Bankruptcy: Setting Up Detroit for a Comeback?
I’ve always had an interest in Detroit. Something about it once being a powerhouse of industry, but now an underdog full of decay, has piqued my interest and compassion. I always hope for Detroit to rebuild and regain its former glory, showing the world that the amazing heart of its remaining citizens (down to around 700,000 from over two million in its glory days, according to the 2010 United States Census Bureau) can conquer all. Now that Detroit has filed for Chapter 9 municipal bankruptcy, the comeback required to restore Detroit needs to be of epic Rocky Balboa proportion.
The Detroit Free Press’s Business Writer Greg Gardner describes the media coverage of Detroit’s bankruptcy as follows: “Suddenly everyone’s a Detroit expert, whether he or she has ever been here or not. Greedy unions. Decades of neglect. Too much government. Not enough government services. Over-dependence on the auto industry. There’s probably someone who has blamed the bankruptcy on bad pizza.”
Well, I’m no expert, but it’s easy to see that Detroit’s energy sector has seen massive fluctuations as the city battles with bringing business and economic diversity to the city and battles its own constant heat waves. Detroit has struggled with paying for its energy use (with over 22% of its electric bills unpaid), and has even reduced utilities in certain city areas (including rolling brownouts to its suburbs), cut over 40% of its 88,000 streetlights, and has asked its dwindling population to move to areas that still receive services (according to Bloomberg.com). This is in addition to already cutting street repair, garbage collection and the police force.
I checked out the Detroit area energy data (an average of 4 hubs in Michigan Independent System Operator (MISO) in/around Detroit), in the ZEMA Suite, our data solution software for the energy industry. I was shocked at how clearly you could see the energy use – even in just the last five years – showing a massive downtrend as Detroit cut services. In Figure 1 below, the blue line shows the energy consumption by Detroit, or its lack thereof since 2008.
In addition, from the graph, you can see that not only has the city been cutting power, but it’s been hit with constant heat waves (the red temperature line), causing increases in electricity prices (which often result in full blackouts for the city).
Philadelphia, the Rocky franchises’ famous city, has been suggested as the next city to follow Detroit’s bankruptcy footsteps due to both cities still paying for old debt incurred for projects to attract jobs and both with more retirees collecting than working paying into pensions. However, according to Philadelphia news organization, Philly.com, bankruptcy isn’t an option as “Pennsylvania law bars the city from filing for bankruptcy until at least 2023.” In addition, “Philadelphia households, on average, earn more 40 percent more than Detroiters,” populations have risen in Philly, and home values have more than doubled since 2000 (and, are double Detroit’s median home value).
Like in the Rocky films, Detroit, a once-great city, is still a contender – municipal bankruptcy or not. In my hopeful opinion, this setback is just the starting bell to signal a great comeback for Motown. University of Toronto professor Richard Florida offered these words of hope for Detroit in the AtlanticCities.com: “Detroit’s downtown urban core is seeing more investment, economic activity and an influx of talent than it has in decades. This revitalization is concentrated and spotty, and it is far from inclusive, but it is certainly something positive — generating jobs, revenue and much-needed hope and optimism that provide a foundation to build upon.”
ZEMA graph created by Ian Mathieson.