Wednesday, October 17, 2012

A Manhattan Project for Failing Cities

A Manhattan Project for Failing Cities
Posted by Ryan Holeywell, October 2, 2012

In the 1940s, the military launched an audacious effort to unlock some of science’s greatest secrets as part of a push to develop nuclear weapons. Thousands of scientists -- drawn by a combination of patriotism and the desire to work with some of the greatest minds in their field -- banded together to join the cause.

Eventually that effort, known as the Manhattan Project, developed the atomic weapons that played a critical role in ending World War II. But the knowledge developed through the project, as well as the network of laboratories established to conduct the research, remains part of the project’s legacy today.

Fred Leeb says it’s time for the government to consider a Manhattan Project for America's failing cities.

Lately, Leeb has been making his case for an initiative he calls "Think BIG" (the BIG is for business, innovation and growth) to anyone who will listen. After all, he knows more than just about anyone about the devastation facing some American cities and the seemingly insurmountable challenge of bringing them back from the brink.

In 2009 and 2010, Leeb served as the first emergency financial manager of Pontiac, Mich., a city in such dire financial shape that it was essentially taken over by the state, which then gave Leeb and his successors wide-ranging powers to enact reforms.

Leeb, like most of the state’s emergency financial managers, was popular with neither voters nor elected officials. That’s no surprise, given his task of closing a budget deficit that, at the time, measured either $7.1 million (according to the city) or $12 million (according to the state).

Cutting deficits means cutting costs, and Leeb eventually left Pontiac under less-than-sanguine circumstances. Today, Pontiac is still facing challenges. The city was projected to end the FY 2012 fiscal year with an $8.4 million deficit, according a recent report by Leeb's successor.

While working on Pontiac, Leeb was confronted by a problem facing just about anyone trying to fix a broken city: You can't cut your way to prosperity.

Pontiac, a boomtown in the first half of the 20th century, saw its population decline along with the auto industry. In 1970, it had 85,000 residents, but it's down to 60,000 today. Now, more than a third of residents live in poverty, including almost half of all children. Its unemployment rate is the second worst among Michigan cities, topping 25 percent.

Pontiac, like just about every other financially distressed city, faces a conundrum that seems almost impossible to address. When businesses leave town, so do residents. Both those losses mean less revenue for a city, which translates into cost-cutting. But a city that’s pulling back on services only drives more people away and has an even greater challenge recruiting new businesses and residents.“ To have a strategy where you cut and cut and cut, it only means more cuts are necessary later," Leeb says.

Eventually, cities enter a sort of death spiral, and the only residents who remain are the ones who are too poor to move out. “People live there because they don’t have the means to go anywhere else,” Leeb says. “Everybody else has voted with their feet.”

It’s a spiral that Leeb says cities often can’t solve, even when they turn to drastic steps. His solution: Think BIG.

Leeb wants to see a program, similar to the Manhattan Project or NASA in which the federal government would give a few billion dollars to the country's top minds in order to collaborate on a monumental project. But, in a twist, they'd have to live and work in one of America's struggling cities.

Maybe they’d develop a new form of low-cost housing. Maybe they’d tap into a new source of renewable energy. Whatever they worked on, it would start with hiring some of the top-ranking officials from the country’s preeminent high-tech companies and then giving them the authority to hire hundreds of bright employees. “They’d want to come because they’ll be with their best and brightest peers working on a challenge that will change the country,” Leeb says.

The project would create a solution that would serve a broad, national interest. But just as importantly, their mere presence in the distressed city could help turn it around by giving a tax base to the city as well as customer base to new businesses who would want to be near such a large cluster of smart, creative people.

“You can’t attract one person at a time,” Leeb says. “You have to have a way of bringing a group together, all at once.” Leeb says his idea was developed by conversations with his own son, a recent college graduate, who said he wouldn’t consider looking for a job in Detroit. When Leeb asked if he’d participate in a project like the one he outlined -- even if it meant less money -- his son said absolutely.

It's an idea worth considering. In Michigan alone, the state has given itself authority over seven cities facing significant financial problems. Since 2010, there have been seven cities and localities nationwide that have filed for bankruptcy.

At a time when the federal government is pulling back on spending, an idea like Leeb’s could face serious challenges. But he says even a few billion dollars would be a bargain if it would save an American city. “Spending a couple billion on Detroit? That’s a drop in the bucket compared to what’s already being spent to get nowhere,” Leeb says.

Leeb says that his idea is more likely to succeed than a stimulus program. While a stimulus program can give work to existing residents, it’s not going to do anything to convince new people to move to a city. In Pontiac, for example, millions of dollars spent on road projects would be unlikely to help the city get new residents or new businesses.

The other traditional idea of economic development embraced by cities -- throw tax credits at retailers in hopes that they’ll build a store within your jurisdiction -- isn’t going to fix a place like Pontiac or Detroit either. Businesses are savvy, and incentives aren’t going to convince them to build a store in a place with an eroding customer base.

Essentially, Leeb argues, a struggling city like Pontiac or Detroit needs a lot of new residents at once in order to get momentum heading in the right direction. Traditional models of economic development are ill-equipped to address that need. “There has to be a way of bringing people with means and intelligence and creativity,” Leeb says.

In Detroit, there’s already some evidence that something like Leeb’s vision could work. In 2010, Michigan businessman Dan Gilbert brought the offices of his company, Quicken Loans, from the suburbs to downtown Detroit. Since then, a total of 10,000 new workers are now operating in downtown Detroit, including 6,000 from his businesses and 3,000 with Blue Cross Blue Shield of Michigan, according to the Detroit Free Press. Many of them are reportedly renting apartments and buying condos downtown.

Last year, New York City announced that Cornell University and Technion-Israel Institute of Technology, a school in Israel, won city land and $100 million for infrastructure improvements in order to build a high-tech engineering campus on Roosevelt Island. The hope is that the campus spins off companies that become economic drivers in the city, helping the city diversify its economy that is largely driven by financial services.

Leeb believes Detroit -- with its combination of urban blight, high unemployment and an abundance of open space -- could be the perfect case study for his Think BIG idea. “The economy is not doing poorly because of a lack of money,” Leeb continues. “The economy is doing poorly because we don’t have the creativity and the education and the investments in people that we had previously."

Ryan Holeywell is a staff writer at GOVERNING.


Shane Phillips    |    Commented 13 Days Ago
This idea definitely has appeal, and is reminiscent of what Zappos' CEO Tony Hsieh is trying to do in downtown Las Vegas, but I think the first question we need to answer is which cities are worth saving. In an ideal world the answer is of course: all of them. In the real world, however, if there's going to be a Manhattan project for cities, or even many of them, this is a decision that needs to be made and could have far-reaching and long-term consequences. Does a place like Pontiac, a city that's never been more than a small-to-medium-sized city, the type of place we want to dedicate these resources, both in intellect and in money? I guess another way of saying this is does a city like Pontiac have the "bones" to really become a Great American City? Or is the goal simply rejuvenation but not greatness?
Bill Brooks    |    Commented 12 Days Ago
Quicken owner Dan Gilbert is doing just this kind of "BIG" thinking in his Detroit project, as the catalyst for a massive, creative, forward thinking renaissance project in some of its most blighted areas. Already home to thousands of new, "creative class" citizens, his projects are turning Detroit around. AND he is giving back to the community, providing spaces for the cultural arts organizations that are key to attracting the kind of employees these new start ups seek in their live, work, play environments. And he is doing it with private money!
Rich    |    Commented 11 Days Ago
So he'll probably be arrested for making progress. 
Mike Teague    |    Commented 12 Days Ago
After reading this article, one should ask, “Is Leeb really watching the developments in the world around him?” Big government has sucked the life blood out of many US cities, as well as a number of Euro Zone countries. And Leeb's solution....More government intervention via more social engineering, paid for by the taxpayer. Yet Leeb offers a solution to a problem he doesn’t even bother to define the root cause of. Essentially, did Pontiac fail "in spite of the efforts of government" or "because of them"? Michigan as a whole is a glowing example of failed policy and big government meddling. The question that Leeb and others should be asking is....What is the correct role for government to play in our lives, and should government be allowed to continue to meddle in virtually every aspect of American life? When that answer is identified, and the correct scope of government is established, only then will effective policy making and planning be possible. Additionally, Leeb fails to recognize that right to work and low/ no sales tax states continue to see business and population growth even in the current stagnant economy. Could it possibly be that where government regulation, meddling, and taxes are low, business and society thrives, and where the contrary is true, business and society suffers? The answers to the 'real' problems aren't that complicated. It’s just that Leeb, and others like him, are simply unwilling to recognize the complete failure of 40 years of bad policy and overreach by government as the root causes of what we’re seeing today. “Government is not the solution to our problems. Government is the problem”…Ronald Reagan. “The era of big government is over”… Bill Clinton. Two presidents, representing two parties, with two very different approaches to government, yet coming to the same conclusion. They were both right. Yet individuals like Leeb simply refuse to listen.
Fred Leeb    |    Commented 8 Days Ago
I think that you missed that I was the Emergency Financial Manager in Pontiac. I was appointed to the position because the local officials were suing each other while the city was going off the financial cliff. I saw first hand how the city had been terribly mismanaged by the elected officials for decades and how it wasted the proceeds of the "good old days" when General Motors was the major employer paying tremendous amounts in taxes every year. When I arrived the city had a growing deficit and about $100 million in debt with no financial or strategic plan, aside from relying on the county or state government to enable more debt. There was plenty of blame to go around. There now are many cities where a huge amount has been spent in infrastructure but the population is undereducated, housing is poor (the average price of a house in the city proper of Detroit is about $20,000),city services have been cut and will continue to be cut due to declining taxes and there is at least 25% unemployment. Detroit is in an excellent strategic location but many people with means (prior to Dan Gilbert's efforts) voted with their feet to leave the city for the suburbs or other parts of the country. As a result, there are now about 80,000 blighted houses in Detroit that must be demolished (that alone would cost about $800 million). It is almost impossible for a city in this condition to compete for one new educated tax-paying resident at a time against the myriad of other cities with much more to offer. 
Rich    |    Commented 11 Days Ago
"Could it possibly be that where government regulation, meddling, and taxes are low, business and society thrives, and where the contrary is true, business and society suffers?" Sorry, but no. It is well-known that ppl always prefer government control of their lives so they don't have think and can just be 'entitled' to stuff.
Fred Leeb    |    Commented 8 Days Ago
I am not advocating another pork barrel project where the government will essentially throw money from a helicopter and hope that 10% of it will be used properly. I am advocating a project where a group of the best and the brightest in the country will be challenged to attract and work with their peers. The goal will be to develop something innovative (e.g., a new form of energy that will not need subsidies) that will generate a reasonable return on investment and, just as importantly, bring a new critical mass of people who are educated and demand high-quality services to the city (i.e., new taxpayers). I believe that people who already have proven themselves to be the best in business, science, technology, etc. will jump at the chance to be the leaders of this effort. They will choose the remainder of the core group. I also visualize that, as was the case with NASA or the Manhattan Project, the government had very little say in the day-to-day operations. They let the project leaders decide how to approach and manage the strategies and the issues. The government will have to get out of the way. I agree that if government becomes a significant decision-maker in how the project unfolds, it is likely to be a huge disaster. If the project starts off with the right people, however, they will be motivated primarily by their drive for success and to team with their peers on a project that could change the country in multiple dimensions. In my opinion, Americans seem to do best when they are challenged, not when they are subsidized. I still believe that there are many high-achievers who would love to have a once in a lifetime opportunity to impact the country, even if they already have succeeded elsewhere. 
Rich    |    Commented 11 Days Ago
Way too much 'thinking' here. The Manhattan Project dealt with the hard realities of hard science. *This idea deals with the unknown realities of NO science. So, here's a simple, immediate solution: Stop thinking and start paying. Just announce 'we have a billion $$ and we're going to split it up tax-free among everybody who moves into "Your Town Here" in the next 6 months and stays 5 years.'
Fred Leeb    |    Commented 8 Days Ago
Cities like Detroit already have waited 40-50 years for a resurgence but the population has continued to fall precipitously. Most recently, Dan Gilbert has made a huge difference by bringing about 10,000 direct and indirect employees to the downtown area. But, how many times can he do this and how long will these people stay when public schools are terrible, crime is high, police forces are being cut again and the street lights don't work? This seems to me to be an area where government could invest in people and projects with long-run returns and multiple byproduct benefits. This would be a tremendous improvement over spending much more money on "shovel-ready" projects that create few lasting benefits or returns. I think people would be very surprised at how many dollars are already going into cities like Detroit from federal, state, county and municipal coffers as well as nonprofits (for health benefits, unemployment insurance, food subsidies, housing, roads, prisons, law enforcement, etc.). Do we want to keep that expensive and failing status quo or do we want to recognize our failures and do something about it? 
JTB    |    Commented 7 Days Ago
The Manhatten Project for Cities that your writing of is already underway in Oregon. Oregon's State government embraced a fiscally responsible and progressive Land Use policy which stood directly against sprawl and the "endless" expansion model of continual duplication of infrastructure. Basically, the State mandated Urban Growth Boundaries around every city in the State and it has had the intended effects of a.) curbing sprawl, b.)redirecting investment back into cities and c.) protecting valuable farm and forest lands. Take a trip to Portland and you will see a city that rivals any city in the World. Oregon's "secret weapon" is the containment of sprawl and refocusing of investment back into urban areas. Oregon has not had to provide finance(taxes)for each new water, sewer, highway, and school system everytime some developer decides to buy a farm and build a bunch of houses. The State used its regulatory powers (not tax dollars) to induce developers to rebuild, retrofit, increase density or reuse land in the urban cores that already had infrastructure. The increased urban population densities have created positive feed back loops because they support the florishing businesses which in turn pay taxes and make the area more attractive to more people. Young people are flocking there because of its high quality of life, modern urban amenities, progressive politics and proximity to expansive natural areas that have not been paved over with the homogenous big box retail centers. The Oregon model is the right answer for state government land use control b/c it encourages the private sector to reinvest in cities and allows the government to maintain existing infrastructure and expanding it when necessary. By asking cities to grow thoughtfully and follow land use plans, the state has maintained its cities and controlled infrastructure costs while providing a high quality of life to citizens.

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