How do we fund this mission?

Detroit will need as much as $850 million just to address neighborhood blight in the next few years. Addressing the larger-scale commercial sites across the city could add an additional $500 million to $1 billion because of their much larger size and their potential for greater environmental issues.

Of the approximately $850 million needed to address neighborhood blight, the greatest proportion by far—and the greatest source of variability in the bottom line—is the removal of blighted structures. The cost of removing blighted structures accounts for nearly 94 percent of the total. The uncertainties related to the cost of asbestos and lead abatement in these structures is the largest variable in the final calculations.

The costs of clearing and maintaining vacant lots, and of developing critical capacity to do this work, are modest by comparison, but significant nonetheless. Although these two categories together only represent five percent of the overall need, their combined total comes to nearly $50 million.

In order to project the necessary costs, the Task Force studied prior demolition work in Detroit, as well as in other cities. The team reviewed national efforts in recycling, deconstruction, clearing and care of vacant lots, and community collaboration. We developed some key assumptions to help us examine the factors that influence costs, such as the level of asbestos in a structure or the frequency of dumping on a property.

Assumptions about structural blight

The Task Force used the following assumptions to calculate the total cost of eliminating structural blight elimination:

  • 80 to 90 percent of the properties with blight indicators marked for “further analysis” in the 2014 Motor City Mapping survey will likely require demolition.
  • Demolition of residential structures with one to four units (single-family) was projected to range from $8,600 to $10,500.
  • The average demolition cost for structures assumes that cost savings detailed in Chapter 6 will be realized over a period of one year. Without them, the cost for demolition will increase by 17 percent, raising the total cost for structure removal by $100 million.
  • The Task Force assumed that “skim” deconstruction will be used on approximately 10 percent of residential properties to divert salvageable materials from landfills and to preserve some of the physical assets of buildings that must be demolished. Skim deconstruction takes between one to three days and focuses on quickly harvesting the most salvageable and currently saleable material. The additional labor on a property will increase demolition costs by 12.5 percent but will also create jobs, skills, and new careers for residents of Detroit. The deconstruction firms, several of which are Detroit nonprofits already doing this work, will ultimately reinvest the monetary value of the salvaged material into expansion of their markets, training and employment, and improvements to their processes.
  • Given the impact of blighted commercial structures on the immediately adjacent residential areas, neighborhood-level commercial demolition was factored into the overall costs. Commercial sites with a lot size of under 25,000 square feet were assumed to be neighborhood-level commercial properties. Cost for demolition will vary considerably, depending on the size and building material of the structure. For that reason, the Task Force estimated that commercial demolition could cost 50 percent more per structure than the standard residential properties (one to four units).
  • Blighted residential structures with more than four units (multi-family) cost more to remove than smaller residential structures, given the size of the structure and volume of material. The cost of removing these will vary considerably. As with neighborhood commercial structures, the Task Force estimated that larger residential structures could cost 50 percent more to remove than smaller residential (one to four unit) structures.
  • Industrial and large commercial blighted structures were not factored into the total neighborhood demolition costs. The removal costs and potential for deconstruction and salvage of these structures call for a separate analysis, given the profound level of variability among these types of structures. Generally speaking, demolition costs for these larger structures will range from $1 million to tens of millions per structure. The total funding need for these structures could range $500 million to $1 billion or more.
  • To reduce interim maintenance costs following structure removal, slow-growth grass seeding will be used in low-vacancy areas and lowest-maintenance seeding will be used in moderate- and high-vacancy areas (e.g., clover). These costs range widely, depending on the type of seed and the method of installation. The Task Force assumed a general rate of 6 percent of demotion costs. Although we assumed that cost to be fixed and not likely to fluctuate even if the overall cost of demolition increases, it can be offset with the involvement of nonprofits, volunteers, and donations.
  • The budgeted costs do not include the cost of boarding properties prior to demolition. The amount of boarding will be diminished through expedited demolition. Despite this, there will be some costs associated with securing properties, which should be covered through coordinated volunteer and donation programs.

Assumptions about non-structural blight

The Task Force used the following assumptions to calculate the total cost of clearing and maintaining vacant lots:

  • Debris removal is estimated to cost $900 per lot.
  • Cost to mow vacant lots is estimated at $50 per acre for each mowing
  • .
  • Given the expansive inventory of city-owned lots, mowing all of them every other week is not financially feasible. The Task Force assumes that lots in low-vacancy areas will be mowed three times per year, and those in moderate- and high-vacancy areas will be mowed once per year. The budget reflects the cost for mowing for five years on existing lots and three years on post-demolition lots. Community-based organizations, corporate donations, and volunteers are anticipated to offset some if not all of the vacant lot maintenance, as described in Chapter 6.

Assumptions about creating capacity

The Task Force estimates a need of approximately $35-40 million to create the capacity needed to address all of Detroit’s neighborhood blight. Capacity includes job training, the addition of two recycling centers, and the administrative, legal, and technological resources required to implement the entire strategy in five years.

The rapid increase in the volume of demolition and deconstruction activity will require a large pool of trained workers.

The Task Force used the following assumptions to calculate the total cost of creating the workforce capacity and facilities to support blight elimination:

  • The increase in the volume of demolition and deconstruction activity over 5 years will call on Detroiters to have new skills and connect with new job opportunities. The Task Force assumes an investment of $2.3 million in workforce training for 430 people.
  • To reduce demolition costs and the amount of debris entering landfills, contractors need access to local recycling and sorting facilities. The cost for two projected recycling facilities, as described in Chapter 6, was estimated at $3 million each
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  • The City of Detroit will need an infusion of administrative, legal, and technological support to carry out its efforts. These costs are assumed to be four percent of the total current estimate for the blight removal work, excluding the cost for the recycling facilities. These costs are not assumed to increase even if the per-structure cost for demolition increases.

What do we have right now?

The $440 million in Reinvestment funds listed in the Plan of Adjustment for the City of Detroit includes $52.3 million of Hardest Hit Funds (HHF) and $20 million of Fire Escrow funds, already approved and allocated to blight removal. The additional $368 million toward blight elimination is pending approval by the U.S. Bankruptcy court. If approved, the $368 million represents an allocation of the city’s proposed $1.4 billion post-bankruptcy restructuring and reinvestment funding that would be reserved for blight elimination work. However, that allocation is not guaranteed. It is contingent upon the realization of projected future cost savings and revenue for the city. If future revenue or costs savings are not realized at the projected levels each year, the $368 million in blight elimination funding has the potential to shrink significantly.

In addition to HHF and Fire Escrow funds, the city has currently allocated $8 million of Community Development Block Grants (CDBG) and $7.3 million of Neighborhood Stabilization Program grants (NSP) toward blight removal. The city is still working through the process of identifying the final CDBG allocation for demo and is looking for ways to increase the amount dedicated to address blight elimination. In total, today, the city has approximately $87.6 million immediately available toward the blight removal effort.

Resources for addressing blight are seldom completely unrestricted. Most funding can be applied only to certain aspects of the problem. Some is restricted by area, based on geographic or income limits. Other funds are restricted to certain types of property, either by structure or even specific address. For example, the most immediately available funding is the $52.3 million from the Hardest-Hit Funds, awarded to Detroit by the State of Michigan in fall 2013. The Detroit Land Bank Authority is responsible for these funds, which may only be used to remove persistently vacant single-family houses and are intended to stabilize neighborhood markets and prevent foreclosure.

Another example is the $20 million of Fire Escrow funding. In addition to the current $6,000 cap per structure, these funds are restricted to fire-damaged buildings. Although there are plenty of such structures in Detroit, some Escrow-eligible structures can be demolished using other funds. Restrictions in the current Fire Escrow program prevent these funds from being “flexed” and applied or combined to demolish other fire-damaged structures. As discussed in Chapter 7, the Task Force is recommending legislative changes to expand the use of these funds to better match the cost and current blight conditions.

While the Neighborhood Stabilization Program II funding has been spent, Detroit Land Bank Authority has access to $4.3 million in NSP II program income, and the city has an additional $3 million in NSP funds that it is continuing to expend. This funding is more flexible for a range of activities: residential and commercial demolition; developing financing mechanisms; and to purchase, rehabilitate, and redevelop residential structures.

As with NSP II funding, CDBG has income restrictions that affect where resources can be applied in Detroit. Within these program restrictions, the city has some latitude in allocating annual funds to specific uses.

The Reinvestment funds within the Plan of Adjustment are free from geographic and income-level restrictions, though at present the funding is limited to residential demolition. Although the use of the funds is less restricted than other funding, the disbursement method of the funds represents a unique constraint for this funding source. At present, the funding level and disbursement will be set on a quarterly basis, distributed over a period of five years, contingent on the city realizing projected revenue. If the level of projected revenue is not met, the quarterly allocation will be reduced. Since the level of funding has the potential to fluctuate, this funding source will be difficult to rely upon for large-scale and longer-term investments. In order to save on demolition costs, as proposed throughout this report, the Detroit Land Bank Authority must be able to establish a stable and predictable flow of work. This will encourage additional Detroit contractors to establish demolition divisions, allow for appropriate workforce training to staff those contractors, and support investment in recycling centers and deconstruction markets, since they will all be assured that the work will be there to support them. This will not be possible without a stable and predictable base of funding for demolition operations, with at least an annual budget cycle on which all of these parties can rely. Since the Plan of Adjustment contemplates providing significant funds for demolition activities, the Blight Removal Task Force recommends that the Plan provide for an annual budget approval process for the Detroit Land Bank Authority’s demolition funding.

A major corporate commitment is anticipated as early as June 2014, to be dedicated toward the second phase of Motor City Mapping. If awarded, these funds will be made available by June 2014.

The funding shortfall. With every source of funding accounted for, Detroit still faces a shortfall of approximately $400 million in the coming years, just to address neighborhood blight.* Adding in the large-scale commercial and industrial projects increases the gap to as much as $1 billion. This shortfall is not an obstacle to immediate progress, but it is an important factor in the ability to increase momentum and impact across the city. It will be important to have unified, community-wide efforts in place to continue to seek and deploy additional funding.

Blight funding recommendations

Recommendation 9-1. The City of Detroit should allocate at least $8 million of CDBG funds annually to the Detroit Land Bank Authority (DLBA)for use on demolition activity.

Recommendation 9-2. Maximize the impact of the Plan of Adjustment blight-focused Reinvestment Funds by deploying them in ways that increase the potential for future revenue, and by expanding their range of uses, including elimination of blight for commercial structures, vacant lot clearing, and rehabilitation in neighborhoods.

The contingencies associated with blight funding from the Plan of Adjustment further reinforce the need to prioritize blight removal in geographic areas where there is an opportunity to improve reinvestment and stabilization of the neighborhood (see chapter 4 for more information about the Maximizing Community Impact tool). This methodology directly prioritizes the preservation, and potential increase, of the tax base in these neighborhoods to better position the city to allocate the maximum level of funding.

In order to fully transform Detroit’s neighborhoods, these funds must be used in a way that offers a full range of interventions, not just residential demolition. Neighborhood-level commercial structures in dangerous condition have a significant impact on a neighborhood’s viability for economic recovery, neighborhood stabilization, and quality of life for its residents. Structures that can be saved and reoccupied must also have solutions to address the deferred maintenance and rehabilitation needs. Private-sector funding for rehabilitation cannot sufficiently address this need, and is often inaccessible due to the low value of properties. The Plan of Adjustment Reinvestment Funds offer a rare opportunity to reduce the barriers to financing rehabilitation and to significantly open up private-sector financing. Rehabilitation assistance could be structured in a number of different ways, such as a loan loss reserve, forgivable loans, or low-interest loans.

Recommendation 9-3. The DLBA should require a $15,000 cash payment per structure from banks that transfer title of properties for the necessary intervention required to rehabilitate or remove the structure. Further, if an individual owner has stopped making mortgage payments and has abandoned a property, the city should work with partners like banks and the National Community Stabilization Trust to expedite the transition of that property, accompanied by $15,000 in funding, to the DLBA.

Recommendation 9-4. The city and DLBA should advocate for more flexible Fire Escrow funding. Recommended changes to existing legislation are discussed in Chapter 7.

Recommendation 9-5. The DLBA should advocate for the allocation of additional HHF funds to Detroit, after demonstrating success in deploying current Hardest Hit Funds. In addition to State of Michigan requests, our congressional delegation should propose that Detroit be able to apply for any unused program dollars, not already assigned to Michigan. Beyond additional funding, HHF-eligible uses should also be expanded to allow the city to address the full spectrum of blighting influences that continue to destabilize neighborhood markets, specifically nonstructural and commercial blight.

Recommendation 9-6. The Michigan Economic Development Corporation, in partnership with the Michigan Department of Environmental Quality should contribute the $6 million needed to attract and build the two recycling facilities in the City of Detroit.

Recommendation 9-7. Incorporate the funding for Phase III of Motor City Mapping into the City of Detroit’s Chief Information Officer’s new information technology strategy and transition plan. As such, this strategy should include funding for the $2.5 million needed to build the citywide, comprehensive parcel management dashboard and database.

Recommendation 9-8. The city should strengthen the enforcement of the Vacant Property Registration Ordinance, particularly targeting absentee owners. Not only does the city need stronger enforcement to assist in dealing with the blight pipeline, any revenues resulting from this effort can immediately be used to support operational needs.

Recommendation 9-9. The challenge of capacity building presents an important opportunity for partners of all kinds to step up to the plate and support Detroit’s renewal. Private donors, in-kind contributions, and especially bank and corporate foundations engaged in workforce development opportunities should identify and support their part of the ramp-up effort.

Recommendation 9-10. The city should aggressively pursue possible funding, resources and partnership opportunities with the Department of Homeland Security (including Federal Emergency Management Agency), U.S. Environmental Protection Agency, and other federal agencies, as well as Michigan Department of Environmental Quality, and the Southeast Michigan Council of Governments and Detroit Water and Sewerage Department, to remove blight and create sustainable green infrastructure.

With the scale of structure removal needed, the city will significantly increase the amount of permeable surface in the city. This will allow for more natural stormwater infiltration and will reduce some burden on the city storm sewers, with the added benefit of increasing the amount of open and green space. Additionally, with the elimination of structures in areas with repetitive flooding, the city is reducing the risk of future flood damage and claims. All of these factors open up the potential for new, creative sources of funding for demolition and site treatment.

Recommendation 9-11. A central fund should be established to receive both corporate and private monetary donations to support blight removal work. This fund could use incentives like philanthropic or public matching to generate additional funding and should be well coordinated with nonprofit blight elimination work.

Recommendation 9-12. Nonprofit organizations should continue to play a vital role in bringing resources and manpower to the removal of neighborhood blight, including clearing and maintaining vacant lots, and securing open properties. These organizations can more easily leverage private and philanthropic donations and volunteer resources for these activities. The corporate sector should be tapped to provide funding, donations, and volunteers to address blight affecting the communities in which they operate. Businesses throughout Detroit already have existing traditions of supporting their neighborhoods, or would be very motivated new supporters in the fight against blight. In addition to working with large employers headquartered in the city’s core, who may support blight elimination or capacity-building efforts through their philanthropy, the city should pursue partnerships with the many companies and firms in the various employment districts throughout Detroit, to engage their support through cash, in-kind contributions, and employee volunteers.

Recommendation 9-13. The city should identify strategic blight elimination opportunities that will result in future revenue sources, for example through increased property tax revenue, which could be leveraged to mobilize local bond financing.

Although significant funding is currently dedicated or budgeted to support blight elimination, many of these sources are available only on a reimbursement basis. If the entity does not have cash on hand or an accessible line of credit, payment to contractors is delayed which impedes the pace of demolition activity. Additionally, many sources are not immediately available, as they are allocated over a period of time. In order to achieve the aggressive timeline outlined in this report, funding must become available immediately.

Bank financing--and municipal bonds, as Detroit’s economy recovers—can play a role in blight removal and subsequent redevelopment efforts.

The DLBA is a source of local bonds that should be explored. Beyond local bonds, the city could advocate for the County or State to float a bond to cover portions of blight elimination. Bonds at the County or State-level could cover additional jurisdictions and allow for more cross collateralization, thereby reducing the risk in repayment.

Recommendation 9-14. The city should bolster and coordinate with a CDFI investment in neighborhood-based redevelopment. Creation of a Real Estate Investment Trust for strategic blight elimination and rehabilitation should also be explored as an opportunity to bring additional capital to neighborhood-based redevelopment.

Recommendation 9-15. In addition to receiving donated property and associated demolition funding, the city should appeal to banks to use their Community Reinvestment Act funding to support blight elimination work, particularly for projects that also have an investment component as with rehabilitation or redevelopment.

Recommendation 9-16. Creative investment strategies should also be explored particularly to support residential rehabilitation and development. Structure removal alone will not be enough to fully transform Detroit’s neighborhoods. There must be a concentrated reinvestment in Detroit’s neighborhoods, which will allow for the rebuilding of value. Access to traditional financing sources is seriously constrained. As previously mentioned, public and philanthropic sources of funding should be used to open up and or supplement private financing through loan loss reserves and forgivable or low-interest loans.