Duggan pitching $250M bond issue to wipe out blight by 2025

Christine Ferretti
The Detroit News

Detroit — Mayor Mike Duggan is pitching a $250 million bond issue for city voters this spring to help wipe out Detroit's blight by the middle of 2025. 

The mayor's plan comes as the last of $265 million in federal dollars to raze blighted homes in Detroit winds down, leaving the city at the "halfway point," he said, with nearly 19,000 more vacant houses to demolish or restore. 

Mayor Mike Duggan said a 30-year bond would aid Detroit in tearing down thousands of homes, and, because the city has paid off other bond debts, it believes it can issue the new bonds without raising taxes.

"We feel like we have an obligation as a city to get every abandoned house out of every neighborhood," Duggan told The Detroit News. "This is the proposal that will do this. We're confident this will get the blight finally erased."

The mayor first revealed the concept during a keynote address at the Mackinac Policy Conference in May. 

The proposal is expected to be referred to a City Council subcommittee this week for review. The language has to be submitted to the Wayne County Clerk's Office by mid-December to appear on the March 10 ballot. 

The mayor said the 30-year bond would aid Detroit in tearing down thousands more homes, and, because the city has paid off other bond debts, it believes it can issue the new bonds without raising taxes. 

The city exited bankruptcy in 2014 with a plan to shed $7 billion in debt and invest another $1.7 billion into service upgrades over a decade. Of those funds, about $50 million annually are allocated for blight. 

According to city officials, Detroit has paid off past general fund bond debt ahead of schedule because revenues have been running higher than projections made during its landmark bankruptcy. This allows the city to seek out the bond for blight reduction without raising taxes above the current tax rate of 9 mills.

"We are fully confident that the taxes will never need to go up even if there is a recession or other market change," Detroit's Chief Financial Officer Dave Massaron said. "We built this very conservatively to protect taxpayers."

Massaron said officials are confident the long-term tax rate won't exceed 9 mills. Under state law, the levy has to be set sufficiently to pay the debt. 

The average taxable value for residential property in Detroit is $19,100, which at 9 mills is $171.90 per year. 

The city's financial reserves and its December return to the bond markets capital investment have earned it higher marks among rating agencies, increasing the city's ability to borrow and at lower rates. 

But the city's borrowing capacity remains limited, and it must be mindful of whether a bond for demolition is the best way to commit its taxpayers in the longer term, said Matt Fabian, a partner who leads market and credit research at Municipal Market Analytics in Concord, Massachusetts. 

Cities out of bankruptcy, he said, have a higher risk of economic backsliding, and that's why the city, which came out of bankruptcy with fewer assets than it had going in, "needs to be very careful with how it spends."

"It's not a typical reason that cities borrow, so it does suggest that maybe the city is not yet ready to act like a traditional city," he said. "Cities don't typically borrow for blight, but cities don't typically have the blight that Detroit has."

"It isn't magic," Fabian said. "If you're spending on one thing, you're not spending on something else."

But Massaron said the city has nearly $675 million in capital borrowing capacity for this kind of debt. 

"After issuing the blight bonds, the city would have nearly $450 million to invest in other capital items throughout the city," he said. "We believe that leaves more than enough for the city's capital needs."

Duggan said he first considered the bond several years ago when the city assumed its first wave of federal Hardest Hit Fund money would be expiring.

Instead, the federal government approved $175 million more for Detroit's program.

Duggan said he's grateful to the U.S. Treasury Department for allocating funding for five years to attack the city's blight. But the remaining funds have been allocated, those demolitions are taking place, he said, and "now, we have to finish the job."

As part of the proposal, the administration will ask the council to support a plan to allocate an average of $15,000 to $20,000 per house for renovation, when it's feasible, sparing some of Detroit's blighted properties from being razed. 

The city estimates there are about 7,000 blighted houses that can be saved without a subsidy, but up to another 2,000 others cannot. 

Councilwoman Raquel Castañeda-López said she is concerned that the bond proposal doesn't have the funding ability to assess each house for potential.

"Although blighted, Detroit’s housing stock is still unmatched with its historic homes," she said in a statement. "Notably, for the homes that must be demolished, there has been no conversation around deconstruction.

"While a small industry, deconstruction has the potential to employ more people, preserve salvageable architectural materials and to lessen the health and environmental impact of demolition."

Federal program rules required that blighted houses to be torn down and the effort was limited to neighborhoods that were at least 70% occupied. But under the city's rules, Duggan said, the effort will be able to touch all areas of Detroit and use some of the bond funds to renovate properties.

"Now, without having to deal with the restriction of the federal rules — assuming council goes along with this — we're going to have 1,000 to 2,000 houses that we put $20,000 into and we save them," Duggan said.

"Every chance we can to move a family into a house instead of leaving a hole in the neighborhood, that's going to be the goal."

The federal government, Duggan added, also took the position that the city couldn't give a local preference. But now, Detroit also expects to hire more city-based and minority-owned firms.

Council President Pro Tem Mary Sheffield said she wants to ensure voters are educated about the proposal before it reaches the ballot.

"I have serious concerns about equity and inclusion with respect to contracts and employment as well as access to opportunity and ownership after demolition," she said.

Demolition today, she said, isn't considered construction and is not subject to an executive order that outlines hiring requirements for Detroiters. Her office, she said, is working to change that through a proposed local hiring ordinance.

"We must have guarantees that Detroiters benefit from the use of their tax dollars and that the goal is to truly improve the quality of life of residents and not lead to another urban renewal which amounted to urban removal in the past," she said. "I firmly believe tearing down homes is not building up neighborhoods."

Since it launched in spring 2014, Detroit's controversial demolition program has been the focus of several state and local reviews and a federal criminal probe after concerns were raised in 2015 over rising costs and bidding practices. 

In April, a federal investigation secured guilty pleas from two men over bid-rigging as part of a lengthy criminal investigation into the demolition program. 

A federal watchdog is in the midst of an audit for the risk of contaminated soil in Detroit and Michigan for federally funded demolition work. But the U.S. Department of Justice has signaled it doesn't expect to bring additional charges against public officials for wrongdoing in the federal blight aid effort. 

The controversial history of the program, however, could make a bond a tough sell for some voters, Fabian said.

"To me, it would make it a harder tax increase to swallow for your average city taxpayer," he said. "Hopefully they are careful when paying for blight remediation because of the history."

Lifelong southwest Detroit resident Tom Fayz said he's supportive of plans to further beautify his city. In his neighborhood, there are several abandoned apartment buildings that have attracted squatters and crime. 

"I would definitely support a bond," said Fayz, 76, a member of the Springdale Woodmere Block Club. "To bring the money back into neighborhoods instead of dropping it at Downtown Detroit, yes. If there’s a bond available, we need to use it in the neighborhoods."

During his March budget presentation to council, Duggan noted the city this year is transitioning from a demolition effort controlled by the Detroit Land Bank Authority to a city-administered program.

When the federal government set up the Hardest Hit Fund program, it insisted agencies outside city government run them, he noted. In Detroit's case, Duggan said, that "was a terrible mistake."

The city has had a procurement department of about 50 people, and it just added about 10 more to handle its demolition efforts, Massaron said.

Meanwhile, the land bank had just four employees to execute the massive program when it first began, Duggan said.

"They didn't have the infrastructure to do it, and I pushed them to move faster than they were ready," Duggan said. 

Since spring 2014, Detroit has taken down more than 19,000 structures. Of those, more than 12,000 have come down with federal Hardest Hit Fund dollars, according to the land bank.

Going forward, Duggan said, the land bank will focus on what it was intended to; managing the city's vacant property.

"The land bank should have never been in the demolition business," he said. "It's got 90,000 parcels to manage."

If the bond doesn't advance, it would likely take the city another decade or more to tear down the remaining houses, officials said. 

"We don't see an opportunity in Washington or Lansing right now to get a new significant chunk of funds. So our reality is this: We either solve the problems ourselves or let it sit until Washington or Lansing helps," Duggan said.

"We just don't feel like the problem could wait. I don't know anybody who doesn't think we need to spend this kind of money to finish the job."