Detroit: What Else Besides Cutting Heads
By Fred P. Leeb

This is the fifth in a series of articles that we are publishing to give our clients, friends and acquaintances examples of how we think differently and utilize our insights and experiences for more creative turnaround solutions. We have applied this type of thinking to develop the most effective turnaround strategies for businesses, governments and nonprofits.

We understand that drastic cuts in Detroit's personnel costs are needed now to buy time and regain financial solvency.  This article, however, discusses how creative solutions could be used to implement some of the more important and far-reaching structural changes that will be required.  These solutions probably would not require additional drastic personnel cuts and may even result in justifiable additions to headcount. These ideas are very applicable to the financial crises facing Detroit and other local governmental units today (on a smaller scale).  In fact, our hands-on experience as the EFM in Pontiac, a microcosm of Detroit, proved that huge tangible and measurable improvements (e.g., two years of surplus in a row after many years of deficits and an upgrade in the city's bond rating when many other cities in better shape were being downgraded) could be accomplished with very few headcount reductions. 

Detroit in the Eye of the Storm

 

The time is right for Detroit to lead the way and be the laboratory for the rest of the country.  Both national political parties are all about jobs, jobs, jobs.  For example, President Obama, in his State of the Union speech on January 24, 2012, said, “Tonight, I want to speak about how we move forward, and lay out a blueprint for an economy that’s built to last -– an economy built on American manufacturing, American energy, skills for American workers, and a renewal of American values.  Now, this blueprint begins with American manufacturing….  And if you want to relocate in a community that was hit hard when a factory left town, you should get help financing a new plant, equipment, or training for new workers.…  Join me in a national commitment to train 2 million Americans with skills that will lead directly to a job….   In the next few weeks, I will sign an executive order clearing away the red tape that slows down too many construction projects.” 

If the proper mix of solutions work in Detroit, there will be a recipe for success that will help to guide other major cities with problems very similar to ours.  Let’s start by noting and understanding some of the actions that other cities already have taken to be successful.  We believe they could be used right now to help Detroit pull itself up by its bootstraps.  Cities all over the world have been facing the same problems—let’s try to learn from their ideas and achievements.

  

 Develop a long-term strategic plan and then pull together.  

Atlantic City assessed its strengths and weaknesses and decided to transform itself into a full-scale entertainment resort.  “That transformation, that vision, is emerging in full bloom.  You can see it this summer.  You can feel the energy all over the city.  It’s really a matter of the type of transformation that Las Vegas scripted over the last five years….  Everyone is excited and understands we’re in it together, and need to work as a team.  That’s a positive thing.  And from what I understand, that’s a new thing for this city.”


Fiat decreased its employment in Turin,the capital of the Italian auto industry, from 140,000 in the early 1970’s to 40,000 in the early 1990’s.  The population declined by almost 30% in 25 years.  In 1993, a new mayor developed a detailed plan with 84 actions for development which were to be completed by 2011.  “It used its own funds, plus money from national, regional, and provincial governments and private companies, to create a range of institutions--business incubators, foundations, research laboratories, venture-capital funds, and technology parks--that would promote its information-technology and green-energy industries….  Turin’s plan worked. By 2006, it posted its lowest levels of unemployment ever and its highest levels of economic activity in half a century. The city reinvented itself as a center for design, not just of cars, but also for aerospace, cinematography, and textiles.” 

Incentivize and encourage the business community to work together with local governments.  

      
 Detroit already has made a good start in this area but probably could progress much more quickly and easily from this type of more coordinated approach.  For example, Oklahoma City developed a transformational strategic plan and then used sales-tax initiatives and tax increment financing to upgrade the downtown and surrounding neighborhoods.  “Today Oklahoma City boasts $400 million in private investment, an NBA franchise and triple-A baseball and hockey teams, and a downtown entertainment district full of clubs, restaurants, condos and offices—all connected by a man-made canal with water taxis.”  Detroit's downtown already has new stadiums, top-flight sports teams, a major university and medical centers but still has a long way to go to provide better housing, schools, retail and entertainment experiences.

Tony Hsieh, CEO of Zappo’s, is rebuilding downtown Las Vegas.  He announced about a year ago that he would be moving his 1,200 employees from his headquarters in the suburbs to the former Las Vegas City Hall building in October 2013.  He plans to convert the neighborhood into “…a new live/work/play destination for Las Vegas’ emerging creative class.  This is the plan (modest it's not): $100 million will go to the purchase of land (not including the new Zappos headquarters) and building acquisition. An additional $100 million will go to residential development including the building of high-rise apartments. Fifty million dollars will go to tech startups Hsieh plans to recruit to the area with seed investments of $100,000 or so apiece. Another $50 million will go toward drawing local small businesses like bakeries, yoga studios, restaurants, coffee shops and other requisite creative-class amenities. And because Hsieh wants people to move here and that requires having decent education for their children, another $50 million will go toward education and the building of -- what else? -- a school system.”

Collect better data, conduct better analyses of that data and make more timely decisions.  

      “For example, Santa Cruz, CA launched an experiment in 2010 using large sets of data and a sophisticated algorithm to forecast when and where crimes were most likely to take place.  The city then began to deploy police officers preemptively to stop them before they occurred.  Does it work?  According to ABC News, property crime dropped 27 percent.”

NYC.gov provides “My NeighborhoodStatistics” with a tremendous amount of information over a wide range of data elements for each of the last five years for each area of the community.  This data would be extremely helpful in managerial decision-making.  For example, under the category of Health, Education and Human Services, the number of deaths are detailed by each major cause such as drug abuse, infant mortality, and lead poisoning.  There also are detailed trend statistics on restaurants requiring reinspection, people with health insurance, people getting cash assistance, substantiated child abuse, children in public schools who have had required immunizations, average daily student attendance, and students meeting or exceeding educational standards.  Under the category of Infrastructure, Administrative and Community Services, there are statistics on acceptably clean sidewalks and streets, air complaints, recycling tons per day, emergency complaints, potholes, and cleanliness of parks and playgrounds.  Under the category of Public Safety and Legal Affairs, there are statistics on fire fatalities, medical emergencies, fires, response times, burglaries, domestic violence, hate crimes and major felonies. 

Identify federally funded megaprojects that will prepare the city for future new investment and create large numbers of both skilled and unskilled jobs that last for years, enabling other investments to grow around them.   

      For example, Aiken, South Carolina received $1.6 billion in stimulus money to hire thousands of workers to decommission old nuclear reactors, install pumps in liquid waste tanks and ship out barrels of solid waste.  “Workers from out of town filled up nearly all of the area’s apartments, hotels and restaurants.  The county’s employment dropped to 8.5% from 10.2% in a matter of months.”

Utilize the global economy as an advantage.   

      Mayor Greg Branch of Saginaw helped to promote the sale of Nexteer Automotive, Saginaw’s biggest remaining industrial employer, to an investment arm of the City of Beijing.  The Chinese company bought the auto-parts maker from General Motors for about $450 million in 2010.  “Today few people in town are wringing their hands about the Chinese.  Inside a 59-year-old factory at Nexteer’s sprawling complex, contractors are ripping out antiquated machine lines and installing new equipment….  The company… has hired more than 100 engineers in Saginaw last year and is looking for 80 more this year….  Chinese delegations are scouring the Midwest for more automotive deals. ”

Encourage platforms for regional cooperation to promote greater efficiency and better service.  

      Oakland County already is providing services to cities and towns in Oakland County and is setting a great example for other cities and counties that could do the same.  Another local government setting the pace for others is Charlotte, North Carolina which developed a Business Support Services unit to provide “information technology, procurement, fleet, and public safety communications services not only to the city but also to Mecklenberg County, smaller rural cities and towns and state and federal agencies throughout the area.” 
  
Conclusion

      In our prior article, we made the point that Detroit must take advantage of being the nation’s poster child for major cities that need revitalization and new jobs.  The purpose of this would be to use our prominent position to get the huge amount of attention and resources that we will need to get the job done.  We know that even if large short-term cost cuts are implemented quickly, they will not create long-term structural changes or bring in large amounts of additional revenue to enable the city to thrive once again.  Detroit needs a huge amount of new investment and at least tens (or more likely, hundreds) of thousands of new people and businesses who have the means to pay taxes. 

This is the time for Detroit to think far beyond the very limited resources of just the city or even the state. Detroit needs to develop a plan for structural change that is likely to easily cost billions of dollars over at least a 10-20 year period.  Because of the huge amount of resources required, we must recognize that it is likely that one of the major contributors to this process will have to be the federal government, working in concert with private enterprise. We must organize to achieve that goal and there is no better time than now to do so. We must develop a sound plan and convince key decision-makers that it will be a “no-brainer” to generate very high returns on this huge investment.