Can Struggling Cities Shrink Their Way To Health?

Luther Gordon, 54, has lived in the same Detroit neighborhood for more than two decades, as he told The New York Times. He doesn’t plan to leave his city, but his city should be thinking about leaving him.

After losing a quarter of its population in the past decade, Detroit is looking for ways to consolidate its remaining residents. The exodus has turned many Motor City neighborhoods into virtual ghost towns. These neighborhoods cost the city much more to maintain and service than their few remaining residents can afford to pay in taxes. City officials want to concentrate the dispersed population into core neighborhoods that can be more affordably served.

The city wants to turn other districts, mainly the most blighted, into green space or, if enough industry can be found, industrial parks. There is little hope of attracting new residents to these zones any time soon.

One option Detroit is apparently not considering – but which I think it, and other cities like it, should consider – is to simply pull the city’s boundaries inward, literally shrinking away from the areas it cannot afford to keep.

This process happens all the time in other contexts. Families downsize their homes when children move out or income is reduced. Companies lop off divisions and lay off workers when times are tough. Surgeons and gardeners know that one must often cut away sick or dead tissue to preserve the living organism.

But it seems governments are genetically programmed to grow when they can, and to ossify when they cannot. Detroit is an extreme example, but the country is littered with school districts, townships, counties and cities that were established generations ago and which no longer make economic sense in their current form.

Why would Detroit, or any city in similar straits, maintain the same boundaries that it had a half-century ago when its population was roughly double what it is today? Are they waiting, probably in vain, for an economic rebirth that the ensuing blight makes less likely? “No new industry, nor mass immigration is going to repopulate Detroit,” a poster wrote on the message board DetroitYes. “Unless oil, gold, or the fountain of youth is discovered here, the population in Detroit will not increase substantially.”

Growing cities often annex adjacent land, bringing suburbs and exurbs inside city limits. De-annexation is far less common but is not unheard-of.

De-annexation has been discussed on message boards serving cities as diverse as Detroit, Kansas City and Oklahoma City. It is sometimes proposed as a way to deal with budget problems or urban blight. More often, however, residents of relatively well-to-do outlying areas are the ones to raise the idea. They are interested, not in cutting underperforming neighborhoods out of the city, but in creating their own independent governments in order to get better returns for their tax dollars. The 92-square-mile Ward 4 area of Tucson Ariz., has entertained secession dreams, but hasn’t made any serious attempts to strike out on its own. Staten Island has a lively secession movement, which hopes to cut New York City’s five boroughs down to four. But, despite 20 years of talks, little has happened.

Cities, and government institutions like universities, should take a cue from the business world. They should split or merge, grow and shrink, as circumstances change around them. The world always changes, and entities that cannot adapt to change eventually perish. Detroit is not going to be able to grow out of its problems, but it just might be able to shrink out of them.

About Larry M. Elkin 525 Articles

Affiliation: Palisades Hudson Financial Group

Larry M. Elkin, CPA, CFP®, has provided personal financial and tax counseling to a sophisticated client base since 1986. After six years with Arthur Andersen, where he was a senior manager for personal financial planning and family wealth planning, he founded his own firm in Hastings on Hudson, New York in 1992. That firm grew steadily and became the Palisades Hudson organization, which moved to Scarsdale, New York in 2002. The firm expanded to Fort Lauderdale, Florida, in 2005, and to Atlanta, Georgia, in 2008.

Larry received his B.A. in journalism from the University of Montana in 1978, and his M.B.A. in accounting from New York University in 1986. Larry was a reporter and editor for The Associated Press from 1978 to 1986. He covered government, business and legal affairs for the wire service, with assignments in Helena, Montana; Albany, New York; Washington, D.C.; and New York City’s federal courts in Brooklyn and Manhattan.

Larry established the organization’s investment advisory business, which now manages more than $800 million, in 1997. As president of Palisades Hudson, Larry maintains individual professional relationships with many of the firm’s clients, who reside in more than 25 states from Maine to California as well as in several foreign countries. He is the author of Financial Self-Defense for Unmarried Couples (Currency Doubleday, 1995), which was the first comprehensive financial planning guide for unmarried couples. He also is the editor and publisher of Sentinel, a quarterly newsletter on personal financial planning.

Larry has written many Sentinel articles, including several that anticipated future events. In “The Economic Case Against Tobacco Stocks” (February 1995), he forecast that litigation losses would eventually undermine cigarette manufacturers’ financial position. He concluded in “Is This the Beginning Of The End?” (May 1998) that there was a better-than-even chance that estate taxes would be repealed by 2010, three years before Congress enacted legislation to repeal the tax in 2010. In “IRS Takes A Shot At Split-Dollar Life” (June 1996), Larry predicted that the IRS would be able to treat split dollar arrangements as below-market loans, which came to pass with new rules issued by the Service in 2001 and 2002.

More recently, Larry has addressed the causes and consequences of the “Panic of 2008″ in his Sentinel articles. In “Have We Learned Our Lending Lesson At Last” (October 2007) and “Mortgage Lending Lessons Remain Unlearned” (October 2008), Larry questioned whether or not America has learned any lessons from the savings and loan crisis of the 1980s. In addition, he offered some practical changes that should have been made to amend the situation. In “Take Advantage Of The Panic Of 2008” (January 2009), Larry offered ways to capitalize on the wealth of opportunity that the panic presented.

Larry served as president of the Estate Planning Council of New York City, Inc., in 2005-2006. In 2009 the Council presented Larry with its first-ever Lifetime Achievement Award, citing his service to the organization and “his tireless efforts in promoting our industry by word and by personal example as a consummate estate planning professional.” He is regularly interviewed by national and regional publications, and has made nearly 100 radio and television appearances.

Visit: Palisades Hudson

2 Comments on Can Struggling Cities Shrink Their Way To Health?

  1. Yes, the solution is to tell those residents they’re no longer deserving of any government. I don’t know how or if any specifically apply, but this ignores property rights, equal protection and due process–things people in the real world actually have to contend with.

  2. First of all, Detroit’s geography is such that inner neighborhoods, closest to Downtown/Midtown, are the worst off and most declined. Outer neighborhoods–farther from an otherwise fairly healthy Downtown–are the ones that are the most viable. So shrinking the boundaries inward would merely lose the most stable areas the city has, excepting the Woodward corridor in the center.

    Secondly, I don’t understand why these “shrinking cities” arguments never discuss the legal ramifications of the suggested actions. Residents in depleted areas aren’t slacking employees–they’re shareholders. To one day declare failure and just say, “sorry, your investment in our entity is over as of today” is not just irresponsible, it’s probably not even legal. Neighborhoods to be “deannaxed” would need to approve such a measure in all likelihood. If they were keen on approving “secession,” there probably would have already been a movement to do so. More likely, though, these residents have no option but to live where they live–or in a similar area–due to market conditions.

    By the time these somehow-divested areas are removed from the official city limits, their depletion will result in de facto wholesale clearance. And where will the people who used to occupy these buildings go? Back into city limits, where the buildings are. Due to their poverty and desperate condition, you can expect this cycle to play out in the now-smaller city, too.

    A more sensible solution would be to take the most depleted neighborhoods and get the state or federal government to agree to maintain vast green expanses as state or national parks, tree farms, etc. The use wouldn’t matter so much as the governance. The state/feds would pay for upkeep, policing, and such while the city could be kept in charge of built areas. With the state of Michigan’s newly approved “emergency manager” provision for struggling cities, it appears Michigan is in the market to take over portions of Detroit. This is the type of “deannexation” necessary to transfer the costs away from the strapped city while allowing the city to retain all of its viable land area.

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