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Small Business Smackdown

Detroit gets tough on city's 'underground economy' with its 'Operation Compliance' initiative

These businesses are not well-financed franchises. They don't provide elaborate services with amenities or award cards. But across the country, from Camden to Compton and Detroit to Dallas, tiny, independent businesses provide services to Black communities.

Sometimes, the businesses are housed in nondescript buildings in neighborhoods. On main drags—Harper, Grand River and Gratiot avenues—they have rainbow-colored facades, hand-painted signs or paper signs plastered on windows. While not aesthetically pleasing, the hair salons, used tire stores, resale shops, rib joints, chicken shacks and auto repair garages play a vital role, providing low-cost, stripped-down services to local residents.

Critical components of a delicate, economic ecological system, the small businesses are the backbone of Detroit neighborhoods; the "underground economy." City officials say far too many have existed without paying taxes, acquiring licenses, building permits—or paying attention to appropriate zoning requirements. 

For years, Detroit's Buildings, Safety Engineering & Environmental Department tended to look the other way as these urban entrepreneurs popped up like mushrooms. Sometimes, they shut down and morphed into a completely different business with no regard for zoning use.

Not anymore.

Detroit Mayor Dave Bing's "Operation Compliance" initiative, which began in earnest at the beginning of the year, has been systematically targeting 1,500 illegally run businesses, especially those contributing to blight and crime. Turns out some businesses are illegitimate tire shops, scrap yards and second-hand appliance stores where issues of accumulated solid waste or significant property maintenance issues are prevalent.

In January, its first month, the initiative closed 70 businesses and recovered more than $100,000 in lost tax revenue. It could have an impact. A February Detroit News analysis of 200,000 pages of Detroit tax documents found $246.5 million in taxes and fees went uncollected in 2011.

The project is supported by the Detroit police and fire departments and slates 18 businesses for closure weekly. The buildings are padlocked, and inspectors seal the doors. Business owners breaching entrances of closed businesses are subject to $500-per-day fines and/or jail.

However, if proprietors are cooperative and seem willing to fix code and zoning violations, the city works with them. Unresponsive operators are met with official notices; shutdowns, giving owners minutes to get out.

Helen Broughton, a business advocate for the Detroit Buildings, Safety Engineering & Environmental Department, says more than 500 letters have been mailed to businesses with code violations.

"Out of that group, as of late April, we have gone out on 143 closure operations and padlocked the businesses."

The businesses have up to 14 business days to respond to city notifications before action is taken. "However, of the 143 that were padlocked, 57 of those business owners came to the city to request information on how to comply and are in the process of having their use changed," she says.

By city standards, the operation has been successful. Owners of 85 percent of padlocked businesses have met with city officials to make corrections.

Broughton says 121 of the 514 potential closures were postponed because people visited city offices of their own volition. The most common problem found is that businesses are not zoned appropriately and need to make structural adjustments to meet standards or receive a permission to rezone the property for different usage. The most egregious properties that inspectors closed down so far were:

A resale shop on West McNichols Road that was filled floor-to-ceiling with appliances, TVs and furnace parts. The situation posed a fire hazard, and they also were selling on the sidewalk, which is against the law. The building was not zoned for resale and did not have the required business license.

Property on Lyndon Street operating as a tire-recycling center that had 60,000 tires stored on site. After closure, the owner left the stockpile of tires, posing an environmental hazard. The Michigan Department of Environmental Quality and DPW are searching for grant funds to clean the site.

Owners of a tire store on East Seven Mile Road that used an open fire in a barrel as a rigged-up heater, which posed fire and safety hazards. Inspectors also found a rifle and a .357 pistol. Children ages 11 and 17 were running the business.

In a statement, Bing stressed the city's objective was to bring every Detroit business into full compliance: "Proper permitting and ordinance compliance is essential to operating a business in our city."

Nathan Ford, director of the city's Buildings, Safety Engineering & Environmental Department, puts it this way: "We are sending a message that if you are doing business in the city, you need to follow the law," he says. "We want the world to know that the City of Detroit is doing business differently and implementing programs that can assist the growth of business in the city."

 

Although few business owners dispute the importance or need to correct code violations, most are skeptical about the new policy.

Among them are Jack Taylor Jones and her husband, Claudy Jones.

Owners of a quaint Christian-themed card and gift shop, Lighthouse Cards and Gifts at 16143 Wyoming St., the couple has run the business for seven years since moving to Detroit from Los Angeles. They've seen numerous neighborhood businesses come and go. Recently, they considered closing their store because business has been so slow. And, despite Bing's pronouncement that his aim is to improve neighborhoods through Operation Compliance, the Joneses believe he's taking the wrong approach.

Many independently owned businesses are too fragile to withstand even the threat of city closure or the burdensome red tape and extra taxes they'll have to pay to become fully compliant—since so many barely generate enough income to stay afloat, Jack Taylor Jones says.

"As much as I understand the need to be up to code, you're going to end up shutting down how many businesses in the city?" she asks incredulously. "Aggressively enforcing the regulations and closing down just one of the small neighborhood businesses that couldn't afford to come up to code in the allotted time is undermining the city's own economy by putting Detroiters out of work.

"Now, think about the trickle effect. If my family is living off income provided by the business, then you've got a snowball effect, and it's not just the store or us affected by it.

"Many of these customers can't go to Kroger or Meijer because they are too far away or prices are too high," she continues. "And if they do go there, they're taking their money outside the neighborhood and giving it to people who don't live in Detroit, much less this neighborhood—so this has a ripple effect through out the neighborhood and city."

Her husband agrees. For the Bing administration to get aggressive now, after years of successive administrations failing to force the issue, raises questions about the motivation.

"I really want the mayor and his team to sit down and think this through," he says. "If they did, they would see what an opportunity this is to pull the small businesses together rather than kill them."

Only vaguely aware of Operation Compliance, he says he found it disquieting that the mayor seems to be focused on small struggling neighborhood businesses, but less so on the franchises and larger neighborhood party stores, gas stations and retail outlets—many not owned by Detroiters.

"The people that own these small neighborhood businesses are citizens of your city and have been here longer than you. If they only pay sales tax, they're making a contribution, because the state reimburses you from it."

The policy should be less punitive and more education-focused, says Claudy Jones. "We've been running out of compliance for 20 years. How do you expect to make a change on a dime without any prior education or information?"

Moreno Taylor, a senior city building inspector and a compliance leader, says he understands the role many of these small businesses play in Black neighborhoods, and it's not his or the city's intention to run them out of business.

"Operation Compliance is as much an educational opportunity as a policy enforcement vehicle," he says. "Many owners thank inspectors for showing them how to get proper permits and zoning approval. We even had a meet-and-greet in October to inform local businesses of the new program and compliance process and offered to work with owners who needed assistance. We're not just plopping in that day and saying, 'Hey, we're shutting you down!'"

Still, that doesn't satisfy Ruby Alexander, a native Detroiter who has worked for Home Appliances—a used appliance, sales and service store at 15850 Livernois Ave.—for four years. The soft-spoken-but-feisty store manager rolls her eyes and waves her hand dismissively when told about the mayor's plan to more aggressively enforce the city building codes and regulations.

Pointing to the back of her store, she says the alley behind it has become a dumping ground for people in and outside the neighborhood. Now, it's so overrun with trash, they can't open the back door.

"The other day I saw a rat so big I thought it was a puppy!" she says with disgust. "They're all worried about what's going on in the front of our stores, as far as the inside of the building. They need to be concerned with keeping the alleys in compliance. That's city property back there."

The more Alexander thinks about Operation Compliance, the more agitated she becomes at the notion small businesses like hers are being targeted for possible closure as the city fails to maintain basic responsibilities such as public safety and city property maintenance.

"They should re-prioritize that policy," Alexander muses. "They're steady kicking the underdog because you forgot to paint the side of a wall, but the city needs to maintain its own business by keeping the public streets safe and clean."

She acknowledges a visit from city building inspectors, when she was ticketed for paint chipping in the showroom, plumbing issues and a lack of a fire extinguisher. However, even after fixing all the problems not long after being ticketed, Alexander claims she hasn't received a certificate of compliance—despite repeated calls to the city Buildings, Safety Engineering & and Environmental Department.

"You can't get through to anybody when you do call," she says. "And the traffic light out front of the store has been broken for three years, and they still haven't fixed that. But now they want to target us small businesses and ticket us or close us for not being in compliance."

Dr. Henry Louis Taylor, director of the Center for Urban Studies at the University of Buffalo and a professor of urban and regional planning, says good intentions notwithstanding, the potential risks from implementing a policy like Operation Compliance outweighs any future benefits the city might accrue.

Although small non-compliant neighborhood businesses may comprise only about 10 percent of the total businesses in a city like Detroit, he estimates they are so ubiquitous that they could serve up to 70 percent of the residents at one time or another.

"These types of businesses cater to that market; they produce a product that market can afford," he says. "The minute you start to layer stuff on them—licenses and fees—then you force them to pay workman's compensation, and you are pulling them out the informal underground economy."

Once that happens, those businesses begin to get regulated, and that dramatically increases the cost of them doing business—and forces them to charge higher prices, he explains.

"So now, the very market they formed to serve can't afford them, but they are not good enough to compete with higher market, and you end up driving them out of the business. All of which increases the pain and misery in the most distressed neighborhoods because instead of city officials looking the other way, they disrupted a functioning political economy they didn't understand.

"So unwittingly, Dave Bing is doing an awful, bad thing," Louis Taylor says.

Stressing that the city has been deteriorating for years, Broughton, the city business advocate, takes umbrage at Taylor's assertions and says he misses the reality of the challenges Detroiters must deal with every day in a city fighting for its very survival.

"Detroit had one of the largest waves of foreclosures which have led to significant instability in neighborhoods—and when you lose homeowners, you lose businesses," she says. "When the underground economy becomes normal and the physical degradation of the city is normal, how will you ever have a city that is a place to live for everyone?

"You shouldn't have to make a certain amount of money in order to have a safe and clean environment. We have gotten to a point where our norm is far too low, and we all deserve a better place."

At least one new business owner concurs. Thomas Riley, owner of Angel's Barber Shop at 7556 Puritan St., opened his shop a year ago.

Sitting in a chair in front of his business door, he points out the various streets in the neighborhood cluttered with strewn trash, littered alleys. Detroiters deserve better, he says.

"I agree with Operation Compliance. I grew up in this neighborhood, and I deserve to have a clean street and to be able to look out my window and be proud of what I see," Riley says. "There are a lot of kids in this neighborhood, and they deserve to be able to go into a store and see it clean and bright, not falling apart or looking dangerous. That is their right and my right, too."

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