May 4, 2023 - News

Highland Park debt crisis could mean bankruptcy

Illustration: Sarah Grillo/Axios

Ten years after Detroit declared bankruptcy, a small, once–prosperous neighboring city is considering the same fate.

Why it matters: The plight of Highland Park — a proud city in Detroit's shadow with a rich automotive history — highlights the long-term effects of urban sprawl and raises questions about the city's ability to revitalize.

  • A settlement outside of bankruptcy, such as a state bailout, could pass the debt onto taxpayers elsewhere.

Driving the news: Highland Park city officials asked Gov. Gretchen Whitmer last month for permission to file Chapter 9 municipal bankruptcy — although after a public meeting on Monday, its City Council now appears unsure of that approach.

  • The city of less than 9,000 people is facing a $24 million water and sewerage debt. That's more than twice its annual property tax collections.
  • State lawmakers proposed a $20 million bailout for Highland Park yesterday, the Detroit News reports.

Context: The three-square-mile city along Woodward Avenue is contained entirely within Detroit's borders.

  • Ford began assembly line manufacturing of the Model T there in 1913. Chrysler's headquarters were there from 1925 until the company moved to Auburn Hills in the 1990s, wiping out a quarter of the city's tax base.
  • Highland Park's population has dropped nearly 84% since peaking at 52,959 in the 1930 census.
  • The blighted buildings along Woodward now stand in stark contrast to when manufacturing was booming.

Between the lines: The median income in Highland Park is about $25,000 and 40% are living in poverty.

What they're saying: If the water debt isn't handled by May 31, it could be transferred to the city's tax rolls — potentially tripling the property taxes many residents already struggle to pay.

  • "There is no way in the world we can allow that levy to take your house," city administrator Cathy Square told residents at Monday's City Council meeting. "We have got to fight this to hold on to what's left of the city."

Reality check: While bankruptcy is on the table, a new report from the Citizens Research Council of Michigan says it's not the right solution for Highland Park.

  • Detroit was better suited for bankruptcy because it was mired in unbalanced budgets and operating deficits. Highland Park, meanwhile, has maintained balanced budgets while fighting the water debt for years in court.

Yes, but: Possible solutions outside of bankruptcy would only shift the burden to other taxpayers.

  • Eric Lupher, who wrote the research council's report, tells Axios that the state's economic development agenda hurts cities like Highland Park because it's focused on major automotive investments in places like Marshall and Orion Township.
  • "Ultimately, state and local government officials must choose between dissolving the city to make it part of Detroit or adopting an urban agenda to help places like Highland Park prosper again," Lupher wrote in the report.
Highland Park Mayor Glenda McDonald, right, addresses residents at a City Council meeting
Highland Park Mayor Glenda McDonald, right, addresses residents at a City Council meeting this week while Councilmember Khursheed Ash-Shafii listens. Photo: Joe Guillen/Axios

The prospect of bankruptcy is stoking fears in the majority-Black Highland Park that this financial crisis will eventually push out longtime residents.

State of play: Highland Park's water problems go back decades.

  • After repeatedly underpaying for sewage treatment services and a bitter, years-long court battle with the Great Lakes Water Authority, the Michigan Court of Appeals ruled last year that the city must pay its debt, now estimated to be $24 million.

The latest: Underlying tensions are already making it difficult for the city to proceed with GLWA negotiations, which resume next week.

  • The City Council rejected a proposal Monday to retain lawyers that would assist with the talks and a potential bankruptcy.

Between the lines: While some view Detroit's bankruptcy as a success — the city wiped away billions in debt and has since seen a rejuvenation — others in Highland Park still cringe at the results.

  • Detroit lost control of its water department and Belle Isle, and pensions were slashed.
  • "They are trying to bleed us out of this city, they are trying to push us out of this city," Councilmember Khursheed Ash-Shafii said. "I see what happened to Detroit and I don't want it happening here to us."

What we're watching: The financial crisis puts Whitmer in a difficult spot.

  • The governor is unlikely to authorize a bankruptcy after campaigning against the state's emergency manager law.
  • Her support from unions — whose collective bargaining agreements would be threatened under a municipal bankruptcy — is also a factor, the Free Press reports.

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