The blog of the Urban Institute
July 29, 2013

Will the Obama Administration tell Detroit to drop dead?

July 29, 2013

Hardly, but this weekend, Treasury Secretary Jack Lew made the rounds on the Sunday morning talk shows defending the Obama Administration’s decision not to “bail out” Detroit from its current bankruptcy crisis.

Since the city’s Emergency Financial Manager Kevin Orr filed the Chapter 9 papers, I’ve read many editorials, op-eds, and blog posts petitioning the federal government to help the city of Detroit in the same way it backed the auto industry in its moment of crisis. Instead of a major intervention, Secretary Lew suggested that the federal government could assist through its “normal programs,” such as Community Development Block Grants, transportation funding and Community Policing grants. He fought back criticism by suggesting that the conditions that made the auto industry loans possible in 2009 and 2010 were “unique.”

In my opinion, it is not a question of whether the federal government should assist Detroit and its citizens, but how it offers help.

Last week, Sam Roberts of the New York Times’ City Room blog retold the history of what happened when New York’s finances faltered in the mid-1970s. Initially, the federal government resisted lending a hand to America’s largest city. (Remember the extensively quoted New York Daily News headline “Ford to City: Drop Dead”?)  Instead, the threat of bankruptcy got everyone to the table.

It’s easy to forget, however, that New York did not return from the brink of bankruptcy purely on its own. President Ford would later sign the New York City Seasonal Financing Act of 1975, which extended $2.3 billion in federal loans to the city for three years. In 2013 dollars, that’s nearly $10 billion in loans. So while the Obama Administration may not be extending new resources to Detroit today, if history is any guide, there may be special investment down the road.

When Secretary Lew said that the Obama Administration’s strategy is to use “normal programs” to help Detroit, the truth is that normal federal programs pour hundreds of millions of dollars into Detroit already. Sometimes these resources are left on the table, because cities don’t have the capacity to use them. What does that mean? It means they cannot navigate the rules and regulations that come along with many federal funding streams. If used effectively, efficiently, and, yes, creatively, existing federal resources can go a long way toward putting Detroit on the path to solvency and a better future.

I’m as impatient as the next person, but considering the fact that this crisis was decades in the making, it makes sense to me that the Administration is not over-reacting to current events, but signaling through its deeds and ongoing commitment to creative problem solving that it's in it for the long haul, which is just where it should be at this point.

Tomorrow, I’ll identify some actions I think the Administration and Congress can take to help Detroit that will benefit other cities as well.

Daily News photo from Wikipedia


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Hi Michael -- yes, I do have examples from my experience at HUD. It is unfortunately the case that some communities do not use the federal monies according to the rules established through regulation or statute and must return resources, or have future grants reduced to compensate for the fact that they spent the resources improperly. Because rules are complicated, some communities are slow to spend resources and miss deadlines for obligating funds. If they do not obligate funds by the statutory deadline they must return them. HUD is one agency that has invested heavily in technical assistance in order to avoid this dynamic.
I agree that a swift response of pouring billions in loans and emergency aid is not necessarily in order. It would set a bad precedent and local leadership needs some time to implement whatever austerity measures are necessary to keep the city functioning. I have a question on your point about cities leaving funding on the table due to a lack of capacity to utilize it. Do you have examples of this? Is this a problem that is exclusive to Detroit or does it happen elsewhere. I believe that it happens, but I'd like an idea of how widespread the problem is. This is a troubling notion, considering most cities don't get enough money to meet their housing and infrastructure needs.