Eliminating blight could cost bankrupt Detroit more than $850 mln

WASHINGTON Tue May 27, 2014 4:21pm EDT

WASHINGTON May 27 (Reuters) - Wiping out the abandoned and decrepit buildings that are the hallmark of bankrupt Detroit could cost nearly $1 billion, and more over time, according to a report released on Tuesday by a special task force appointed by President Barack Obama.

The report estimates the city, which filed the largest municipal bankruptcy in U.S. history last summer, will need "as much as $850 million just to address neighborhood blight in the next few years." Commercial sites, with their potential for environmental problems, will add $500 million to $1 billion to the total cost.

Most of the money, 94 percent, would go to removing structures, and the report said "the uncertainties related to the cost of asbestos and lead abatement in these structures is the largest variable in the final calculations."

The report warned that because of the unknown variables "there may be cost escalation over time."

Last September, Obama announced a $300 million effort to help the city and created the "Blight Removal Task Force."

Along with city leaders and the state-appointed emergency manager, the U.S. Department of Housing and Urban Development, and the U.S. Treasury, local and state agencies and foundations assessed the conditions of neighborhoods.

At a presentation on Tuesday, task force members said deconstruction - taking structures apart to reuse their materials - is a priority over demolition, and two large recycling centers will be established in the city for about $6 million total.

"This is a fabulous plan. It doesn't come with a check. And that's the reality we all face," said Detroit Mayor Mike Duggan. "We're going to have to start to go after private business owners who have the deep pockets to demolish their own buildings ... We have identified every single city-owned building and we are going to be coming out with a plan to demolish the ones we can't use."

The report suggested the city dedicate $8 million each year from federal community development block grants for demolition, and also press for more mortgage help through the Hardest Hit Fund. Detroit's land bank should require $15,000 in cash from banks when they transfer the titles of blighted properties, it added.

The city's current bankruptcy plan depends partly on donations from foundations and nonprofit organizations, and the blight plan also calls for tapping nongovernment sources.

"We're trying to pull together half a billion dollars - I never thought half a billion dollars would be considered seed money ... to provide the seed money to deal with an issue that's been coming for 83 years," said the emergency manager, Kevyn Orr, who traced Motor City's blight to the Great Depression.

The report found that fewer than half of Detroit property owners pay property taxes. There are also 118,000 properties on track for tax foreclosure, carrying more than $500 million unpaid taxes, but "Detroit cannot afford to put more than a quarter of the city on the auction block." It suggested the state cut interest charged on unpaid taxes to 6 percent from 18 percent. (Reporting By Lisa Lambert; Editing by Peter Galloway)