Detroit Should Aim Higher In Its Blight Fight

 

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Renderings for a mixed-use development in Boston’s Mission Hill neighborhood

Over the past several decades, mayors and emergency managers have come and gone in Detroit without solving what is perhaps the City’s most fundamental problem: it continues to lose residents. The problems from this decline in population are obvious and have been well documented. A declining population means a declining tax base leaving the City with less money to provide basic services. Further, when residents leave their property, whether voluntarily or involuntarily, it often remains vacated for several years and becomes what many describe as “blighted.” Research has connected blighted properties to all kinds of problems from increased crime rates to decreased property values for neighbors.

The enormity of the problem that blighted properties present to Detroit and it’s residents is neither something new nor is it an unknown. It was recently estimated that there are approximately 78,000 vacant structures in Detroit as well as 60,000 parcels of vacant land. Given the prevalence of the problem, the promise to fight blight has become perhaps the most common campaign promise for each mayoral candidate. Kwame Kilpatrick promised to demolish 5,000 structures in his first year in office. Dave Bing promised to demolish 10,000 structures in his first term. Now it’s Mike Duggan’s turn.

Mayor Duggan’s goal is to remove all blight by 2020.  A recent report stated that in the first 7 months of Duggan’s administration, the City has torn down 5,812 structures. It was also estimated that these recent demolitions have helped to raise the property values of surrounding homes within 500 feet of a demolished, vacant structure by 4.2%. However, the high number of demolitions over the past year have largely been made possible by an influx of federal money. The U.S. Department of Treasury gave Detroit $100 million to demolish blighted and vacant residential structures. That pool of money is expected to run out in December. Mayor Duggan estimated that the City needs $400 to $500 million to meets its ambitious goal and has acknowledged that only the federal government can provide that kind of funding.

While Mayor Duggan has plans to go back to Washington D.C. to lobby for more funding, Detroit must look to solutions beyond demolitions in its fight against blight. First, there’s the problem of the presidential election next November. Given the expressed disdain of almost every Republican candidate for federal government spending, it’s very likely that if a Republican wins the White House the financial support that has been flowing to Detroit from a diverse array of federal agencies would dry up. Second, there’s the issue of coming up with a plan for abandoned parcels once the structure is demolished. The City still lacks a comprehensive plan for repurposing the enormous amount of vacant land.

While the demolition of vacant structures is an important part of the fight against blight, it’s only half the battle. Even assuming that the City is demolishing structures in accordance with best practices, once an abandoned structure is torn down it’s still a vacant lot. While a vacant lot is often not as detrimental as a vacant structure, vacant lots are still hotspots for illegal dumping and crime. They also often have a negative impact on neighboring property values, particularly if they are left unmaintained.

For several years, many Detroiters have been calling for the City to embrace agriculture as a solution for repurposing vacant land. Doing so would provide many benefits to the City and its residents. First, many gardens and farms would provide health benefits to the surrounding community. As detailed in the previous post, diet-related health conditions are the leading cause of hospitalizations and deaths in Detroit. Providing land for farms and gardens can help to reduce those diet-related health conditions. Studies have shown that individuals that participate in a garden or farm typically consume more fruits and vegetables and less sweet foods and soft-drinks than the average American. The act of farming or gardening is also a great form of exercise that has been shown to reduce the risk of obesity, coronary heart disease, and diabetes. Lastly, urban gardens are farms often serve as social centers for communities and provides a place for neighbors to interact in a visible, open space and to feel safe while doing so.

However, beyond the health and social benefits, research has also shown that urban farms and gardens provide significant financial benefits in the form of raised property values. A study by Ioan Voicu and Vicki Been found that urban gardens and farms raised the property values of all properties within 1,000 feet. Significantly, the study found that the greatest increases in property values were found in low-income neighborhoods; it found that urban gardens and farms raised neighborhood property values by as much as 6.2% in one year and by as much as 9.4% in 5 years. It seems intuitive and the numbers appear to confirm the intuition: turning an abandoned property with a structure into an urban garden or farm is more valuable than turning an abandoned property with a structure into an abandoned property without a structure.

Given the multi-faceted benefits that urban gardens and farms can provide to Detroit and its residents, the City should be encouraging and incentivizing residents that want to transform vacant lots into productive agricultural spaces. At a minimum, this should include providing nonprofit and for-profit urban farm and garden enterprises with cheap access to land as well as financial support to help defray startup costs.

However, the topic of land has always been a contentious one in Detroit and that is no different for those involved in urban agriculture. Many urban farmers and gardeners have grown to the point where they are thinking about investing a lot of time and money into a specific space and before doing so want to make sure their investment is protected. As such, many urban farmers and gardeners are no longer asking for a lease but instead are asking for the chance to purchase their property. In many instances, this request has been met with reluctance by the City. The City’s primary concern is that selling property to an urban farmer or gardener will limit the value the City will receive from that property in the future. While an urban farm or garden may make sense given the lack of demand for most vacant lots, it may not make sense decades from now when demand for real property will presumably have increased based on Detroit’s revitalization. Therefore, in many neighborhoods, the City continues to hold onto land waiting for its renaissance moment.

 

An 8,000 square foot greenhouse perched on the roof of an affordable housing development in the South Bronx

In sacrificing the certainty of current benefits for the hope of greater future benefits, the City is hampering its own revitalization. The hope of greater future benefits is also a gamble the City has been losing for decades and it’s time to change course. It is long overdue, but many in Detroit are finally perceiving Detroit’s large geographic space as an opportunity to reimagine the urban setting as opposed to an obstacle to its renewal. One such way many developers and cities are reimagining the urban landscape is by integrating urban farms and gardens into new development projects. In the South Bronx, an 8,000 square foot greenhouse was incorporated into an affordable housing development. In Boston, a mixed-use development will incorporate a garden and a solar farm. These projects are part of a growing trend amongst developers who view urban agriculture as an amenity for tenants similar to a gym. For developers, it provides an opportunity to make their project stand out from others. For the City, it provides the opportunity to expand the scope of a development outside of the four walls to the community as a whole.

Given its space, Detroit is in a prime position to capitalize on the benefits urban agriculture projects provide as stand-alone developments and on the trend of incorporating urban agriculture projects into housing and commercial developments. To do so, the City needs to start thinking beyond demolitions towards how those newly vacant properties will be repurposed to fit into Detroit’s future.

Quantifying the Health Impacts of an Unjust Food System

If you ask many people what they think of when they think of Detroit, and a common answer would likely be violent crime. Seemingly every evening the local news reports the number of people dead in the latest deadly crime to occur in Detroit and encourages local residents to call the police with any information. The next day, there is usually a press conference held by the Detroit police department promising justice and asking local residents to step up. Lastly, there may be an editorial in the News expressing the general point that if only Detroiters would stand up and say enough is enough in regards to violent crime the City’s problems would be solved and its renaissance would finally come to be. While the stories surrounding violent crime are often jarring which likely explains why they are given so much attention by both our media and our government, the truth is that Detroit’s most prevalent killer is not violent criminals by the food system.

According to the Michigan Department of Health and Human Services, 3,163 of Detroit’s residents died from heart disease or diabetes in 2013. Those 3,163 deaths accounted for 43% of the City’s total number of deaths that year. In contrast, 291 of Detroit’s residents were killed in a homicide. Heart disease is also the leading cause of hospitalization in Detroit as approximately 13,000 Detroiters are hospitalized every year for a heart-related condition. Not surprisingly, the rate of hospitalization for heart-related conditions in Detroit is approximately 25% higher than the state average. All of this is to say that if you’re a Detroiter, it’s more likely that you will be hospitalized and/or die from an unhealthy diet than a gun. Considering that medical bills are the leading cause of bankruptcy, diet-related hospitalizations will likely drain family resources until they are non-existent. Diet-related deaths will often rob communities and families of stabilizing forces leaving those that remain to fill the void on both a social and financial level.

However, the negative impacts of an unhealthy diet don’t stop at the individual level. All of those hospitalizations place a heavy burden on federal, state, and local government institutions. The loss of life due to diet-related conditions also comes with a heavy financial loss. According to the Michigan Department of Health and Human Services, the City of Detroit lost a collective 19,797 years of life amongst its residents due to premature death caused by heart disease. Even one endorses the $50,0000 valuation for a year of quality life that is commonly utilized by health insurance companies (and which has been criticized as being far too low), Detroit is collectively losing approximately $990 million each year in connection with premature deaths caused by heart disease. If the valuation of a year of quality life is increased to $129,000 based on a recent study by Stanford economists, the collective financial loss soars to over $300 trillion.

This is not to say that violent crime is an unimportant problem in Detroit; violent crime obviously has a ripple effect on the friends and family of those involved and on the surrounding community that is very difficult to quantify. It is simply meant to put things into perspective. Detroit is consistently ranked as one of the countries most unhealthy cities by national surveys. In the Gallup-Healthways Well Being Index, Detroit was 79th out of 100 in the 2014 comunity obesity ranking. In the American Fitness Index, Detroit ranked 43rd out of 50. No matter how you cut it, Detroit is an unhealthy city that it is having an enormous impact on its residents, its communities, and the city as a whole. The 2015-2016 budget for the City of Detroit allocates $315 million to the police department and only $33 million to the Department of Health and Wellness Promotion. Given the fact that diet-related illnesses are the leading cause of death in Detroit, it is at least worth thinking about how the City can better allocate its funds to save the lives of more of its residents.

At this point, it’s important to mention that a silver bullet for preventing things like heart disease and diabetes does not exist. While we know that both are health conditions that are closely tied to a poor diet and inactive lifestyle, promoting a healthy diet and an inactive lifestyle is a complex undertaking that involves several variables. In regards to diet, there are issues regarding locational access, financial access, cultural compatibility, and diet and cooking education. We do know is that eating a diet high in fruits and vegetables is a good start towards reducing a person’s risk of heart disease or diabetes. We also know that numerous studies have found there to be a consistent positive association between proximity to supermarkets and health food stores that regularly stock fresh fruits and vegetables and diet patterns and weight status. However, diet is only part of the problem. Studies have also shown that low-income communities typically lack physical activity facilities such as parks and increasingly studies are starting to examine how the built environment contributes to heart disease and diabetes amongst low-income communities. There is also the issue of food culture and habit. Between 1977 and 1995, the number of meals or snakes eaten at fast food restaurants has increased by 200%. The increase in fast food consumption has been has also been especially prevalent amongst children as many fast food retailers have purposefully sited restaurants within walking distance of schools. All of this is to say that modern day children, particularly low-income children, are more likely to grow up with fast food being a focal point of their diet which will likely impact their food choices as adults.

The complexity of the problem should be of no surprise given the complexity of the food system. There is also the issue that, at the end of the day, what a person decides to eat is a very personal choice. However, potential solutions at many different levels of government are being implemented.  At the federal level, President Obama signed the Healthy, Hunger-Free Kids Act in 2010 which sought to make school meals healthier. However, several cities are taking the lead on this issue. Initiatives vary widely, but have included increasing food and diet related curriculum in schools, limiting fast food restaurant sitings around schools through zoning restrictions, encouraging local food production, and promoting educational programs that teach people how to eat healthy.

These initiatives have not come out of nowhere and typically have been a result of cities expanding their health departments to confront the public health crisis that is caused by diet-related illnesses. For example, Baltimore, Louisville, and New York City all have hired a food policy director to support the work of governmental and non-governmental organizations seeking to create a more just and healthy food system  and to coordinate city resources as necessary. Given the enormous costs Detroit and its residents have to bear in regards to diet-related health issues, Detroit stands to greatly benefit from investing resources in programs and individuals who are seeking to ensure that healthy fruits and vegetables are accessible to all Detroiters in regards to both price and location. A great first step would be hiring a food policy director.

 

 

 

The For-Profit vs. Nonprofit Dilemma: Selecting an Entity for Your Agricultural Enterprise

It may seem like a very simple question: should my urban farm be a nonprofit corporation of a for-profit business? While urban agriculture has been traditionally rooted in nonprofit corporations, many people are beginning to look to for-profit entity options to house their urban agriculture operations. Many people think that if they plan to focus on growing and selling food in a low-income neighborhood, they should be a nonprofit corporation. Others think that if they want to make money growing and selling produce, they should be a for-profit business. The reality is that choosing between a for-profit and a nonprofit entity is a decision that should involve the careful weighing of numerous costs and benefits. This post will address important considerations that you should take into account when deciding whether to start a nonprofit or for-profit entity to house your urban agriculture enterprise. However, it’s important to note that this is only the basic information and which one is best for you will depend on your urban farm or garden.

First, let’s clarify what we’re talking about when we talk about an “entity.” An entity, at least as it will be used throughout this post, is essentially a legal construct that allows people to distinguish their work from their personal life, at least in a legal sense. In the context of urban farms and gardens, distinguishing the farm or garden from you as an individual is important for one big reason: it allows you to limit your personal liability for things that may go wrong. For example, say you want to start farm or garden on a group of properties down the street from your house. Since you want it to be a long-term project, you buy the group of properties from the landowner. If you haven’t formed an entity, you would have to buy the properties yourself and hold the title to the property in your name. Consequently, if anyone got hurt on the property the first thing they would do if they were interested in a lawsuit was look up who owned the property and in doing so would find your name. An entity allows you to limit your personal liability in relation to your farm or garden. If someone gets hurt on the property, they generally can sue the entity, whether nonprofit or for-profit, but not you as an individual. However, this is a common characteristic of all entities, whether nonprofit or for-profit. So what are the differences?

When we’re talking about nonprofit corporations, we’re talking about corporations that are organized and operated for public benefit rather than private gain. Nonprofit corporations are governed by the Michigan Nonprofit Corporation Act. Since they exist for public benefit, nonprofit corporations aren’t owned by any individual. Instead, nonprofit corporations are owned by no one and are managed by a group of at least 3 individuals commonly referred to as the Board of Directors as well as appointed officers, such as a President, Secretary, and Treasurer. In regards to its operations, nonprofit corporations are restricted by law as to what it can do with its assets. Most importantly, a nonprofit corporation cannot use its assets to enrich any director, officer, or member.

However, nonprofit corporations typically have to worry about more than the legal limitations placed upon them by Michigan law. Most nonprofit corporations also seek to become tax-exempt organizations pursuant to section 501(c)(3) of the Internal Revenue Code. While being a 501(c)(3) organization comes with key benefits, it also comes with key costs.

First the benefits. Tax-exempt organizations, as the name suggests, are exempt for federal, state, and local corporate income taxes. They also may be exempt from local property taxes so long as the nonprofit owns and uses the property for its tax-exempt purpose. Being a 501(c)(3) organization also comes with fundraising benefits. Most private foundations focus on providing grant  funding to 501(c)(3) organizations and any gifts made the the nonprofit corporation are also tax deductible for donors.

But now, the costs. 501(c)(3) organizations must be organized exclusively for a charitable or educational purpose and must be operated primarily for a charitable or educational purpose. This restriction is the most important and the most frustrating.  Just what is “charitable” and what is “educational?” Some activities are easy. Growing vegetables and giving it away to low-income people is clearly charitable. Teaching people how to garden is also clearly educational. Job training programs have also been clearly established as charitable activities. But what if a tax-exempt organization is selling food? Tying the sale of food to charity can often be difficult. Also, how much non-charitable and non-educational activity can a 501(c)(3) organization engage in? This line is never clear and it be difficult to even quantify an organization’s charitable activities and its non-charitable activities.  But wait, we’re not done with the restrictions! In addition, 501(c)(3) organizations must be operated for public rather than private benefit, cannot participate or intervene in any political campaign on behalf of any candidate or public office, and a substantial part of its activities cannot include carrying on propaganda or otherwise attempting to influence legislation.

If it’s not clear by now, operating within the IRS regulations for 501(c)(3) organizations can be a headache as the organization has to constantly make the uncertain determination as to how the IRS will view the activity. If it operates afoul of IRS rules, it may incur tax liability or risk the organization’s tax-exempt status.

Rather than deal with the headaches described above, many urban farmers decide to form a for-profit business instead of a nonprofit corporation. The most prevalent entity choice for for-profit farmers is the limited liability company (LLC) given its flexible nature, easy management, and liability shield. All Michigan LLCs are governed by the Michigan Limited Liability Company Act. Unlike nonprofit corporations, LLCs are owned by private individuals and are generally operated for the private benefit of the owners. However, unlike the nonprofit corporation LLCs face very few restrictions as to the purposes for which they can be operated. If one person wants to start an LLC that has a strong charitable mission, they are free to do so. If another person wants to start an LLC with no charitable mission they are also free to do so. LLCs are also free of governance requirements. While a nonprofit corporation must be governed by a group of people known as Board of Directors, LLCs can be governed by any number of people. Further, LLCs enjoy a maximum amount of flexibility in deciding the rules that will govern the company as the owners can craft an operating agreement, which lays out the management structure for the company.

An LLC is free to operate for any legal purpose, can be owned by any number of individuals, and is free to craft management rules. So what are the negatives? The most notable is tax liability. An LLC is a pass-through entity for tax purposes. This means that the LLC itself will pay no corporate income taxes. Instead, all LLC income will be passed through to the individual owners. Individual owners will then generally have to pay a fairly hefty tax bill of 36% on all LLC income.

Back to the original question. You may be concerned about your farm or garden exposing you to personal liability and you’ve heard you can limit your personal liability by forming an LLC or a nonprofit corporation. You’ve read a lot about both entity options above. Which should you choose?

At the end of the day, only you can adequately answer the above question. First, you should think long and hard about what you want the core of your urban farm to be. Many urban farms have some charitable mission incorporated into their values, but will charity be your primary focus? Many urban farmers want to make a bit of money from selling produce, but do you want this to be a supplemental source of income or your primary livelihood? Once you’ve thought long and hard about your core purpose, it will be easier to go through the pros and cons and make an appropriate decision.

Nonprofit Corproation 

Pros

  • Exempt from federal, state, and local corporate income taxes
  • May be exempt from local property taxes
  • Exempt from sales taxes
  • Easier to obtain grants from private foundations
  • Gifts to the nonprofit corporation are tax deductible

Cons

  • Must be organized exclusively for a charitable or educational purpose
  • Must be operated primarily for a charitable or educational purpose
  • Must be operated for public rather than private benefit
  • Cannot build personal wealth based on success as nonprofit assets cannot be used to enrich a director, officer, or member
  • Must limit the nonprofit’s involvement in politics
  • Higher degree of administrative complexity as it must be managed by a group of people

Limited Liability Company

Pros

  • High amount of operational flexibility
  • Low amount of administrative complexity as it can be managed by one person

Cons

  • 36% tax rate for each individual owner on all of the LLC’s taxable income

At this point, you’ve thought long and hard about what the purpose of your urban farm will be. You’ve considered the pros and cons of the nonprofit corporation and the limited liability company. It’s decision time. However, there’s one last pause point. Forming a nonprofit corporation or an LLC is a decision that is hard to go back on meaning it can be difficult to transition a nonprofit organization to a for-profit organization and vice versa. So go over everything twice and think about it a bit more before you make your decision.