The U.S. financial meltdown, coupled with a major education crisis, left the city reeling.
This is the second part in a three-part series on the recent history of Charlotte. Part one explored Charlotte's rapid rise. On Thursday, part three will explore the city's future.
CHARLOTTE – In January 2008, Bank of America announced it was planning to purchase Countrywide Financial, a California-based firm that provided mortgages. Bank of America had previously stayed out of the home loan business. But Countrywide was on the ropes: It serviced $1.4 trillion in mortgages at the end of 2007, many of them subprime or loans with adjustable rates. When the housing bubble burst, Countrywide was doomed.
Bank of America chairman Ken Lewis, believing the housing market was nearing the bottom in 2008, completed the purchase of the company for $2.5 billion in July of that year. At the time, he thought it was a steal.
The acquisition of Countrywide has been called the worst deal in the history of banking. According to some estimates, the deal has cost Bank of America more than $40 billion. It also cost Ken Lewis his job.
By the fall of 2008, the global economy was on the brink of ruin and the financial industry was in a free fall. In September, Bank of America was forced to acquire Merrill Lynch and its billions of dollars in losses. Wachovia, which also made a bad real estate bet when it acquired the subprime lender Golden West in 2006, was swallowed up by Wells Fargo after it reported $5 billion in deposit losses in one day.
The start of the financial crisis and the subsequent recession marked a dark turning point for Charlotte. In 2008 alone, the city shed 15,700 jobs. Wachovia let 12 percent of its workforce go that year. From 2008 to 2010, Charlotte lost 9 percent of its finance workforce. Bank of America is now in the midst of a plan to lay off 30,000 employees. It’s not clear how many of the company’s Charlotte employees will be let go, but the ratings agency Moody’s has warned that the Bank of America plan was a "credit negative" for the city. Once eliminated, many of these high-paid finance positions are never coming back. Today, unemployment in Charlotte remains at 10 percent, nearly two points higher than the national average.
Charlotte's severe job losses between 2008 and today have led, as they have in so many other cities, to reduced tax revenue. The county had not assessed home prices since 2004, so it was unable able to take advantage of the housing bubble.
"If you look at Charlotte as a pie, about a fifth of it in south Charlotte pays almost 50 percent of the city’s tax base," says David Howard, an at-large city council member who has focused over the years on city planning. "[This area] went up big time. They hadn’t seen a new tax rate in years."
"We had the perfect storm going on in the city. No reevaluation [of home prices]. The economy going down," Howard continues. "We didn’t have the capacity to actually go out and do a bond referendum. And … the ratings agency, they’re saying, ‘What are you doing to keep the city up?’ It was kind of coming at you all at one time."
The housing slowdown had other consequences. According to the Census Bureau, the city’s Hispanic population was 5,571 in 1990. By 2000, it had grown to 39,800. In 2010, there were nearly 100,000 Hispanics living in Charlotte, making it the fourth fastest-growing Latino population in the country. Many of these immigrants arrived seeking jobs in the construction industry. But with few new homes being built, work dried up.
In the last two decades, a large proportion of the Latinos who came to Charlotte were undocumented. In 2008, the federal government opened an immigration court in the city to process the thousands of deportation cases that originated in the metro area.
The Great Recession exposed many of the problems Charlotte was able to ignore during its boom years. Many in ritzy south Charlotte were no longer willing to foot the bill for the rest of the city. Simmering divisions, mainly along racial lines, re-opened.
Nowhere was the rift more apparent than in the fight over schools.
A Divided School System
In 1971, Charlotte began to use busing to integrate its schools. It was the first school system in the country to implement a busing program.
But in 2001, the city's busing program ended: A federal judge ruled that the school system had successfully eliminated "all vestiges of past discrimination." With the exception of magnet schools, Charlotte’s students now attend schools close to where they live.
The result, according to school board member Joyce Waddell, is that Charlotte’s schools are once again "almost completely segregated." Predictably, this has led to an achievement gap. Schools in more affluent white areas perform well, while schools in poorer, African-American areas struggle.
According to Waddell, African-American leaders in Charlotte have been complaining about the divide since the day busing ended. But the issue didn’t become part of a wider debate until 2010, when the school board voted along racial lines to close 11 schools in an effort to close a $100 million budget gap. Most of the affected students were black or Hispanic and from lower-income families.
Black community leaders and school board members said the closings were racially motivated. Kaye McGarry, a white school board member who voted for the closings, received what police called a threatening letter in the mail. Members of the Charlotte chapter of the National Association for the Advancement of Colored People (NAACP) were accused of threatening behavior toward the board. Parents opposed to the cuts chanted "No justice, no peace," in the midst of the closure vote. Five civil rights complaints were filed against the school district.
Former Superintendent Peter Gorman insisted the closings were based on performance and empty classrooms. Eric Davis, chairman of the school board at the time of the vote, said that the decision to close the schools represented a shift in how the board defines success.
"The previous definition of success was, we want to give every student equal opportunity to get a good education, which was a noteworthy goal considering where we were 40 years ago. But by the late 1990s… the board realized that wasn’t good enough," he says. "We want to deliver. We changed the focus of the school system from inputs to results."
Davis added that county student-funding formulas have been adjusted to favor low-income students: Every student who lives in poverty counts for 1.3 students. This means that 90 poor students are given enough resources for 120 students.
"The fact of the matter is, we’re spending $11,000 on children on the west side of town and $5,000 on the south side of town. When the economic crisis hit, we had to explain that" to city residents, Davis says.
Still, Waddell insists that schools in Charlotte's black and Hispanic neighborhoods are underfunded. The closing issue hits especially close to home for her: E.E. Waddell High School, named for her late husband, the community leader and educator Dr. Elbert Edwin Waddell, was one of the schools shuttered.
"Most of the votes come down to racial votes," Waddell says, noting the school board has four black members and five white ones. "Until we have five votes to say, ‘you can’t do this,’ you can close any school you want."
"The haves are not going to give up something for the have nots," she adds. “We were here since slavery. People who had slaves can still have them.” When asked later to clarify what she meant by that slavery comment, Waddell laughed. Of course, "they can't have them," she says. But "the people who have affluence and have money can still control people who don’t."
Schools have also been a battleground for Charlotte’s Hispanic population. Nearly 18 percent of students in Charlotte schools are Hispanic or Latino (black students account for 42 percent; white students make up 32.5 percent). Many come from Spanish-speaking households.
These students are finding themselves in the center of a political fight over illegal immigration. While I was reporting this story, County Commissioner Bill James, a Republican, introduced a motion to the County Board of Commissioners that would require schools to determine how many Hispanic students are undocumented. Once there is a head count, the county would send a bill for services to the embassies of the countries the students came from.
"I looked at the fact that we were spending all of this money on illegals and they were so arrogant in their beliefs that they were entitled to take over America as though they were Americans. I just decided, let’s have a discussion about how much illegals are costing Mecklenburg County," James says. "I think Americans are getting pushed around by illegals and I think it’s time we start pushing back."
The motion was struck down 5-4 along party lines, with four Democrats and an independent voting against and four Republicans voting in favor.
Charlotte now finds itself at a crossroads. Its social, economic and racial divisions have been laid bare. The challenges facing the schools are clear. And they have made strides to close the achievement gap. Last year, they were awarded the Broad Prize, honoring schools that close the performance divide between income and ethnic groups.
But none of these problems will be solved unless the city’s economy can evolve beyond the banks that served as Charlotte’s lifeblood for thirty years. If the economy doesn’t evolve, wealth will stay concentrated in south Charlotte and cycles of failure and uneven performance will likely continue.
"People understand that we were reliant on one particular sector," says Harold Cogdell, a Democrat country commissioner. "We relied too heavily on it."
Charlotte’s ability to adapt now depends in large part on a massive development project, nearing completion 1,800 miles away.