Hidden costs dog business in the D: Higher taxes, extra red tape among issues
Interesting tidbit in this story. Commercial taxes on Detroit property is basically 83 mills. However, property taxes only account for about 12 percent of the city's budget. Since tax rates are one of the big things city leaders can control to keep and grow businesses and families here, why not cut the property tax burden in 25 or even 50 percent? That would only account for 3-6 percent of the city's budget. If you're already taking a chainsaw to the city's finances to fill it $250 million hole, why not go a little further and cut another $100-150 million? It would be a harsh pill to take in the immediate future but it would also be a bold move taken with a long-term vision in mind.
I don't think it will ever happen. Even a businessman like Bing probably doesn't have political chutzpah to try something like this. But it would be an interesting policy to try. Detroit has been trying to solve its problems with liberal ideas for decades. Maybe Detroit is so far to the left now that a good dose of a conservative idea would cause a profound impact.
Hidden costs dog business in the D: Higher taxes, extra red tape among issues
By Nancy Kaffer
For $312 a year, merchants on East Warren Avenue can obtain the services of a Clean Team to pick up trash from the Detroit business district's streets.
The price tag isn't high, but it's a cost business owners don't have to pay in Grosse Pointe Park, a stone's throw away.
Now add a higher tax rate: In Detroit, the nonhomestead millage rate, paid by commercial property owners, is 82.97 mills, according to the state Department of Treasury. In Ferndale, just north of the city, it's 47.35. In Southfield, to the city's west, rates range from 51.55 to 57.6 mills. In Grosse Pointe, it's 57.34.
Throw in an often-cumbersome bureaucracy, shortage of parking, insufficient code enforcement, concerns about public safety — and the cost of doing business in Detroit mounts.
Keeping existing business in Detroit is a priority for both mayoral candidates. Both challenger Dave Bing and Mayor Ken Cockrel Jr. say it's unlikely Detroit will see significant incoming economic investment in the immediate future.
Bing has said that cutting red tape for city businesses is a priority, along with effecting a change in attitude among city workers who come in contact with business owners.
Cockrel says the availability of tax relief mechanisms must be communicated to business owners, and he says aggressive code enforcement will help clean up business districts.
Business advocates say such changes can't come soon enough.
“There are all these programs to help start a business, all these programs to hire Detroit businesses to do city work, but where are the programs to help businesses cut through the red tape in order to succeed?” said Bill Swanson, director of commercial revitalization at U-SNAP-BAC and the CEM Business Association on the city's east side, funded in part through the city's Office of Neighborhood Commercial Revitalization.
Parking, high utility fees and the appearance of safety have all been concerns for Mr. Song Millinery, a Detroit-based hatmaker that recently announced plans to move to Southfield.
Getting customers to the Woodward Avenue storefront has become increasingly difficult and has taken a hefty advertising budget, said Luke Song, chief designer and CEO of Moza Inc., the company that owns the Mr. Song brand.
At the store's new Southfield location, Song said, the shop will receive a host of amenities that just weren't available in the city.
“It can be difficult to do business in the city,” said Sarah Hubbard, vice president at the Detroit Regional Chamber. “But there is a very solid base of customers that need to be served, and those who can cleverly mitigate their expenses will enjoy very close and direct access to that customer base.”
Hubbard said Detroit has access to tax incentive tools geared toward distressed cities — such as the 12-year tax-free renaissance zone — that can reduce a tax burden.
“Those are tools local governments don't have in surrounding areas,” she said. “You really have to avail yourself of the programs.”
But researching and accessing such programs can be time-consuming, Hubbard admits.
“The idea is that the savings should outweigh the burden of seeking those programs,” she said. “A lot of people who do business in Detroit do business despite the cost. They do it because they want to be close to their customers or want to be in an urban setting or they want to be close to their employee base. Those are the big reasons businesses continue to stay in Detroit despite the costs.”
Swanson, who is responsible for the East Warren Avenue area Clean Team, said his organization is forming a group to examine top business retention needs.
“We're looking at what puts us at a competitive disadvantage. What are the nuts and bolts to streamline the system for our businesses to be successful?”
Solutions, Swanson said, can be surprisingly affordable. Funding local business groups such as his lets the city fill in some of its service gaps, he said.
“With the Clean Team program, it comes down to about $3 a business, a day, to have someone clean up all the trash and all the litter,” he said. “A lot of what we do is remove stuff that should not be there in the first place.”
Obtaining permits can be time consuming, said Southwest Detroit Business Association President Kathy Wendler.
She said her organization supports streamlining the bureaucracy.
“It's an effort to speed up the permit process to ensure that obtaining permits does not impede doing business,” she said in a statement.
Cockrel acknowledges the problems — from taxes to clean streets. The mayor said he supports tax relief for all Detroit property owners — business and residential. But he warns that any tax cuts must be considered carefully and phased in slowly to preserve revenue.
A new clean streets initiative partners city departments with the Downtown Detroit Partnership, he said, and also will include targeted enforcement of neglected properties.
Daniel Cherrin, Cockrel's press secretary, pointed to efforts by the city's Office of Targeted Business Development, which eases participation in the city's procurement process, encourages the retention and growth of targeted businesses and assists in the creation of joint ventures and mentor ventures to respond to Detroit contracting opportunities.
The city also works with outside agencies to encourage participation in the office's programs, he said.
“A whole range of issues can come up, from problems with the bank, to illegal dumping, to a utility bill,” said Olga Savic Stella, vice president for business development at the Detroit Economic Growth Corp. “Then, [[staff) will come back and work to resolve those issues, using relationships with city departments or DTE Energy, for example.”
Stella said the DEGC's role is in pairing businesses with the appropriate resources.
“It's difficult, because we have a small business attraction and retention program,” she said. “It's difficult when you don't have enough resources to meet all of the need, but we try to be as proactive as we can and also help leverage other resources.”
Matt Prentice, CEO of Bingham Farms-based Matt Prentice Restaurant Group, closed Duet when his five-year lease at Detroit's Orchestra Place expired in 2003.
Prentice had negotiated a tax abatement as part of his lease. But it didn't happen, and he said the 8,000-square-foot restaurant's tax bill topped $80,000.
“Taxes are out of control in Detroit unless you get abatements,” he said.
By the time he opened the Coach Insignia restaurant in the Renaissance Center, Prentice said, he'd learned his lesson.
“So when we negotiated for Coach Insignia, the taxes are minuscule compared to Orchestra Place,” he said.
Detroit's event-based business makes the venture worthwhile, Prentice said.
During a slow week, Coach Insignia might gross $40,000, he said. During an event week, sales could top $200,000.
Had Duet been his only restaurant, Prentice said, “It would have put me down. It did put me down — I left because of it.”
Nancy Kaffer: [[313) 446-0412, nkaffer@crain.com
