Economy & Budget

Private Sector Investment of $100 Million Trumps Taxpayer-Funded Bailouts

J.P. Morgan Chase’s (NYSE: JPM) announcement that it will invest $100 million in Detroit during the next five years exemplifies the critical importance of private sector involvement in spurring an economic renaissance.

The investment is a welcome boost for the Motor City, which still is seeking to restructure its finances through a rare municipal bankruptcy filing. Investment directed at projects that offer a banking company a chance to profit and enhance its long-term business prospects beats taxpayer-funded rescue packages that run the risk of going to politically connected people and projects rather than the ones most likely to develop sustainable businesses and contributing members of society.

The $100 million investment, championed by J.P. Morgan Chase CEO Jamie Dimon, will provide:
-$50 million split between two Detroit development projects, Invest Detroit and Capital Impact Partners.
-$25 million to blight-removal activities, such as $5 million for the Detroit Land Bank Authority, $5 million for a Rehab Loan Pilot Program that will help families buy homes through the city’s property auction and $1 million to expand the Motor City Mapping survey to create online access to properties in the city.
-$12.5 million in an array of training programs and efforts to help city residents obtain jobs and training.
-$7.5 million to partner with agencies in the city that support small business development.
-$5.5 million to the proposed M-1 Rail project and similar initiatives.

The world’s largest bank is putting its money where it can enhance Detroit’s appeal as a place to live and to work. It also is aiding in the start-up and sustainability of job-creating small businesses.

Legislators in economically battered Michigan are considering a costly proposal that would devote $350 million during the next 20 years to prop up Detroit’s underfunded pensions and prevent the sale of artwork from the Detroit Institute of Arts during the city’s bankruptcy proceedings. With the state’s tax dollars precious and scarce, it is hard pressed to fund road improvement projects, among other priorities. Any siphoning off of $350 million to help bailout Detroit from obligations its elected leaders created would be money unavailable to other parts of the state.

The situation also shows that doling out government funding is a “zero-sum game” in which a limited amount of money is available and lawmakers are put in the awkward position of needing to “rob Peter to pay Paul.”

Financially strained cities in Michigan extend beyond Detroit and include Flint and Hamtramck, among others.

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