Detroit enclave city built on auto industry struggles under $20M water debt

A small enclave of Detroit is considering municipal bankruptcy to help rid itself of a decades-old water debt that has grown to about $20 million and threatens to swamp the already financially struggling city

Kevin Houston scanned the Michigan street where his fixer-upper and older homes bridge gaps between the vacant, overgrown lots and abandoned, ramshackle houses, boarded-up businesses and potholed streets of Highland Park.

But no one would confuse the neighborhood for a park.

“It’s not a bad place to live,” Houston said. “It’s not the best.”

The community, just under 3 square miles (7.8 square kilometers) and nearly surrounded by Detroit, is a shell of its auto baron past, when manufacturing boomed and money flowed. Over 50,000 people lived there in 1930. Homes — elegant and spacious — rivaled some of those built in Detroit.

Fewer than 9,000 now call it home. The auto companies are long gone, leaving strip malls and retail shops to bolster the city's dwindling business tax base.

And, owing about $20 million to a regional water service, Highland Park is considering municipal bankruptcy — a strategy that a decade ago allowed Detroit to erase or restructure $7 billion in debt — to keep its financial future afloat.

Troubled cities like Highland Park are the toughest cases in America to figure out how to fix, because they have so few assets to build on, said Alan Mallach, author of a soon-to-be-released book, “Smaller Cities in a Shrinking World: Learning to Thrive Without Growth.”

“They have appalling levels of poverty and abandonment,” Mallach said. “A city like Highland Park probably cannot turn itself around all by itself. They just don’t have the resources.”

Highland Park and communities like it have been fading as jobs dry up and families move away, but before the decline began, the auto and manufacturing industries helped build up some of these inner ring suburbs.

In 1907, Henry Ford bought 160 acres of land for what would be his Highland Park Ford Plant. The first moving assembly line started a few years later at the plant. Immigrants and other workers eager to earn $5 per day flocked to the area.

A building boom followed that included thousands of homes along tree-canopied streets.

“Highland Park was really a shining city on a hill. It was really the place to live,” said Jeff Horner, urban studies professor at Wayne State University in Detroit. Horner credits Ford with turning the city into an important and successful suburb run by his political friends.

Ford would move its auto production operations to nearby Dearborn in the 1920s. The automaker would keep a tractor plant in Highland Park and Chrysler, now Stellantis, had its headquarters in the city. But both moved away in the 1990s.

Like Detroit and other large urban cities, white residents began fleeing Highland Park in the 1950s for the suburbs. Jobs followed. About 85% of Highland Park's residents are Black. The median household income is about $25,000 and about 40% of the population lives in poverty, according to the U.S. Census.

Neighborhood malaise and neglect are overpowering in some parts of the city. In a rat-infested, vacant apartment building in early February, authorities found the bodies of three aspiring rappers. The trio were to perform Jan. 21 at a club in Detroit when they disappeared.

“There’s very little left there in terms of a tax base that built this city,” Horner said. “Any time you’re a small, inner ring suburb that can’t grow in land you have to bring in a tax base. You have to bring in more residents.”

Highland Park has said that property taxes in the 2022 fiscal year were about $9.6 million. Estimated revenues for the coming fiscal year are expected to be about $12.6 million, according to Mayor Glenda McDonald's proposed 2023-24 budget.

Income and property taxes, respectively, would account for $4.7 million and $2.6 million in revenue. Another $3.5 million would come from state revenue, according to the proposed budget.

McDonald declined to comment due to ongoing court-ordered mediation over the water debt with the Great Lakes Water Authority.

The debt owed to the Great Lakes Water Authority stretches back to at least the 1990s when the water system was run by the Detroit Water and Sewerage Department.

In 2014, the state determined Highland Park was in a financial emergency and appointed a manager. A court granted the water department a $19 million judgment in 2015 against Highland Park. The ongoing mediation is expected to lead to a plan for how the debt will be paid.

Highland Park has not made any payments for sewer services since April 2021 and has paid less than 1% of its water service charges since 2012, according to the water authority.

The water authority says other communities in the system have incurred charges due to Highland Park's nonpayment. Once the judgment is paid those communities will be reimbursed, the authority said.

And those communities have “no sympathy” for Highland Park, said Eric Lupher, president of the Citizens Research Council of Michigan.

“They don’t want to float the city anymore, floating their debt while the city figures this out," Lupher said. "They want what’s best for Highland Park, but they’re not willing to pay Highland Park’s way.”

Democratic Gov. Gretchen Whitmer’s office has said the water authority and Highland Park need to find a solution that doesn’t push the cost to homeowners or businesses.

In April, Highland Park's council voted 3-2 to ask Whitmer to move quickly on a municipal bankruptcy.

The state Treasurer's office is looking into the city's request for a financial review.

Bankruptcy would be only a “Band-Aid” for Highland Park, Mallach said.

“It’s not just the water debt,” Mallach said. “The city is not able to generate enough revenue to provide adequate services or reverse the downward spiral of its properties. Any benefit from bankruptcy would probably disappear over the course of the next five years or so.”

However, Houston, the 40-year-old resident who remembers when every Highland Park house had a family in it, said he can't disagree with the bankruptcy option.

“If it’s the best way to get out of it, you have to do what you have to do," he said.