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$300 million in Detroit aid, but no bailout

Ruins at the abandoned Packard Automotive Plant are seen in Detroit, Michigan.
Getty Images
Ruins at the abandoned Packard Automotive Plant are seen in Detroit, Michigan.
Members of the Detroit Fire Department fight a two-alarm fire that broke out in an abandoned building. Detroit has an estimated 78,000 abandoned buildings across its 142 square miles.
Getty Images
Members of the Detroit Fire Department fight a two-alarm fire that broke out in an abandoned building. Detroit has an estimated 78,000 abandoned buildings across its 142 square miles.

Two months after Detroit became the largest city ever to file for bankruptcy, top Obama administration officials will be there on Friday to propose nearly $300 million in combined federal and private aid toward a Motown comeback — only a fraction of the billions the city owes and a reflection of the budget and political limits on President Obama.

This first major infusion from the federal government, which administration officials say will not be the last, would be used to help clear and redevelop blighted properties, improve transportation systems, bolster the police — especially around schools — and overhaul city management systems wrecked by years of poor administration and inadequate resources.

(Related video: Fire rages in Detroit)

The package follows weeks of meetings in Detroit and at the White House between the administration team and local business, labor and philanthropic leaders on how best to pool existing resources. Final details are to be worked out in a two-hour meeting of the federal and local officials at Wayne State University, participants said.

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While Mr. Obama remains in Washington as fights over the budget and health care threaten a government shutdown at the start of a fiscal year on Tuesday, he is sending a delegation led by his chief White House economic adviser, Gene B. Sperling, which includes three cabinet members: Attorney General Eric H. Holder Jr.; Shaun Donovan, secretary of housing and urban development; and Anthony R. Foxx, secretary of transportation and a former mayor of Charlotte, N.C.

Administration officials acknowledged that the initial aid would hardly solve problems in Detroit that have been decades in the making. But, Mr. Sperling said, "It's the largest city bankruptcy in the history of our country, on our watch, and we've got to do something."

Yet the idea of the federal government's responsibility toward Detroit is hardly a settled issue in Washington. Instead, divisions over the question reflect the fundamental divide between the two parties over the size and role of government.

Congress, preoccupied with reducing federal deficits, has been all but silent about helping the birthplace of the auto industry and, some say, of the American middle class. The Republican-controlled House is hostile to any spending initiatives from Mr. Obama. In the Senate, two Southern Republicans separately and unsuccessfully proposed legislation intended to ban bailouts — Detroit leaders have not sought one — briefly churning the racial currents at play over a city where four out of five residents are black.

(Read more: Stocks down on government shutdown worries)

So with the chances that Congress would pass any legislation for Detroit "somewhere between zero and zero," as an administration official put it, Mr. Obama has fallen back on what he can do through executive actions, with available money and tax credits, or through partnerships with local businesses and foundations.

The effort is similar to the way he has worked around Congress to create advanced manufacturing centers nationwide with federal and local support, provide broadband in every classroom, speed up infrastructure projects and try to reduce gun violence.

Even before Friday's event, administration officials worked with Michigan's governor, Rick Snyder, a Republican, to redirect $52 million in federal money to be used to demolish abandoned properties that are blighting communities and discouraging investment.

(Read more: Detroit spend billions extra on pensions)

Most of the roughly $300 million to come is federal money, with the state and foundations chipping in, according to the White House. About $140 million would go toward transit improvements, including $24 million to repair buses. An additional $100 million would go to blight efforts, including $25 million for commercial demolitions from combined federal, state and foundation money. With the planned $25 million in federal Homeland Security money, up to 150 firefighters could be hired.

"Our message right from the beginning was: There is nothing we can do to help on the bankruptcy; there is no bailout," said Mr. Sperling, a native of Ann Arbor, Mich. "However, we want to look at what could we do to help Detroit through existing resources and mobilization" of public and private partners.

"What we knew, too, was that this was a place where signaling was important," he added. "You want to signal that people are staying with Detroit, that this is still a place to invest, to go."

The signals are intended for outside investors and residents alike. "There is this quiet desperation of just everyday normal people, of why does nobody care, why isn't anybody helping us," said Debbie Dingell, a local leader and the wife of Representative John D. Dingell, a Democrat whose district is west and south of Detroit.

(Read more: U.S. Treasury kicks off third stage of GM exit)

"I've said a thousand times, we're a precursor to the same problems everyone else is facing," Ms. Dingell added, citing in particular the public pension obligations that weigh on many local and state governments.

The White House's decision not to seek special help from Congress for the city initially frustrated some people within and close to the administration, who thought the president should at least try. The decision also frustrated some leaders in Detroit.

"Unfortunately, we're not going to get the bailout that New York got in the 1970s," said Dan Gilbert, founder and chairman of Detroit-based Rock Ventures, an investment firm, and Quicken Loans, the nation's largest online mortgage lender. "That looks like it's off the table for whatever various political reasons."

What is needed, Mr. Gilbert said, is "a Marshall Plan for Detroit." Citing the city's "soul-sucking" blight, he said: "We need to remove every single structure and building in this city that is no longer viable. Once you remove all of that, and I mean all of it, you start renewing hope."

In contrast to Washington's hush regarding Detroit, loud debate about what the government could or should do followed New York City's 1975 financial crisis — as captured by the Daily News headline "Ford to City: Drop Dead." Ultimately, President Gerald R. Ford, a Republican from Michigan, and the Democratic-controlled Congress agreed to a multibillion-dollar loan package that the city eventually repaid, with fees.

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Four decades later, Michigan's two Democratic senators, Carl Levin and Debbie Stabenow, said — like White House officials — that they knew better than to seek Congress's help.

"There is not going to be a bailout for Detroit or any other city," said Mr. Levin, a six-term Democrat who has lived in downtown Detroit for 35 years. "There's not even enough funds in this budget to fund our own federal programs under sequestration," the across-the-board spending cuts.

In July, after Mr. Snyder authorized Detroit's emergency manager to file for bankruptcy, Mr. Levin had aides identify federal programs that Detroit could tap — the fiscal equivalent of looking under sofa cushions for spare change. A result was a 20-page spreadsheet of potential grants for neighborhood stabilization; brownfield cleanup; highway, education and antigang programs; and more.

Mr. Levin shared the list with Mr. Sperling, who was charged by Mr. Obama with overseeing a working group of administration officials. They soon discovered many areas where city officials had "left money on the table" by not applying for available federal money correctly, or at all. Foundations and businesses promised matching money. By late Thursday, the tabulation for Friday was still inching upward.

"What is important is that this is not a one-time announcement," Ms. Stabenow said. "This is the first step."

By Jackie Calmes of The New York Times

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