Detroit Tests What Foundations Can Do to Rescue Troubled Cities

Urban planners, public-policy experts, foundation leaders, and others who care about America’s crumbling cities are wondering: Can philanthropy save Detroit?

The city made history in July when it declared the largest municipal bankruptcy in U.S. history, casting a pall on the intensive efforts by foundations over the past decade to help revive its tattered economy.

The Ford Foundation, W.K. Kellogg Foundation, Kresge Foundation, and John S. and James L. Knight Foundation are among national grant makers that have stepped up their spending in Detroit in recent years, plowing hundreds of millions of dollars into the arts, education, and projects to transform the riverfront and a key business corridor.

The Skillman Foundation, a local organization, is leading a $100-million effort to improve the lives of children in six Detroit neighborhoods. The Community Foundation for Southeast Michigan has been leading a project since 2001 to build a network of greenways that could help break down racial barriers by connecting Detroit to the suburbs.

In 2007, all of those grant makers and four others pooled money to create the New Economy Initiative for Southeast Michigan, a $100-million fund to promote entrepreneurs who could help replace the auto-related manufacturing jobs that long ago disappeared from the area.

A philanthropic effort to restore a city’s health “has never been attempted at the scale it’s being attempted in Detroit,” says Rip Rapson, president of the Kresge Foundation. “Without being grandiose about it, there’s nothing even close.”

Kresge, of suburban Troy, Mich., is the biggest foundation spender in Detroit, awarding almost $165-million in grants there from 2007 to 2011, according to Foundation Center figures.

A Complex History

Yet the foundations are up against a complex web of economic, political, and social forces that have combined over 50 years to push Detroit to the brink. Some wonder just how much they can accomplish in the absence of a broader national strategy to rescue Detroit, which does not seem to be forthcoming.

“The truth is, the kind of problems we face are not going to be alleviated through philanthropy or foundation investment,” says Ismael Ahmed, who led the Detroit-area Arab Community Center for Economic and Social Services for more than 20 years and is now an associate provost at the University of Michigan at Dearborn. Projects to promote entrepreneurship and urban redevelopment are “good things,” he says. “But will they change the equation?”

Among his suggestions: get government more involved, spend more money to develop community leaders, and improve city services, the schools, and health care.

More than the bankruptcy filing, which many residents say has not much affected their daily lives, Detroit is a city with big problems: Its poverty rate, at 42.3 percent, is almost three times the national average.* Its population has shrunk by almost two thirds since the 1950s, to less than 714,000 people spread across a huge expanse of 139 square miles (bigger than Boston, Manhattan, and San Francisco put together). It is plagued by violent crime, bad schools, abandoned buildings, foreclosures, and unemployment.

While Detroit has been in the news, its problems are “not unlike most of the majority-black cities in the United States,” says Myron Orfield, director of the Institute on Metropolitan Opportunity at the University of Minnesota. Half of Michigan’s black population lives in cities run by emergency managers, including Flint and Pontiac, he says. Other troubled cities including Camden, N.J., Cleveland, and Milwaukee are “just a heartbeat behind Detroit.”

“The whole country is watching as this city is in deep trouble and nobody is doing anything except these foundations,” he says. “They’re creating a new model. If they can partner with the state and federal government, they can turn this around. They’re heroes, but they’ve got to get these other players to the table.”

Cautious About Helping

While the Obama administration announced in September that it was working with foundations to channel $300-million in public and private money to help Detroit do things like remove blight, fight crime, improve transit, and promote entrepreneurship, a big chunk of it was money that had already been pledged by grant makers for that work.

Mr. Rapson says the federal and state governments are more interested in helping Detroit than it might seem, but they are cautious because in the past they have awarded money to Detroit that was never used.

There is no doubt that foundation giving to economic-development groups has helped transform the downtown area and the Woodward Corridor—a main artery that bisects the Midtown neighborhood that is home to Wayne State University, several museums, the Henry Ford Health System, and a growing number of restaurants and stores, including a new Whole Foods.

Their spending has coincided with a burst of private investment, most notably by Dan Gilbert, chairman of Quicken Loans, the mortgage lender, who moved his company’s headquarters to downtown Detroit in 2010, offered incentives for his employees to live in the city, and has bought, refurbished, and leased a raft of commercial buildings.

Some of the foundation-supported projects are starting to pay off economically. For example, a project to develop Detroit’s riverfront, once pockmarked with abandoned buildings and rusted-out cars, has helped generate more than $1-billion in public and private investments, almost 17,000 construction jobs, and $4.5-million in annual tax revenue during the last decade, according to a recent economic analysis.

But in the absence of a strong city government—in the past plagued by corruption, forever broke, currently under the control of a state-appointed emergency manager—the redevelopment efforts have been dogged by questions of public accountability. In an opinion piece for the New York Times in February, Mark Binelli, a Rolling Stone contributing editor and author of a book about Detroit, complained that urban-renewal power had been ceded to an “unelected oligarchy” of corporate and foundation leaders.

Mr. Rapson, a former deputy mayor of Minneapolis and urban-policy expert, asserted himself forcefully when he took the reins at Kresge in 2006, so much so that people whispered that he considered Kresge a “shadow government.” A Wall Street Journal article in 2011 detailed Mayor Dave Bing’s irritation at what he considered Mr. Rapson’s foundation-knows-best attitude as they worked together on the Detroit Works Project, an effort financed by Kresge to map out a land-use plan for the shrinking city.

(Mr. Rapson says the article exaggerated their differences and that he gets along well with Mr. Bing.)

Community activists have also fought to have a voice in planning what will happen to their neighborhoods, fearing that the plans could favor business interests over those of the vast majority of residents who are living in poorly served neighborhoods.

Stumbling Blocks

The grant makers that are active in Detroit have faced some stumbling blocks in their collaboration efforts—notably in putting together the $100-million New Economy Initiative, which is operated by the Community Foundation for Southeast Michigan. The problem, say several people involved with the effort: They wanted to make a statement about their commitment to Detroit by pooling a large amount of money before they developed a strategy for spending it.

David Egner, the project’s executive director, also president of the Detroit-based Hudson-Webber Foundation, says the 10 foundations naively thought that they could just ask their program officers to build a program around the money. But, he says, “the economic-development game is something you can enter from thousands of vantage points”—for example, should you focus on the city or the region? On work-force issues or small-business growth?

“The problem is,” he says, “economic development was not at the core of any of the 10 funders. It was at the periphery.”

With the help of a council of economic advisers, he says, it took 18 months to develop a strategy and another three years to sharpen it. The project agreed to invest in services to help entrepreneurs and says its efforts have now helped 423 new companies start up, adding almost 7,000 jobs.

But Paul Light, a professor of public service at New York University, says it’s time for foundations to do much more. Enough with traditional grant making: They should dig into their endowments and help rescue the city before it collapses.

“They’re using a fraction of their total incentive authority,” he says. “How’s that money going to work for them if Detroit goes down? This is a moment of truth for these foundations: Are they going to do something radical or stick with the old business model?”

Mr. Light says the foundations that created the New Economy Initiative should pledge a portion of their endowments—say, 10 percent—and use it to offer incentives to companies to move to the city, for example by buying their stock. He says a new light-rail project that the Kresge Foundation, a $3.2-billion organization, is helping to finance, won’t succeed without workers to ride it.

Mr. Rapson rejected Mr. Light’s suggestion that the foundations are sticking with old business models. “What we’re doing in Detroit is so completely different from what philanthropy has traditionally done,” he says.

He says the New Economy Initiative has helped small businesses create jobs in Detroit by offering them office space, administrative support, training, and other services. Rather than investing in stock, he says, Kresge and other foundations are playing a role that is essential to attracting new business—helping to pay for urban-redevelopment and transit projects that make employees want to work downtown.

Kresge devotes about $10-million a year in Detroit beyond traditional grant making, he says—for example, to help create a new fund that will invest in housing projects—and its board is open to spending more in the city “if there are extraordinary opportunities where the return will be very high.”

Tonya Allen, chief executive of the Skillman Foundation, has a different solution for bringing more aid to Detroit. She says more national foundations need to step up to the plate. But that could mean convincing them that the raft of national news stories about a battered Detroit are four or five years out of date.

“When we started getting hard-luck [news] stories, I felt like we were actually turning the corner,” she says. “Progress might not be that we see certain numbers jumping. It might be that we actually stopped the bleeding, a 30-year trend of downward trajectory and it’s actually stopped. That’s progress in Detroit.”

*Note: this sentence was updated and changed to reflect the 2012 poverty rate for individuals. The original gave the 2011 rate for families.