View Wayne State Law Professor Peter Hammer’s open letter to Judge Rhodes here (pdf), or read the ‘Reader’s Digest’ version below.

Race, Structure and Misleading Myths of Triumphant Individualism

Substantive Implications

Any legitimate analysis of the Detroit Bankruptcy and the City’s Plan of Adjustment must be situated in the context of the Three R’s – Race, Regionalism and Reconciliation. From that perspective, I am deeply disappointed by the neglect of these issues in the Court-Appointed Expert Martha Kopacz’s Report.

Nowhere in the document are the words “race,” “racism,” “discrimination” or “segregation.” While the phrase “white paper” appears twice, the phase “white flight” does not appear at all. These are the root causes of Detroit’s current financial crisis and yet they are completely absent from the report. The Report looks at the root causes of failures of generic IT Systems, but never once examines the root causes of the fiscal crisis underlying Detroit’s municipal distress.

My concern about the Three R’s stems from my training as an economist. I operate on the perhaps naive assumption that if you do not know the cause of a problem, it is very difficult to figure out how to solve it. This is particularly true for complicated economic and social problems. Rather than placing the financial problems of Detroit within the context of race and regionalism, Section D of the Expert Report, which is devoted to “Context,” adopts the odd and vacuous notion of accepting Detroit “as is.” (p. 22, 24-25).
Without even defining the notion, the “as is” label becomes a substitute for analysis. As such, the Report’s only effort to even obliquely raise the issue of race in its analysis produces a sentence that is nearly incomprehensible: “Black, white, Republican, Democrat, poor, wealthy, educated, illiterate and everyone in between have an opportunity to contribute to the virtuous cycle of revitalization, or not.” (p. 24). What does this mean?

No effort is made beyond this to state why these phenomena occurred. There is no discussion of an eighty year history of discrimination, segregation, racial tension and white flight, producing a dysfunctional region. There is no discussion of how economic markets nested in a hostile and highly fractured geopolitical space fail to thrive. These are the core forces that produced the Bankruptcy, yet they are not recognized in the Expert Report at all.

One has to try hard not to see the effects of these forces on the physical landscape of Southeast Michigan. Detroit is a city where nearly 40% of the population lives below the federal poverty level, yet it sits in a region that is defined by its relative wealth and prosperity. Detroit remains one of the most racially and economically segregated regions in the country, yet there is no trace of this realization in the Expert Report.

There is an acknowledged economic, political and financial crisis in Detroit. Given that the POA fails to identify the root structural causes of the crisis and implement necessary structural reforms, one must invent a hero to single-handedly rescue the City from the current crisis, if there is to be any hope.

The heroes here are the Mayor and the Emergency Manager. “I have confidence in Mayor Duggan. My opinion of feasibility is favorably influenced by my view of Mayor Duggan as a leader and an operational executive.” (p. 164). Indeed, as in any good myth, if it were not for the new-found hero riding to the rescue, all would be lost. The Report places the economic assessment of the feasibility of the entire Plan of Adjustment on a knife’s edge. The day is saved by placing the burden of feasibility squarely on the shoulders of the mythically invoked hero. “I can say, unequivocally, that without the positive and capable leadership of Mayor Duggan and the constructive relationship between the City Council and the Mayor, I would be unable to opine that the plan, as currently proposed, is feasible.” (p.29)

I find this statement as remarkable as it is troubling. As an economist and someone who understands complex systems, I can envision no scenario in which a single individual, no matter how gifted, could rescue the city in the absence of having appropriate systems, structures and processes in place to address the root causes of the City’s financial distress. Individuals, without the aid of properly designed systems have no such superpowers. Such a conclusion is indefensible and absurd form a systems perspective that properly weights the role of economic and structural analysis. It is magical thinking. The reliance on myths and the invocation of heroic archetypes are often revelatory of the knowledge gaps and weaknesses embedded in the expert’s own tools, analysis, training and epistemic constraints. This is why the foundational methodological framing stressed earlier is so important. If you do not ask the right questions and adopt the right methodologies, you will not get useful insights and answers. It is a predictable aspect of human nature to resort to myths to restore order when our own frames and tools are inadequate to the task.

It is not excusable for the Report to fail to address the current tax and mortgage foreclosure crisis (both of which are reflections of the endemic high levels of poverty in the city) in its assessment of future property tax revenues. Remarkably, the word “foreclosure” appears nowhere in the Expert Report. The Report repeatedly cites the Detroit Blight Removal Task Force Report (DBRTFR), but fails to incorporate its teaching on tax foreclosures.

Since 2008, the beginning of the Great Recession, more than 60,000 Detroit properties have gone through the tax foreclosure process. (DBRTFR, p. 200). The numbers in the tax foreclosure pipeline are even greater. “At this moment, more than 76,000 properties across Detroit are subject to tax foreclosure because the property owners have not paid their taxes in more than three years. More than 42,000 are tax distressed and on their way to foreclosure, with unpaid taxes for at least one year (but not yet three years delinquent).” (DBRTFR, p. 200). That is a total of nearly 180,000 properties either tax foreclosed or at risk since 2008.

These are mind blowing statistics that bear directly on the issues of reasonableness and feasibility. They document the devastating effects of poverty in Detroit and the complete collapse of the City’s real estate market. These numbers represent people losing their homes for the inability to pay taxes, let alone the need to pay for water, utilities, insurance and mortgages. How can an Expert Report ostensibly examining the reasonableness of future property tax revenue forecasts not even raise this issue?

The tax foreclosure crisis does not stand in isolation. To this disaster must be added the mortgage foreclosure crisis, fueled by racialized predatory Wall Street practices. Adkins v. Morgan Stanley is a class action race discrimination case brought by the ACLU challenging sub-prime lending practices in Detroit tailored to meet the demands of the secondary lending market. The case is now pending in the Southern District of New York. In denying Morgan Stanley’s motion to dismiss, Judge Harold Baer directly linked the issues before him to the Detroit Bankruptcy.

Detroit’s recent bankruptcy filing only emphasizes the broader consequences of predatory lending and the foreclosures that inevitably result. Indeed, “[b]y 2012, banks had foreclosed on 100,000 homes [in Detroit], which drove down the city’s total real estate value by 30 percent and spurred a mass exodus of nearly a quarter million people.” Laura Gottesdiener, Detroit’s Debt Crisis: Everything Must Go,
Rolling Stone, June 20, 2013. The resulting blight stemming from “60,000 parcels of vacant land” and “78,000 vacant structures, of which 38,000 are estimated to be in potentially dangerous condition” has further strained Detroit’s already taxed resources. Kevyn D. Orr, Financial and Operating Plan 9 (2013).
And as residents flee the city, Detroit’s shrinking ratepayer base renders its financial outlook even bleaker. Id. Given these conditions, it is not difficult to conclude that Detroit’s current predicament, at least in part, is an outgrowth of the predatory lending at issue here.

All of these issues are interrelated. The tax and mortgage foreclosure crises, endemic poverty, the collapse of the Detroit real estate market and the question of the reasonableness of the POA’s projection of future property tax revenue. If the economic connections are so clear to a federal judge sitting hundreds of miles away, why are these issues completely absent from the Expert Report?

The Feasibility of the City’s Plan of Adjustment

The most important decision the court is likely to make in the entire bankruptcy proceeding will be its legal and factual determinations regarding feasibility. This is the only legal frame in the bankruptcy process where the needs of the average Detroit citizen are given priority. The court’s decision will determine not only the quality of life of the citizens of Detroit for decades to come; it will also determine the fates of scores of similar cities that will likely pass through Chapter 9 proceeding in the coming years. Like Detroit, the majority of these cities will be characterized by endemic poverty. Since poverty is racialized in this country, these cities will also predominately be majority minority central cities, most often, like Detroit, surrounded by wealthier white suburban regions. As such, the bankruptcy determination of feasibility is also a determination of the future lives and livelihoods of the citizens of these cities and what stake they will be given in the larger American dream.

The 50th anniversary of the 1967 urban rebellion in Detroit is on the horizon. Echoes of urban unrest resonate in the recent confrontations in Ferguson, Missouri.

Central cities have become separated, unequal, minimal cities, with minimal wealth, minimal opportunity and minimal city services. The question for this court is whether Chapter 9 determinations of feasibility will be the instrumentality that legally and financially ratifies the second class status of these economically deprived minimal cities.

Nobel Prize winning economist Amartya Sen lists five types of instrumental freedoms that governments have an obligation to provide: 1) political freedoms, basic civil rights, including rights to vote and participate in democratic governance; 2) economic facilities, the ability of individuals to fully participate in economic markets and have fair access to economic resources; 3) social opportunity, including access to quality education and health care; 4) transparency guarantees, mandates of openness in governance, including disclosure rights and protections against political corruption and financial irresponsibility; and 5) protective security, including social safety nets, unemployment benefits, income supplements and the provision of physical security.15 One can also envision the basic building blocks necessary for a healthy society as basic reference points: physical security, food security, social security and economic security.

How does the POA rate on these scales? The City’s POA embodies the complete devolution of distressed cities into second-class “minimal cities,” as lamented by Michelle
Anderson. While a slight oversimplification, the POA envision a post-bankrupt city that essentially provides only 1) police protection; 2) fire protection; and 3) the demolition of blighted buildings. At its base, this is an anemic list of “essential” services that provide only a shadow of the services required to take care of the needs of city residents and to provide them any meaningful opportunity for the future.

When the POA is juxtaposed to the opportunity mapping of Southeast Michigan, the implications are clear. The state-appointed Emergency Manager wants this court to ratify as feasible and, therefore, legitimize the de facto existence of “two societies, one black, one white – separate and unequal.”

Young men are not out scrapping for metals in abandoned homes because that is the first best use of their time in an ideal society. People make the best choices that are available to them. When a whole range of productive, healthy and fulfilling choices are denied, other choices are made. If the POA is ratified with its focus on physical security and not human security, it will result in an endless spiral of violence and increased physical repression as people in deprived minimalist cities become more and more opportunity starved and desperate. Civilized societies invest in the other building blocks of society not because they are luxuries, but because they are necessary for the existence of civilized societies.

If there is any analytic substance to the legal definition of feasibility, then the separate, unequal and segregated minimalist Detroit future city outlined in the POA is not feasible.

Casual review of the people consulted in the Report (Exhibit 3) reveal few voices outside the 7.2 miles of Downtown, Midtown and New Center. It is the people of the nearly 132 other square miles of the City, however, who must live with the daily consequences of the POA. The feasibility
of the POA should rightly focus on their needs.

Systems matter. Structure matters. History matters. In pretending that they do not, and in eschewing the Three Rs’ of Race, Regionalism and Reconciliation, the Expert Report has placed an analytical straightjacket on itself to the point that it cannot see the plain facts in front of it. The Report does not see the reality of endemic poverty, water shutoffs and tax foreclosures. It does not see the reality of the segregation of race and wealth and regional conflict that underlie the bankruptcy.