The Archer Administration: A Commentary at Year One

Foreward

Recently, I had the good fortune to visit Philadelphia, a city that is facing many of the same problems and promises as Detroit. A ride up Broad Street in Philly is not very different from a ride up Woodward in Detroit. Visitors are equally amazed and dismayed by the sheer contrast of boarded-up, rubble-strewn neighborhoods standing in the shadow of proud, sparkling government or business skyscrapers.

Yet important differences are beginning to emerge between cities like Detroit and Philadelphia. True, simple differences already existed: Philadelphia has 54% more population than Detroit, and Detroit has a minority population that is proportionately 90% greater than Philadelphia's. But the more profound differences deal with economic hope, incentives for self-help, and household health and prosperity.

What does it take to heal a city's ailing finances and improve the quality of municipal services? This is the subject pursued by Professors Kleiman and Hutchison. They seek to evaluate nearly 12 months of Mayor Archer's administration in light of what seems to be working for cities elsewhere. A truly informative evaluation of performance renders judgment on the merits of stated objectives and the amount of progress in achieving the stated goals.

Much of the Archer Administration's initial energy has been expended in mending fences with the suburbs, the region, and the state's business and political leaders. Although ten budget initiatives were targeted to reduce a very sizeable deficit, there is general agreement that recent budget deficit reductions reflect Michigan's better than-expected, auto-based economic recovery¾an external event¾rather than any significant improvement in Detroit's basic cost structure or its effectiveness in providing for essential differences.

Few citizens or civic leaders would debate the wisdom of making the "reach beyond 8-Mile" a priority objective, especially for an incoming mayor of Detroit. However, beyond the new spirit of cooperation and unity lies the reality of southeast Michigan's business cycles and the tough nut of Detroit's declining tax base. To this end, the authors treat us to the real accomplishments of competing cities such as Chicago, Cleveland, Indianapolis, New York, and Philadelphia. They describe and quantify average cost savings associated with competitively bid city services and the benefits to entrepreneurship and tax bases in other cities when various assets are sold.

These gains are no longer theoretical. The size and geographic diversity of cities reaping benefits from privatization is matched by the range of services eligible for reform. Cities like Baltimore, Charlotte, Norfolk, Pittsburgh, and Palm Springs each adds a fascinating local twist to the possibilities of improving city services. Each city stamps its unique imprimatur on reforms that promise taxpayers a better shake.

Up to this point, Detroit really has not weighed in with respect to privatization and market-based responses to municipal reform. Fortunately, when the time comes, Detroit can catapult ahead of rival cities because many of her elected officials already have copies of "Revitalizing the American City: A Market Perspective for Detroit." This 1992 Heartland Institute study is the most definitive reference of its kind ever provided to Detroit, detailing nearly $337 million in economic benefits that would accrue to the city's citizens annually from asset sales, service shedding, and competitive contracting.

Used together, this Kleiman-Hutchison evaluation and the Heartland Institute's guidebook will lead to greater and more enduring economic progress for Detroiters than any externally provided grants or funds have ever done or could ever hope to do.

Introduction

financial condition of Detroit has been precarious for decades. The city has had 23 budget deficits in the last 30 years and has lost jobs and population like no other major city in the United States. Between 1965 and 1990, Detroit's population plunged by 35% and the city suffered significant declines in manufacturing jobs.

During the 1980s, the city declined 15% in population and 11% in per capita income. At the same time Detroit saw a 48% growth in the percentage of its people living in poverty; almost one-third of its citizens lived below the poverty line in 1990. In the last 10 years alone, more than 80,000 jobs disappeared.

In 1993, Detroit's voters elected Dennis Archer, the city's first new mayor in two decades. In his campaign, Archer vowed to restore Detroit's status as a "world class" city. How is he doing so far? That's the question this study will address. First, we will examine Mayor Archer's economic policy during his first year. Second, we will look at the economic policies of mayors of other large cities similar to Detroit. Third, we will make recommendations for future changes.

The Mayor's First Budget

In his first budget, which totalled $2.2 billion, Mayor Archer proposed restructuring city services and boosting wages for employees who took a 10% pay cut in 1992. Archer restored the 10% pay cut and brought back five-day workweeks for the nearly two-thirds of the city's 15,000 employees who took the wage cut. The spending plan also cut 270 jobs from the municipal payroll through attrition.

The budget provided about $230 million more than 1993-1994's $1.9-billion package. Most additional budgetary expenditures were allocated to the restoration of the wage cut. Small additional spending increases provided more than $250,000 in computer equipment to the purchasing division, the worker's compensation and the Law Department and twenty employees including four attorneys for the Law Department to help reduce staggering lawsuit losses.

The budget also consolidated the Planning Department and Community and Economic Development Department. The mayor's proposed 10% wage cut for police and firefighters, which would have saved $26 million, was rejected.

In order to improve the city's weak infrastructure, the budget provided $17.4 million for street resurfacing, the largest amount in city history. In addition, the projected demolition of abandoned dwellings was more than doubled.

As a result of these expenses, the city had a $63.3 million budget deficit. Archer recommended paying off this deficit, and an $82million existing deficit, by selling bonds, which the city would repay in seven years.

Table 1 summarizes the key initiatives in the Mayor's first budget.

Table 1:

Summary of Key Initiatives

in the 1994-1995 Budget

· Rescission of 10% wage cuts for two-thirds of the workforce.

· More than a doubling of the demolition of abandoned buildings.

· Elimination of 270 jobs through attrition, saving $10 million.

· Request of city employees to make health care concessions.

· Request of police, fire and bus driver unions to accept 10% wage cuts.

· Provision of $17.4 million for street resurfacing, the largest amount in city history.

· Hiring of 20 new staffers in the law department, including four attorneys, to reduce city's legal losses.

· Recommendation of the purchase of a $90,000 computer system to cut the paperwork in the purchasing division and a $165,000 computer system to better manage workers compensation.

· Merger of the planning and community and economic development departments, along with engineering and public works.

· Sale of bonds to pay for 1994's projected $63.3million deficit and a prior one, totaling $82 million.

Other Policies

In addition to the budget initiatives, the Mayor developed a number of other strategies to improve the delivery of services and the city's quality of life. To reduce the city's severe crime problem, more than 300 police were moved from desk jobs to street patrols and about 2,000 police reserves were deployed on buses, and in parks and schoolyards. City road crews filled more than 500,000 potholes. Garbage collectors reduced the time between pickups from 14 days to 10 days.

Under the direction of Jay Alix, a restructuring specialist, the Mayor created 13 "turnaround teams" and instituted a "total quality management" program in an attempt to streamline city government. This re-engineering program was designed to restructure the work process and improve the city's process of service delivery.

The Mayor also suggested Detroit needed to get residential, commercial and industrial property back on the tax rolls. As a first step, the City took an inventory of the property it owns with the goal of eventually transferring as many parcels as possible to private ownership.

The Mayor also convened a 34-member Land Use Task Force to prepare a comprehensive land use plan for the City. In the past, Detroit often ignored comprehensive planning in favor of quickfix projects and unproductive sprawl. Furthermore, many businesses have complained that it was difficult to maneuver through the city's bureaucracy in order to obtain the necessary permits, and to secure regulatory approvals to commence development and expansion. In recognition of this fact, the Mayor has organized a Task Force for the Review of Permits, Licensing, and Regulations Systems.

As part of the application process for a federal empowerment zone, the Mayor raised $1.9 billion in commitments from major area businesses for investment in some of the city's poorest neighborhoods. This was the largest amount of private sector commitments obtained by any city which applied for an approved federal empowerment zone. Each of the major automakers promised to help create distinctive education programs. For instance, Chrysler Corporation committed its computer labs and other teaching facilities for college-level classes on the latest manufacturing technology.

Mayor Archer also proposed the creation of a new Business 2000 Center that would use public and private resources to create a "One Stop Capital Shop" at the Kresge building. The center would help small- and midsize businesses get loans and provide technical and marketing advice. In addition, city agencies would help set up a "model industrial area" east of downtown for cleanup and redevelopment and help a major developer create a new 100-acre industrial park in southwest Detroit.

In November, Detroit Renaissance announced plans to invest $40 to $60 million to spur downtown development. Furthermore, Acquest Realty Advisors and National Bank of Detroit also committed to invest at least $25 million and raise additional capital from pension funds to invest in projects providing economic rates of return in the city.

Since taking office, Mayor Archer has reached out to the suburbs in a reversal of the combative approach of his predecessor. The Mayor has appealed to the whole region to work together in order to turn the city around.

Table 2:

Summary of Other Initiatives

· Movement of more than 300 police from desks jobs to street patrols.

· Reduction in the time between garbage pickups from 14 to 10 days.

· Creation of "turnaround teams" and institution of a "total quality management" program.

· Completion of an inventory of city-owned property.

· Organization of a Land Use Task Force and Task Force for the Review of Permits, Licensing, and Regulations Systems to facilitate development.

· Procurement of $1.9 billion in capital commitments from major area businesses as part of federal empowerment zone application.

· Attraction of funds from Detroit Renaissance, Acquest Realty Advisors, and National Bank of Detroit to spur downtown development.

· Cooperation with suburban municipalities to advance the city's interests.

Lessons from Other Cities

Although most analysts praise Archer's spending plan, they note that it is only a start in curing city government's long-term troubles. For example, Bette Buss, a former senior research associate with the Citizen's Research Council of Michigan commented, "While he's bought himself some time to deal with big problems... he's postponed the hard decisions," Councilwoman Brenda Scott said, "The city's problems were 20 years in the making. I don't think he'll even put a dent in them even after four years." [1]

These comments suggest that Mayor Archer needs to do more. Let's look at how major cities similar to Detroit are dealing with their economic problems.

Philadelphia:
When Philadelphia Mayor Edward Rendell took office in January, 1992, city workers could not be sure that their next paycheck would clear. After a quarter-century of decline, the city had become the unappealing poster child for ailing Northeast cities. In the previous 10 years it experienced a net loss of nearly 44,000 jobs. At one point, the city had to delay payments to its pension fund.

Municipal-bond investors were requiring 27% effective rates of return to buy the city's bonds. And, after 19 tax increases in a dozen years, residents were being taxed to the bone.

Mr. Rendell put together a tough five-year fiscal plan that included $83.5 million in savings from management streamlining, and won $98.6 million in concessions from labor unions after a strike that lasted only 16 hours. To balance the budget, Mr. Rendell persuaded unions to accept a 33month wage freeze, sold such city-run services as a nursing home and health center to private operators, and gained city control over the administration of union health plans, saving almost $60 million a year. After the Mayor noted that Philadelphia had the highest number of stoplights per capita in the nation, and the fewest cars per capita, he even replaced 600 traffic lights with lower-cost stop signs.

Since 1992, by introducing competition into 19 different services, Mayor Rendell has produced annual savings of at least $22 million. Another 30 services have been identified for possible competitive contracting. According to Linda Morrison, the director of the city's competitive contracting program, savings from privatization are averaging 40-50%. She commented, "Savings that weren't possible before suddenly materialize once you put a service out to bid."[2] In response to the Mayor's budget initiatives, Moody's Investors Service Inc. and Standard & Poors raised their rating on the city's bonds one level.

Other large municipalities have increasingly followed the lead of Philadelphia. Mayors and administrators are seeking to increase competition among service providers in order to provide greater choice and lower cost for consumers. Municipalities that have embraced competitive contracting have generated impressive results.

Indianapolis:
Since taking office in 1992, Mayor Stephen Goldsmith of Indianapolis introduced competition into 50 city services, generating annual savings of $28 million. In 1993, Indianapolis opened up trash collection and wastewater treatment to outside contractors. Over a five-year period, estimated savings associated with these initiatives totaled nearly $80 million.

Mayor Goldsmith's Competition Initiative is comprehensive. Each service performed by the city is subjected to a rigorous analysis of its operations. Based on this review, each service is then competitively contracted out, sold, consolidated, modified, eliminated, or retained. Table 3 details some of the savings associated with competitively contracting services in Philadelphia and Indianapolis.

Table 3: Cost Savings Associated with Competitive Contracting
Philadelphia
Water Dept. Billing	50%
City Hall Custodial	33%
Street Maintenance	50%
Sludge Hauling & Disposal	39%
Nursing Home	53%
Art Museum Security	39%
Transfer Stations	52%
City Warehouse	29%
City Print Shop	39%
Disability Mgmt.	16%

Indianapolis
Printing	47%
Microfilm	61%
Pothole Filling	25%
Trash Collection	25%
Wastewater Treatment	44%

Source: The Reason Foundation.

Los Angeles and New York:
Newly elected mayors in Los Angeles and New York have also advocated more privatization. For example, during his 1993 campaign, Mayor Richard Riordan proposed privatizing trash collection and the Los Angeles International Airport. In New York, Mayor Rudolph Giuliani's first budget proposed opening up numerous services to private-sector competition, including street resurfacing and water pollution control plants. The budget also called for asset sales, including 85 of the city's 500 gas stations, the city owned radio and television stations, and parking garages.

Cleveland:
Mayor Michael White of Cleveland is making privatization a major element of his fiscal strategy. Elected to a second term in 1993, the Mayor created a Council on Competitiveness to investigate methods of opening up city hall to competition from private firms. Despite opposition from public employee unions, he declared, "While we have 8,000 employees, there are 500,000 Clevelanders, and they pay for this. I think that somebody, somewhere, ought to stand up for them, since they are paying the tab." [3]

Chicago:
Not only are governments changing how they deliver services, they are also reconsidering what it is they do. More municipalities are limiting the services they provide in order to concentrate on core functions. As noted by Mayor Richard Daley of Chicago, "When government tries to be everything to everybody, it becomes nothing to anybody." [4]

Mayor Daley has turned over many ancillary services such as job training and alcohol and drug rehabilitation to community groups. Contracting out drug and alcohol treatment services has resulted in 200 more clients being served at three sites instead of one, while saving $700,000 per year.

Other Examples:
Other cities are saving money by shifting services to the private sector. Norfolk privatized its botanical gardens in 1993. Baltimore City Life Museum was privatized in 1992 after funding cuts had triggered staff reductions. As a private entity, the museum was able to raise funds for a new facility costing $5.8 million.

The Pittsburgh Zoo was privatized on January 1, 1994, after its request for capital improvements, repairs, and renovations was eliminated from the city budget. Contingent upon the legal approval of the privatization, several foundations have pledged a total of $1.5 million toward capital projects.
Rather than close the library in Palm Springs, California, citizens transformed it into a flourishing private institution with more books on the shelves than ever before.
In the private sector, companies are saving millions of dollars and increasing productivity by radically redesigning work processes through the practice of reengineering. If pursued aggressively, re-engineering could lead to dramatic productivity gains in the public sector. For example, installing document-imaging technology can eliminate the need to store millions of paper files. Dallas expects to save space and handle court document requests with 10 fewer employees through document imaging, resulting in yearly savings of $250,000.
Under Mayor Richard M. Daley, Chicago is also re-engineering. In the Public Health Department, field nurses previously spent about half of each day doing paperwork. The city recently bought hand-held computers. Nurses can now enter in codes on site, permitting them to spend more of each day helping sick people rather than filling out forms.
Other cities have reorganized their organizational structures. In most big cities, these structures are archaic: thousands of job classifications, rigid hiring and firing procedures, layers and layers of middle management, stifling bureaucratic rules and regulations, and procedures that make it almost impossible to fire any employee, no matter how incompetent.
Until recently, the city of Charlotte had four employees who spent their time doing nothing but writing job classifications. Furthermore, eight layers of management were needed just to oversee the maintenance of city streets. Not anymore, however. The organization structure of Charlotte has been flattened. The city's 24 departments were merged into nine key "businesses" organized around city hall's core activities, and at least one layer of management has been eliminated in each department.
In Philadelphia, Mayor Rendell also sought to restructure work rules to give management more flexibility and encourage efficiency. Prior to 1992, the city had some of the most costly, unproductive work rules in the country. There were over 3,000 job classifications and employees could not be compelled to work overtime. In fact, three employees were required to change a light bulb at the airport¾a mechanic to take off the light cover, an electrician to change the bulb, and a janitor to sweep the floor. By enlisting the assistance of middle managers, Mayor Rendell was able to reform these inefficient work processes reducing red tape and bureaucratic micromanaging.
Finally, other mayors are adopting performance based budgeting. Government typically rewards managers for poor performance: If crime or fires go up, the departments receive more money. Therefore, unfavorable outcomes lead to more funding. Under Mayor John Norquist, Milwaukee is changing these perverse incentives by altering the annual budget process. Under Milwaukee's new budget, success is measured according to outcomes. Managers submit five strategic objectives and are held accountable for achieving them. For example, the road maintenance department is judged according to the smoothness of the streets, not according to the number of road crews it manages.

For performance-based budgeting to be successful, mayors must hold the line on spending by capping department budgets. Spending caps create a mindset in which managers seek to increase their accomplishments, not their budgets.

Recommendations

During the 1980s, Detroit experienced an inflation and population-adjusted $236 million loss in federal funds. Increases in state and local funds only made up $178 million, or $0.75 per federal dollar lost.[5] Unless unexpected assistance from the state or federal governments materializes, continued limitations on funding will force further reductions in the size of city government.

While the Mayor has undertaken a number of positive steps to improve the city's fiscal situation, much remains to be done. In the short run, there are really only four conceivable approaches to balancing the next city budget: raising taxes, improving the collection of existing taxes, cutting services, or improving efficiency.

Previous administrations tried to increase revenues by raising taxes. This resulted in Detroit's tax burden being nearly seven times higher than the average of all Michigan municipalities. In a 1992 survey of the largest city in every state and Washington, D.C., Detroit's residential property tax rates were the highest in the country. The city's effective tax rate of 4.53% was more than twice that of Houston. In addition, the estimated state and local taxes paid by a family of four in the city was approximately 19%, double that of the median of all 51 cities in the survey.[6]

As a result of the stiffing tax burden, city property values declined in real terms by two-thirds between 1970 and 1990. Increasing taxes now is not a viable option, since it will only continue to exacerbate the downward economic spiral by driving out business. City tax rates need to be reduced, not increased, to make Detroit more attractive to businesses that create jobs, and to people who would consider living in the city. Mayor Archer correctly understands this fact.

Another proposed solution to reducing the city's chronic budget shortages is more aggressive collection of unpaid taxes. For example, it is estimated that the city failed to collect a tenth of the property taxes it was owed in 1991. In addition despite the highest tax rates in the country, city tax revenues per capita were only $568 for Detroit in 1992. By comparison, city tax revenues per capita were $935 in Philadelphia and $1,117 in Boston for the same year.[7]

While improvements in the efficiency of tax collection may produce some incremental revenues, it is unlikely to yield as much money as people think. As noted by outgoing Budget Director Ed Rago, "Much of what appears to be unpaid taxes is really due to clerical errors, and in other cases the taxpayer is dead, cannot be easily found, or owes too little to make it worth pursuing"[8] Likewise, cutting services is not a viable option for a depressed municipality like Detroit that has experienced years of service reductions.

Therefore, the only realistic option in the short run is to increase efficiency in city government. One method of doing this is to embrace the competitive model of government (described above) that has been successfully employed in other large municipalities. Better use of and cooperation from city employees is critical. About half of the city's operating budget is personnel costs.

The Mayor needs to eliminate unnecessary management positions. Better labor-management relationships will pay off in other tangible ways. For example, obtaining the cooperation of city employee unions in reducing health insurance costs could save another $38 million annually.

Employees need to be involved in evaluating and improving services. Management must also do its part by ensuring that city employees have the training and tools necessary to effectively perform on their jobs. The creation of turn-around teams, the utilization of outside business experts, such as Jay Alix, and the employment of total quality management are necessary first steps. However, further re-engineering of city functions, more flexible work rules, and the combination of departments will be required.

Although the Mayor promised not to privatize city services, he needs to reconsider this. During his campaign, Mayor Archer stated, "I would guess our morale is such that the productivity level in our city is probably somewhere between 35 and 40 percent, rather than the 65 to 85 percent one might expect to find in the public sector."[9]

This can be dramatically improved through competitive contracting. Government services tend to be inefficient because they aren't subject to the discipline of competition. Without outside competition, how can municipal workers know what constitutes fair costs for the services they provide? Competition should spur public employees to improve their work, restructure their organization, and reduce their costs.

We have seen how other large cities have saved large sums when they have turned their services over to private industry. The Mercer Group, a management consulting firm in Atlanta, said in a 1990 survey of some 120 municipalities that one in four cities had privatized solid waste collection, janitorial services, landfilling, food and medical services, wastewater treatment, building maintenance, towing services, grounds maintenance or parking facilities. All of the respondents said they saved money; 80% of them said they had saved between 10 and 40%. About 45% also said the quality of services improved significantly.[10]

Opening up services to competition does not always entail privatization. In the city of Indianapolis, a transportation department crew streamlined its services and won the bid, saving the city 25% from its previous costs. In Philadelphia, after being targeted for privatization, the city's sludge processing treatment plant pledged to reduce their operating budget by one-third.

Indeed, Mayor Archer need look no further than the city of Flint, about fifty miles to the north, for proof that just thinking about privatization can save real dollars. For months, Flint Mayor Woodrow Stanley made it plain that garbage collection was costing the city too much money-$6.2 million per year. He solicited bids from five private companies, eventually narrowing the list to the country's two largest, Browning Ferris Industries and Waste Management. When the numbers came back, it was apparent that a combination of either one of the private firms handling garbage, compost, bulk items, and trash bins and the city taking care of leaf pickup and special clean-ups would cut the city's total cost by $2 million.

Flint's city unions scrambled to be competitive and offered to shave almost $1.5 million from the total city bill. They proposed increasing the number of stops on each route from 665 to 775, reducing the number of shifts from two to one, cutting sanitation staff from 47 workers to 35, picking up bulk items along with regular garbage instead of doing that on overtime, and requiring collectors to work full eight-hour days instead of the previous practice of going home whenever they finished their routes early. The concessions were sufficient to convince the mayor and city council, at least for the time being, to keep garbage collection in-house. Mayor Stanley told the Flint Journal: "If I were just some weak-kneed kind of namby-pamby politician, I wouldn't have touched this privatization issue with a 10-foot pole. Political leaders now who aren't willing to take risks don't deserve to be in office."

Despite such evidence, Mayor Archer is resistant to the concept of competitive contracting, perhaps because it is perceived as anti-union. However, given the finite resources that the city is working with, it is important to recognize that even if one doesn't accept this idea philosophically, one may be compelled to use it by necessity. Therefore, Detroit should consider hiring private contractors to handle garbage collection, street repair, public lighting, and data processing and engineering.

The future budgetary process must also involve a critical analysis of how much government Detroit residents really need. The question should be, "What do people in the city need to make their lives most comfortable?" Although other services may be nice, if the city can't afford them, it should opt for creative alternatives.

In a 1992 study, the Heartland Institute provided a number of specific recommendations for sale of assets and competitive contracting of city services in Detroit.[11] We have reviewed these suggestions in light of subsequent developments, and wish to re-propose the following:

Asset Sales

Sell Cobo Hall to a private developer. Estimated annual savings $8-10 million.
Sell City Airport to industrial park developers. Estimated annual savings of $1.5 million.
Sell municipal parking garages to private interests. Estimated annual savings of $4-5 million.
Sell the zoo in Royal Oak to private interests or a non-profit organization. Estimated annual savings of 3.2 million.
Transfer public lighting to private interests. Estimated annual savings of $14 million.

Competitive Contracting

Competitively contract water and sewer operations. Estimated annual savings of $150-170 million.
Competitively contract waste management operations. Estimated annual savings of $30-40 million.
Competitively contract data processing function, Estimated annual savings of $5 million.

Cost-savings through privatization can assist Detroit in another important way: financing any near-term revenue shortfall that may accrue from some necessary tax rate reductions. The extraordinarily high tax burden is a major reason for Detroit's economic decline. A study from the Washington, D.C.-based Cato Institute confirmed that essential point, revealing that among the 76 largest American cities, Detroit experienced the poorest economic growth from 1965 to 1990.

The municipal income tax rates of 3% on residents, 2% on corporations, and 1.5% on non-residents who work in the city, plus the 5% utility users excise tax and high property tax rates are working to erode the city's tax base. Reducing these rates, though perhaps producing a revenue reduction in the short-run, would be in the city's long-term best interests. A lighter tax burden, and one that is not so inordinately out-of-line with that of nearby competing communities, would undoubtedly foster both economic and city revenue growth.

We endorse the recommendations in this regard first made by the Central Business District Association in early 1993. The CBDA urged the city to eliminate the corporate income tax and reduce the individual income tax rates to the levels that existed prior to the 1981 tax hike¾from 3 to 2% on residents and from 1.5 to 1% percent on non-residents.

Like Milwaukee, Detroit should employ performance based budgeting. Future budgets should contain each department's goals, expenditures and desired outcomes, and the activities suggested to achieve these outcomes. It is important to control budget allocations and hold managers accountable for achieving proposed outcomes.

Where possible, the Mayor should continue his attempts to make use of volunteers and non-profit groups. For example, several neighborhood groups in Detroit have successfully adopted parks, transforming them from weedy, dope-dealer hangouts into urban gardens. Members of the Brightmoor Concerned Citizens, for instance, took on the responsibility of caring for Eliza Howell Park in northwest Detroit.

The Mayor acknowledged that he made a mistake in being ill-prepared for the annual Devil's night fires due to the administration's failure to solicit enough volunteer support. It is important to take advantage of the good-will of Detroit's citizens, and therefore not repeat this mistake in the future.

The Mayor recognizes that in the long-run the city must increase its economic base. He has proposed that the city "make a deal" on 43,000 parcels of vacant city land to get it developed and back on the tax rolls. Through the investment funds created by Detroit Renaissance and Acquest Realty and National Bank of Detroit, some economic development projects in the city will be financed.

The city must improve the administration of its economic development efforts. Amid reports of a rift with other economic development officials, Marge Byington, the city economic development czar, resigned in December 1994. Business interests have criticized the department for its lack of authority in saying "yes" or "no" to specific development proposals. Accordingly, the city needs an experienced individual who can close development deals.[12] In addition, the city needs to improve the permitting and regulatory approval process to create a one-stop shop for approvals.

Mayor Archer has tried to forge alliances with Detroit neighborhood groups, religious leaders, businesses, the City Council, and the suburbs as well. We applaud the Mayor's attempts to include these groups in decision making. But the mayor still needs to be more responsive to the needs and concerns of small businesses and investors. This involves cutting red tape and bureaucratic overlap in providing city permits, inspections, and billing. In addition, the city also must curtail onerous building and zoning codes and licensing restrictions.

In Detroit, investors run into a wall of fear over industrial pollution when they attempt to expand business and jobs. As is the unfortunate case in other major cities too, environmental cleanup is so costly and lawsuits are so common that many banks refuse to lend to developers. Kathy Milberg, a former "militant environmentalist" who now works to facilitate voluntary cleanups, said, "There is this mind-set that cleanup has to be all or nothing. Well, I've not seen anyone die of a less-than-pristine cleanup, but I do see kids in the city of Detroit dying from lack of economic opportunity."[13]

We propose that cleanups should be suited to the land's future use. Every project should not have to meet a single, prohibitively expensive standard of cleanliness. The city administration should work with state and federal governments to remove the harsh standards on developers when contamination poses no danger to people or to the environment.

This approach, known as risk-based cleanup, requires developers to remove anything lying on the ground or poking through the ground. Buried toxins, however, would be left in place provided that 1) they do not contaminate the groundwater used for drinking and 2) they are kept away from people.

In addition, the city should take advantage of the state's Site Reclamation Fund, which can be used to pay for investigation costs on municipal land. Covenants not to sue should also be used whenever possible to remove a developer's fear of cleanup liability. These covenants are state guarantees that a buyer or developer will not be sued and forced to pay the cleanup cost of previous pollution.

The empowerment zone application spurred unprecedented cooperation among Detroit businesses and community organizations¾a necessary step toward rebuilding the city's economic base. However, the Mayor should recognize that it is unlikely that business executives will continue making commitments to place millions of dollars at risk in Detroit unless they see that the city has put its own fiscal house in order. The $100 million empowerment zone windfall should not work as a narcotic that prevents the city from making the tough decisions necessary for survival; if city officials allow that scenario to develop, there will be little net benefit in the long run from all those federal dollars.

Therefore, the Mayor should review and consider the strategies employed by other major municipalities (summarized herein) and work to reduce the city's tax burden. Only through these deliberate, pro-growth policies will the city create the conditions conducive to business attraction and expansion. Thereby, Detroit can once again be a world class city.

About the Authors

Robert Kleiman is Associate Professor of Finance at Oakland University and an adjunct scholar with the Mackinac Center for Public Policy.

Harry Hutchison is Associate Professor of Law at the University of Detroit-Mercy and a member of the Board of Directors of the Mackinac Center for Public Policy.

David L. Littmann, author of the Foreword and Senior Economist with Comerica Bank, has also served on the board of advisors of the Mackinac Center for Public Policy since 1988.

Acknowedgements

The authors wish to thank Mr. William Eggers of the Los Angeles-based Reason Foundation and Dr. Wendell Cox of the Washington, D.C.-based American Legislative Exchange Council for their helpful advice and comments on this paper.

Endnotes

¹ Castile, Nancy, "Archer Puts Risk, Challenges in Budget," Detroit Free Press, April 14, 1994.

² Alar, John, Privatization 1994, the Reason Foundation, P. 10.

³ Alar, John, p. 11.

⁴ Alar, John, p. 10.

⁵ See Wendell Cox and Samuel Brunelli, "The Untold Story: The Rapid Growth in City Revenues," from the American Legislative Exchange Council, 1992, P. 10.

⁶ See Tax Rates and Tax Burdens in the District of Columbia: A Nationwide Comparison, Government of the District of Columbia, Department of Finance and Revenue, 1993.

⁷ See City Government Finances, series GF, No. 4, 1993, U.S. Bureau of the Census.

⁸ Holly, Dan, "Bus, Casino Possibilities Split Council Hopefuls," Detroit Free Press, October 26, 1993.

⁹ "Mayoral Debate: City Services and Schools," Detroit Free Press, October 17, 1993.

¹⁰ Huskisson, Gregory, "More Governments are Hiring Someone Else to Serve Public," Detroit Free Press, June 2, 1991.

¹¹ For further details, see Michael Mills, Charles Van Eaton, and Robert Daddow, "Revitalizing the American City: A Market Perspective for Detroit," Heartland Policy Study No. 50, September 1992.

¹² Indicative of the importance of economic development, Mayor Rendell of Philadelphia estimates that he spends 75% of his time on economic development activities. See Ben Yagoda, "Mayor on a Roll," New York Times Magazine, May 22,1994.

¹³ Montgomery, Lori, "Fighting Pollution, Cities See a Glimmer of Help," Detroit Free Press, February 5, 1994.