Guest Articles

April 30

Mike Brown

It Takes a Bank to Rebuild a City: JPMorgan, Detroit and the Value of Private Sector Solutions to Urban Decay

Throughout the United States, many of our largest cities have fallen victim to extreme urban decay and a lower quality of life due to the exodus of jobs and general neglect.

Nowhere does this ring truer than in Detroit, a once-proud and bustling center of industry and culture that has faced massive hardship over the past decade.

The examples of Detroit’s struggles are numerous:

  • The city’s population fell from a high of 1,850,000 in 1950 to 677,116 in 2015, a figure that dropped the Motor City out of the nation’s 20 most populous cities for the first time since 1850, before the Civil War.
  • The average price of homes sold in 2012 was $7,500, Detroit had 261,000 structures in 2014 and 50,000 were abandoned according to research done that year.
  • In 2017, Detroit’s unemployment rate was 8.4%, the lowest it had been in 16 years but still nearly double the nation’s unemployment rate of 4.3% during the same time.
  • In 2012, a U.S. Census Bureau study found that 36.4% of Detroit individuals lived below the poverty line, the highest percentage amongst 71 U.S. cities.
  • Detroit’s crime rates are consistently among the highest for major U.S cities as well, and when the city filed for Chapter 9 bankruptcy in 2013, it was the largest U.S. city in history to do so.

In summation, a once-great American city completely failed in the early-to-mid 2010s after teetering on the brink of failure for decades. But look closely at the stats I cited and you’ll notice something: Most are several years old and not more recent – and that’s because something big happened for the Motor City in 2014.

After decades of getting the cold shoulder from the public sector, Detroit was finally given a helping hand from the much more efficient, no-nonsense private sector. The impact of this intervention is hard to overstate.


A Financial Institution Steps in to Reverse Detroit’s Decay

In 2014, America’s largest bank, JPMorgan Chase, announced a five-year, $150 million commitment to the downtrodden city. As part of JPMorgan’s investment, the financial institution sought to revitalize economic opportunity in Detroit by investing in building new housing – especially of the affordable kind – and by boosting workforce training programs and small businesses that would promote growth and job opportunities for local residents.

Not only did JPMorgan invest in Detroit’s downtown and main areas of commerce, it also focused on the neighborhoods surrounding the city that were all but forgotten, even though they’d been hit the hardest by Detroit’s downturn.

Thus far, the bank’s intervention has been a resounding success. According to JPMorgan’s website, nearly 14,000 people have been able to participate in workforce training programs, more than 2,000 jobs were created or retained, and about 4,400 small businesses received much-need capital, technical support and training. Additionally, over 1,500 units of affordable housing were created or preserved, while 13,000 people from Detroit were able to access services to improve their financial health.

Funding from JPMorgan helped launch the Entrepreneurs of Color Fund, which provides low-cost loans and access to technical assistance to current and aspiring small business owners that otherwise would have had difficulty securing capital from a traditional source. These enterprises have helped revitalize local neighborhoods, improving the lives of countless residents. Speaking of revitalizing local neighborhoods, JPMorgan has assisted with other private, public and philanthropic partners in developing the Strategic Neighborhood Fund, which has utilized funds (some of which have come from JPMorgan) to rebuild neighborhoods for both commercial and residential use. As a result, affordable housing is more plentiful, streets are safer, and residents have access to groceries, restaurants, health care services and public facilities within a close vicinity.

With that being said, JPMorgan’s Detroit intervention is not the sole reason why the city has been revitalized in recent years. Finally emerging from the recession brought on by the 2008 financial crisis, the latter half of the 2010s has been a period of great economic growth throughout the country, Detroit included.

Still, the Detroit Initiative clearly played a key role in turning around a decades-long narrative of stagnation, and injecting much-needed capital and hope into the city. The intervention’s success has been so resounding and far-reaching that JPMorgan has now pledged to increase its investment in the Motor City to $200 million by 2022. The company is also applying the model to other struggling urban areas. Its AdvancingCities initiative will make a $500 million, five-year investment in similar programs in cities like Washington D.C., Chicago, the South Bronx and San Francisco. Further, JPMorgan recently announced a $1 million commitment to Inclusiv, also known as the National Federation of Community Development Credit Unions, to help push capital into member credit unions located in low-to-moderate income areas in Detroit and Cleveland.


Why Private, Not Public, Funding is the Way to Revitalize Cities

Why was JPMorgan able to make significant improvements in Detroit in less than 10 years, while several decades of help from the government accomplished next to nothing?

First and foremost, the answer is money. As the country’s largest banking institution, JPMorgan has deep coffers and a relatively loose rein when it comes to spending its cash. Granted, the publicly-traded company has shareholders it must answer to, but they offer fewer constraints than politicians face when spending taxpayer dollars on public initiatives. So JPMorgan has been able to commit hundreds of millions of dollars to revitalize a city with little to no worry about the future of the company – and little chance of experiencing destabilizing turnover among the people in charge of running its day-to-day operations. In contrast, the federal or state governments would need buy-in from a large percentage of their millions of tax-paying constituents before forking over a few hundred million dollars to a single city. Without it, political leaders might find themselves voted out of a job. And winning the favor of shareholders is a much easier task than getting a wide range of American voters on the same page.

Second, a financial institution like JPMorgan has a lot less red tape and regulations to work through when committing to a project like revitalizing Detroit, compared to what the government would face when executing a similar initiative. That’s why JPMorgan was able to produce such impressive results in such a short period of time; they can commit to something and get moving on it right away. For the government to undertake a similar project, it would most likely take a decade or longer.

For an example of government red-tape that can delay or even kill projects, one can look to the recent actions on Detroit Mayor Mike Duggan’s ambitious blight bond proposal. The proposal would have funded $250 million in bonds to eliminate residential blight throughout the city at no cost to the taxpayers. Detroit had previously been accessing federal funding to complete this blight removal project, but those funds were running out, and red tape placed limitations on which neighborhoods could be targeted, while the city’s proposal would have placed no such limitations. If passed, Duggan estimated all demolitions of deteriorated properties would be completed by 2025 – whereas without the project, this blight removal would likely take 13 years.

Last November, the City Council voted against the proposal right before it adjourned for recess.

Going forward, as the coronavirus pandemic continues to impact the lives and finances of everyday Americans, it is more important than ever for the private sector to continue to assist in revitalizing U.S. cities. As a result of COVID-19, a recession is already upon us, and there’s a strong likelihood that the economic turmoil will be significant – perhaps outlasting the pandemic itself. Not only will the government be occupied by the response to the virus, but it will also be spending a great deal of time trying to solve structural economic issues facing the entire country, not just cities like Detroit.

This presents an opportunity for JPMorgan and other private sector giants to use their financial might and resources to continue building upon the recent success that the bank has had in Detroit. Now more than ever during this unprecedented time, Americans living in struggling cities need a sense of hope and continued progress. JPMorgan has proven that they have the ability to offer that: They should continue to do so, as should other private companies.


Mike Brown is Director of Communications at LendEDU.


Image courtesy of Thomas Hawk.



Finance, Investing
business development, development finance, financial inclusion, impact investing, urban development, venture capital