Philanthropy's Role in Detroit's Revitalization

Overview

In the aftermath of the Great Recession of 2008 and Chapter 9 bankruptcy, the city of Detroit, Michigan needed some serious help. Due to their shrinking tax-base, the city was over $18 billion in debt, unable to honor its pension obligations or fulfill other duties traditionally fulfilled by government. Detroit needed money, and a lot of it. With the city government failing to fulfill its basic duties, the philanthropic sector took on a new and innovative role to save, and ultimately revive, the city. The role philanthropy played in saving and reviving the city has helped provide a blueprint for helping other cities in dire need of renewal.

Historic Roots

During the first half of the twentieth century, Detroit was one of the largest and most prosperous cities in the United States, largely due to the growth of the auto industry and the jobs this growth created. By the 1950s, the population was its highest ever—over 1.8 million people. Sixty years later, the population was just around 700,000 people. From racial disparity and tensions, to the economic decentralization and “white flight” that followed, to the race riots, crime, and poverty that ensued after that, there are many reasons for this decline in population (Padnani, 2013). As these problems worsened, Detroit went from being one the largest and most prosperous cities in the United States to a city notorious for its crime, poverty, and corruption.

Detroit’s population declined consistently from the 1950s onward, but it took particularly big hit during the Great Recession of 2008, due to the thousands of jobs lost from the collapse of the auto-industry.  As more people left the city, there were increasingly fewer people paying taxes—leaving the city with increasingly less money. Finally, in 2013, the city reached a breaking point when it filed for Chapter 9 bankruptcy. The city was over $18 billion in debt, unable to honor its pension obligations to its retirees, let alone pay for much-needed economic development, historic preservation, or infrastructure. Back in 2013, the future looked grim for the city of Detroit. But the future is looking a lot more hopeful. Downtown Detroit is growing. Development projects are popping up everywhere. The city is no longer in bankruptcy. This revival can be largely attributed to the work of the philanthropic sector that, with decreased support from the government and private sectors, took on a new and innovative role to rescue and revive the city.

Before the bankruptcy, or even during the 2008 recession, philanthropy was already taking on a bigger role in tackling Detroit’s problems. In 2007, a group of ten foundations created an economic development initiative called the The New Economy Initiative. The New Economy Initiative, an initiative that still exists today, has invested over $96.2 million in organizations and programs that support entrepreneurs and small businesses in the greater Detroit area. This initiative has had substantial economic impact in the region, creating over 17,000 jobs and helping generate over $1.9 billion in gross domestic product (Philanthropy News Digest, 2016). The model of the New Economy Initiative helped provide a blueprint for the initiative that ultimately helped Detroit get out of bankruptcy.

In the wake of the bankruptcy, the city of Detroit needed to find a way to pay for its retiree’s pensions, while preserving its art and historic landmarks, which were in danger of being sold or destroyed. In January, 2014, a group of foundations negotiated a $370 million deal with Judge Gerald Rosen to help shore up the city’s finances—helping pay retirees’ pensions, turn the Detroit Institute of Art and its collection of artwork into an independent entity, and help pay off other debt (Ferris, 2017). In large part due to the funding from the Grand Bargain, the city of Detroit was able to exit bankruptcy in November, 2014—less than a year and a half after they first filed.

Importance

Philanthropy’s role in Detroit’s recovery has inspired a number of other city initiatives funded by philanthropy. Midtown Detroit, a Detroit-based non-profit organization, has helped turned Detroit’s Midtown neighborhood into a thriving and desirable place to live through providing loans to developers, buying parks, refurbishing homes, among other things. Dan Gilbert, the founder of Quicken Loans, has given substantial money to downtown parks, housing aid, and transportation improvements, while also investing substantially in business development (Whyte, 2014). The Kresge Foundation, a Detroit area-based charitable foundation, helped fund the M-1 Rail—a project that has helped improve Detroit’s decaying public transportation system (Ferris, 2017). Philanthropy has had a tremendous, positive impact on Detroit’s economic and financial health.

The role of philanthropy in Detroit’s recovery is important for a number of reasons. First, it shows how philanthropy can help play roles traditionally attributed to governments and business. Second, it shows how the philanthropic sector works with and benefits the other two sectors. Most importantly, it shows the role philanthropy can play in the renewal of communities—particularly in older cities. Philanthropy’s role in Detroit’s recovery has not only inspired other philanthropy-driven initiatives in the city, but also philanthropy-driven initiatives in other cities. Since this initiative, the city of Flint, Michigan received $4 million from the Charles Stewart Mott Foundation to help reconnect the city to the Detroit water system after the start of the Flint Water Crisis. In Battle Creek, Michigan, the Kellogg Foundation gave money to Battle Creek Public Schools to help improve their education system. Other major cities, such as Milwaukee, Indianapolis, and Pittsburgh, are using Detroit’s concept to help revitalize their own cities (Welch, 2017). Like Detroit, many cities are struggling with declining populations and shrinking tax-bases, making it difficult to spend the money they need to spend and make the investments they need to make. Ultimately, the philanthropy-driven initiatives in Detroit have shown how philanthropy can serve as a “catalyst for action” in cities—sometimes as the first mover, sometimes as a partner with the city and government, and and sometimes has the “nudge” that gets the government moving (Ferris, 2017).

Philanthropy’s role in Detroit’s recovery is a great example of how the role of philanthropy is changing and becoming more innovative. The philanthropic sector is taking more risks, stepping into new areas, and leveraging its assets in a way that has not been seen before (Ferris, 2017). With the success of the New Economy Initiative, the Grand Bargain, and other philanthropy-driven initiatives in Detroit, this not only presents an opportunity for philanthropy to help cities, but for philanthropy to take on other new and innovative roles in society.

Ties to the Philanthropic Sector

Detroit’s declining population and economy is an example of market failure. Detroit’s inability to pay their debt or other basic functions of government is an example of government failure. The New Economy Initiative, the Grand Bargain, and other initiatives are examples of how philanthropy responds to these failures. Philanthropy responded to failures from these sectors, and ultimately made both of them stronger.

The philanthropy-driven initiatives that took place before, during, and after Detroit’s bankruptcy show the power and effectiveness of public-private partnerships, where the government partners with the philanthropic sector to complete projects. Without public-private partnerships, Detroit wouldn’t have been able to get out of bankruptcy nearly as fast as they did. Another concept that is less discussed in philanthropy, but had significant impact in this scenario, is the power and effectiveness of private-nonprofit partnerships, where the private sector partners with the philanthropic sector to help spur economic growth. The New Economy Initiative is one of the many examples of a private-non-profit partnership that helped Detroit.

Key Related Ideas

• Public-Private Partnerships: A partnership between the government and the philanthropic sector to carry out projects and initiatives. Philanthropy has partnered, and continues to partner, with the city of Detroit to carry out projects and initiatives.
• Private-Nonprofit partnerships: A partnership between the private sector (the market) and the philanthropic sector to carry out projects and initiatives. Philanthropy partners with businesses and entrepreneurs to carry out projects and initiatives.
• Market Failure: A situation where free markets fail to efficiently and adequately provide goods and services. Market failures in Detroit opened opportunities for philanthropy to play a role in Detroit’s recovery.
• Government failure: A situation where the government fails to provide a service or address a problem. Detroit’s bankruptcy is perhaps one of the best examples of government failure, where they couldn’t pay for pensions, economic development, or historic preservation.  The philanthropic sector responded to this failure and took on a bigger role.

Important People Related to the Topic

• Rick Snyder: Rick Snyder was Governor of Michigan when Detroit filed for bankruptcy. During his first term as governor, he signed into law what became known as the “emergency manager law.” This law gives the governor the power to appoint an emergency manager to intervene in city financial matters. Snyder later appointed one for Detroit.
• Kevyn Orr: Kevyn Orr was appointed by Governor Snyder to serve as the emergency manager of Detroit. Kevyn Orr would eventually make the recommendation that Detroit file for Chapter 9 bankruptcy.
• Rip Rapson: Rip Rapson is the president and CEO of the Kresge Foundation, an organization dedicated to improving American cities. His organization and leadership played an important role in the Grand Bargain and other philanthropic efforts in the City of Detroit.
• Dan Gilbert: Dan Gilbert is the founder of Quicken Loans. Gilbert is best known for moving his company’s headquarters to downtown Detroit, which brought thousands of jobs to the city. He is also known using his businesses and wealth to advance a number of philanthropic efforts in the city.

Related Nonprofit Organizations

• Midtown Detroit [www.midtowndetroitinc.org]: Midtown Detroit is a non-profit organization that has partnered with the city government of Detroit in a number of ways, including buying parks, providing loans, marketing the Midtown neighborhood, and putting in new lights (Whyte, 2014).
• The New Economy Initiative [www.neweconomyinitiative.org]:  This initiative was started by a group of ten foundations to support small businesses and entrepreneurs in the Detroit region.
• Rock Ventures [www.rockventures.com]: Rock Ventures is the company that connects Dan Gilbert’s family companies. Although it is technically a for-profit company, Gilbert uses Rock Ventures to support his philanthropic initiatives as well.
• Kresge Foundation [https://kresge.org]: The Kresge Foundation is a charitable foundation based out of Troy, MI that is dedicated to improving American cities. This foundation was one of the key organizations behind The Grand Bargain.

Reflection Question

What is an innovative way we can use philanthropy to address a need not being addressed by business or government?

Bibliography

• Ferris, James. 2017. “Philanthropy as a Catalyst.” The Stanford Social Innovation Review.
• Padnani, Amy. 2013. “The Anatomy of Detroit’s Decline.” The New York Times, November 3, 2018.
• Philanthropy News Digest. 2016. “Philanthropy Has $3 Billion Impact on Detroit’s Economy, Report Finds.” Foundation Center, November 4, 2018.
• Welch, Sherry. 2017. “Is Philanthropy getting less innovative?” Cran’s Detroit Business. November 5, 2018.
• White, Liz Essle. 2014. “Philanthropy Keeps the Lights on in Detroit.” Philanthropy Magazine, November 5, 2018.