 2030.

• Stabilize the residential population at between 600,000 and 800,000.
• Increase the number of jobs available per city resident from the current level of 27 per 100 people to 50 per 100 people.
• Enhance the regional transportation network to better integrate Detroit and the rest of the MSA and develop land-reuse plans that will repurpose existing vacant tracks for new types of development.
• Establish an ongoing framework for civic involvement.
The plan also has specific economic development elements that are captured by five implementation strategies.
• Emphasize support for four key sectors with highest potential growth—education and medical, industrial, digital/creative, and local entrepreneurship. To support growth in these sectors, the plan calls for aligning private and civic investments. This includes having work force development strategies specific to these four industry clusters.
• Use a place-based strategy for growth. In practice, this would target “employment districts” where resources would be channeled to promote growth. The plan establishes seven of these districts and assumes these geographic areas have the greatest ability to bring job growth to scale. This would be complimented by growth in industrial business improvement districts and developing capacity for green business.
• Encourage local entrepreneurship and minority business participation. The strategy here is to develop local business clusters that serve the Detroit market—for example, using local suppliers to feed existing businesses as well as seeking to diversify the economic base of the city. This strategy assumes the provision of low-cost shared space and improvements in other local services that are currently being underprovided in Detroit.
• Improve skills and support education reform. Much of this focuses on improving existing work force training by linking it more closely to the private sector and aligning training to local industry needs. It also calls for better integrating work force development with transportation, encourages hiring of Detroit natives, and calls for a study designed to improve city-wide graduation rates.
• Review land regulations, transactions, and environmental actions. This is a broad land-reuse program that focuses on land banking for industrial and commercial property as well as improving development outcomes by speeding permitting in employment districts and identifying alternative sources of capital for development.

It is clear that much of Detroit’s plan emphasizes stabilizing the current economic base as a necessary step to attract new investment. The plan also emphasizes the creation of home-grown businesses, which is likely necessary to fill in declines in retail and other services found in many Detroit neighborhoods.

If we look at Detroit’s recent history of employment growth over the recent business cycle (figure 2), we see that for almost the entire 2000s, Detroit had negative year-over-year employment growth and performed significantly below the average for the Seventh District. However, emerging from the Great Recession, Detroit’s employment growth is above the Seventh District average up until late 2013 and early 2014, which happens to coincide with the bankruptcy filing. The rise coming out of the recession likely reflects the rebound in the domestic auto industry, which still exerts a heavy influence on Detroit’s economy.

Figure 2

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1 http://www.freep.com/interactive/article/20130723/NEWS01/130721003/detroit-city-population
2 http://www.detroitnews.com/article/20140521/METRO08/305210136
3 http://detroitworksproject.com/the-framework/

Industrial Cities Initiative Profiled in New Report

By Emily Engel and Jere Boyle

Community Development and Policy Studies at the Chicago Fed recently published profiles of a group of 10 cities that experienced significant manufacturing job loss in recent decades.
The Industrial Cities Initiative (ICI) includes, Aurora and Joliet in Illinois; Fort Wayne and Gary in Indiana; Cedar Rapids and Waterloo in Iowa; Grand Rapids and Pontiac in Michigan; and, Green Bay and Racine in Wisconsin. While each city has been blogged about before (see the “BLOG” tab), a complete set of more detailed profiles are now compiled into one report.

Collectively, the profiles provide insights from local economic development leaders on the cities’ actions in the wake of the job loss that have either helped or hindered redevelopment efforts.
The authors and contributors to the ICI do not pass judgment on individual cities. So, while we understand the temptation to simply link directly to just one city’s profile, we encourage readers to start their exploration of the ICI with the Summary.

The ICI looked at cities’ conditions, trends and experiences and concluded that efforts to improve their economic and social well-being are shaped by:

1) Macroeconomic forces: Regardless of their size or location, these cities are impacted by globalization, immigration, education, job training needs, demographic trends including an aging population, and the benefits and burdens of wealth, wages, and poverty;
2) State and national policies: State and national policies pit one city against another in a zero-sum competition for job- and wealth-generated firms; and
3) The dynamic relationship between the city and the region in which it is located: Regional strengths and weaknesses to a large extent determine the fate of the respective cities.

The ICI homepage provides access to the full ICI report, individual ICI city profiles and related research, and blogs from around the country about cities that share a manufacturing legacy.