Stephen Henderson: Help Detroit break its high-tax habit.

[Lowell]

Thanks to all. This is a very good conversation with thoughtful ideas on all sides.

Detroit is unique in too many ways that pointing out what goes on in other cities, be it higher taxes that don't drive out high income residents or lower taxes that keep others, becomes irrelevant.

The core issue is the ghettoization of the vast preponderance of the region's indigent into the City of Detroit. This impoverished citizenry cannot pay taxes, no matter what they are, and creates a falling domino chain of consuming tax revenues, survival crimes, needs for emergency aid and public assistance, resulting higher insurance rates, blight, abandonment, thieving politicians, decaying and over-sized infrastructure and on and on.

This is very convenient for the other members of the family of communities. They have to share little of that burden as Detroit forms their human landfill. Those governments will be reluctant to do anything to change that situation and indeed, on their own, they can't. The City of Detroit simply does not have enough resources to do it, as Shender1's article seems to imply, so the chicken and egg of cutting Detroit taxes while improving service won't work.

Someone has to be the adult in this situation and that can only be the state. Imposed burden sharing in the form of metropolitan union would be the best, but that is probably politically impossible. That leaves Detroit with the option of defaulting and state takeover but I fear that would simply lead to punitive looting of its remaining assets.

I guess I would like to see some dramatic proposals/threats, such as one of which I suggested in the past, where the mayor and council announce that they are going to 'cherry pick' the working parts of Detroit and de-annex the failing parts back to Wayne County and or the State. "Here, we've carried your load, now you take a turn. You dump we dump."

Short of that, there needs to be dramatic insurance reform to reduce the burden to the metropolitan average, massive state police assistance to throttle crime and a NEZ for residents instead of business. "Desperate times require desperate measures."


Cherry-picked Detroit.

[Detroitnerd]

I guess I would like to see some dramatic proposals/threats, such as one of which I suggested in the past, where the mayor and council announce that they are going to 'cherry pick' the working parts of Detroit and de-annex the failing parts back to Wayne County and or the State. "Here, we've carried your load, now you take a turn. You dump we dump."

Cede some of the areas around Hamtramck to that city. You could do worse.

[fryar]

Darn you, Lowell, for successfully controlling the conversation, <shakes fist>, darn you to heck!



Maybe you could cut taxes in order to force a "sense of urgency," what somebody else called a state-of-emergency mindset a while back. To inadvertently poke English in the eye [[Pthbbbbft!), Reagan's rumored "starve the beast" approach could conceivably yet help the city by cutting off the lifeline of the kleptocrats and forcing action.

Because either Detroit's ruling class is beyond incompetent, or someone is somehow getting fat off something that involves an absence of ambulance repairs. That, and whatever DetroitTeacher's latest [[surely justifiable) complaint has been.

The idea that money and resources cannot be found for fixing ambulances truly does not jive with my understanding of how the world works. I'm not saying it's all soft & cuddly pampering we're exposed to, but it does not seem reasonable to me.

[ghettopalmetto]

Darn you, Lowell, for successfully controlling the conversation, <shakes fist>, darn you to heck!



Maybe you could cut taxes in order to force a "sense of urgency," what somebody else called a state-of-emergency mindset a while back. To inadvertently poke English in the eye [[Pthbbbbft!), Reagan's rumored "starve the beast" approach could conceivably yet help the city by cutting off the lifeline of the kleptocrats and forcing action.

Because either Detroit's ruling class is beyond incompetent, or someone is somehow getting fat off something that involves an absence of ambulance repairs. That, and whatever DetroitTeacher's latest [[surely justifiable) complaint has been.

The idea that money and resources cannot be found for fixing ambulances truly does not jive with my understanding of how the world works. I'm not saying it's all soft & cuddly pampering we're exposed to, but it does not seem reasonable to me.

While some reallocation of existing resources certainly seems necessary, I don't know that a blanket tactic that has failed consistently for 30 years is going to suddenly start working in Detroit. It might make more sense for Mayor Bing to first start identifying redundant services and excessive bureacracy to bring Detroit's "overhead" in line with its peer cities.

[Jason]

City Council would never let parts of Detroit get de-annexed, because that would change the voting demographics and would basically ensure that they'd never be elected again, especially with that map since it's only the educated parts of detroit.

I do think if that was detroit's border though, the tax situation would make a lot more sense and the political system would start flushing the garbage out after a few elections.

The people who lived in "old detroit" would be pretty screwed though.

[English]

Maybe you could cut taxes in order to force a "sense of urgency," what somebody else called a state-of-emergency mindset a while back. To inadvertently poke English in the eye [[Pthbbbbft!), Reagan's rumored "starve the beast" approach could conceivably yet help the city by cutting off the lifeline of the kleptocrats and forcing action.

*kicks you back!*

Actually, isn't that what happened in Detroit throughout the CAY administration? Granted, I haven't done my reading on this, but the city seems to have been starved and neglected during several periods over the past half century. And still, the decline continues...

[Fnemecek]

If people and businesses are making money, tax rates are the least of their worries. Do you think the District of Columbia panics because they have an 8.7% income tax? Of course not--and they still have one of the highest percentages of both college-degreed residents and six-figure income earners among large cities.

DC isn't the best example. That 8.7% is essentially a combination of state + local income taxes since the District of Columbia is a combined state + local entity, even though it isn't really a state.

Tax cuts cost real $$$$$ -- money that Detroit needs to start delivering adequate services.

This is simply not true. The City of Detroit has a $3.1 billion annual budget and a population of a little more than 700,000. That's roughly $4,000 per resident per year.

Most cities across the United States spend a fraction of that to provide services that are far better than Detroit is currently providing. Your argument basically amounts saying that gas is $4/gal. and you have $100 in your hand thus you can't afford to fill up your tank.

It's pure nonsense.

[sehender1]

I'm with fnemecek here..
It's crazy to suggest Detroit doesn't collect enough money to provide services.
It collects plenty per resident, but has to spread those resources across an inordinate amount of land AND is carrying incredibly inefficiencies and bloat.

But that gets back to one of my main points. The income tax is KILLING itself. It produces less revenue every year, as people leave. People leave because services are bad and because taxes are high.
It's remarkable that anyone is arguing that paying the equivalent of 99 mills is not a problem. It's an obscene outlier, effectively the second-highest tax rate [[behind D.C.) for any major city in America, at least according to one study.

You've got to restructure, so that the city is spending the money it collects efficiently. Tax increases are out of the question in practical terms even though as a policy matter I generally have no philosophical objection to them.

All I'm suggesting is that while the city is busy making things more efficient, it needs to simultaneously improve services AND lower the tax rate. They are both part of the problem.

[ghettopalmetto]

DC isn't the best example. That 8.7% is essentially a combination of state + local income taxes since the District of Columbia is a combined state + local entity, even though it isn't really a state

It's still higher than the combined Michigan + City of Detroit tax rate.

My point is, however, that taxes alone are not the issue. The taxes that *are* collected need to be spent wisely. I, for one, have always thought the Department of Public Lighting to be ridiculous and redundant. DDOT should be managed by a regional authority independent of the city budget [[you know, just like any other transit system in the nation). Those are two shining examples of things that *should* be cut from the city's annual budget.

It's not to say that cuts shouldn't be made. But to focus strictly on cuts without thinking of how to grow the tax base in the long term is simply naive. You get to a certain point where you're cutting into bone. The trick is to figure out which parts of the budget are the bone, muscle, and connective tissue, and which parts are the fat and gristle.

I don't think it's the city's tax rate that's the problem. Delivery of services, yes. But not the tax rate. People might leave because of crime, devalued property, sky-high insurance, lack of job opportunity, age, illness, what-have-you, but it seems to me that the tax rate would be far down the list. I could be wrong.

My primary concern is that any financial restructuring would be done carefully and intelligently, as opposed to Certain Southern States who try to cut every possible tax and provide next-to-nothing in the way of services. Then they wonder why their state remains poor, uneducated, and underearning, and have to throw enormous tax breaks [[of the very few tax dollars they collect) at companies to come and exploit cheap labor. If Detroit isn't careful, it's a slippery slope into that ethos.

[Fnemecek]

Detroit is unique in too many ways that pointing out what goes on in other cities, be it higher taxes that don't drive out high income residents or lower taxes that keep others, becomes irrelevant.

Sorry, I don't buy that. No comparison is perfect, but there are always lessons that one can learn from other regions if one isn't afraid to learn.

If there weren't lessons that we could learn from other cities, why would Mayor Bing and most of Detroit's hierarchy have gone to Turin, Italy to study how things work there?

If there weren't lessons that we could learn from other cities, why would we now be considering a "shrinking city" strategy that was pioneered in Youngstown, Ohio?

There are always lessons that one can learn from elsewhere, if you're not afraid to learn.

The core issue is the ghettoization of the vast preponderance of the region's indigent into the City of Detroit. This impoverished citizenry cannot pay taxes, no matter what they are, and creates a falling domino chain of consuming tax revenues, survival crimes, needs for emergency aid and public assistance, resulting higher insurance rates, blight, abandonment, thieving politicians, decaying and over-sized infrastructure and on and on.

Okay - I need to apologize in advance. This line of thinking is both patently stupid and something that simply will not go away. It seriously pisses me off.

If the impoverished citizens of Detroit cannot pay taxes to support adequate services, where exactly do you think the $3.1 billion in our annual budget comes from? Are you going to argue that it's delivered by the Easter Bunny or something? And that we somehow can't spend it on the things that we need because the Easter Bunny will take it back? [[The Easter Bunny can be rather fickle at times.)

This pisses me off because the implication of all of this is that Detroiters aren't really paying for the services that we won't, therefore we shouldn't complain when the police, fire, or EMS don't show up or the street lights don't work. The truth of the matter is that we pay more than enough to have all of these things.

I'm serious. The "Detroiters can't pay the taxes need for the services they want" crap is the new ruin porn. I suspect that any minute, a few hundred accounting and/or urban planning students from Europe will descend on our fair city to chronicle all of the things that we can't buy with $3.1 billion that would normally cost less than $3.1 billion.

Someone will probably even make a documentary about this magical, only-in-Detroit phenomena.

Meanwhile, the kleptocracy that rules this city will continue to steal from us right and left and then go back to the suburbs every night to laugh at us.

[mwilbert]

The idea that Detroit has plenty of money seems wrong.

For example:

The 3 billion dollar figure that keeps getting mentioned is irrelevant. A billion of that is water and sewer, most of which has nothing to do with Detroit at all.

or

The police department budget is about $90 million. The Boston police budget [[a city with fewer people than Detroit and physically less than a third the size) is $280 million. If you think Boston might have a bloated police budget [[and it might) Indianapolis has a police budget of $200 million. Or if you want to go down to Lone Star State, the San Antonio police budget is over $330 million.

There is no doubt that Detroit needs to reform its government, but even after that happens it isn't going to be able to afford lots of tax cutting.

[fryar]

All I'm suggesting is that while the city is busy making things more efficient, it needs to simultaneously improve services AND lower the tax rate. They are both part of the problem.

Understood.
IMO, you're putting outsized emphasis on the tax rate.

[Fnemecek]

The idea that Detroit has plenty of money seems wrong.

It makes more sense if you actually read the budget before commenting on it.

The police department budget is about $90 million. The Boston police budget [[a city with fewer people than Detroit and physically less than a third the size) is $280 million. If you think Boston might have a bloated police budget [[and it might) Indianapolis has a police budget of $200 million. Or if you want to go down to Lone Star State, the San Antonio police budget is over $330 million.

No, but thank you for playing.

The Detroit Police Department has a budget of $332,004,004 for FY 2011. Don't worry, though. You're only off by roughly $240 million.

http://www.detroitmi.gov/Portals/0/d...ce_stamped.pdf

[Novine]

If you want to dig into budget details, let's look at this first.

http://www.detroitmi.gov/Portals/0/d...Revenues11.pdf

It highlights that the big cost centers in the city's budget are spending on Police and Fire. People like to target activities like Public Lighting or Planning as places to cut. But those departments have very little impact on the city's bottom line. If you want to reduce city spending in a big way, it's next to impossible to do so without cutting spending on police and fire.

While mwilbert didn't get the police numbers correct, the bigger point that the $3.1 billion is overstated is correct. A good percentage of the city's overall budget goes to water and sewer operations and funds to pay down current debt payments, past year deficits and pass-through funds to other activities that may benefit residents but are not direct city services. When you're talking about cutting the income tax and the $200+ million it represents, you're not cutting $200 million from $3.1 billion but from the $1.3 billion that funds police, fire and other general operations of the city. Few cities that are in much better shape than Detroit could absorb a 15% cut in revenue. Detroit's already on the edge and this "solution" would push the city directly into a fiscal emergency situation.

Even if you ignore those numbers, Mr. Henderson's "solution" makes little sense to me. Does he believe that the only way to force reform is to choke off one of the city's larger revenue streams? Sounds like a Grover Norquist approach to government reform. Does he believe that eliminating the income tax is going to get people and businesses that locate in Canton, Novi or Troy to give Detroit a second look? That's not going to happen.

Not even Rick Snyder proposed such a radical approach in taking on the state's budget. Agree with his approach or not, when he slashed the taxes on businesses, he replaced much of that revenue by raising taxes on almost everyone else and forcing pensioners to pay more in taxes. Snyder broaden the base of people paying personal income taxes and he's hoping that the economy will improve so that broader base will make up for the loss of 90% of the business taxes. Whether it works or not, he didn't go out and slash the state's revenue base, he simply shifted the burden from businesses onto individuals. Henderson is proposing to do away with a good slice of the city's revenue, making the city even more dependent on property taxes, which he says are too high, and with no good alternative to allow the city to the revenue to provide services if the economy turns around. Doesn't sound like a sound strategy to me.

[Lowell]

This line of thinking is both patently stupid and something that simply will not go away. It seriously pisses me off.

If the impoverished citizens of Detroit cannot pay taxes to support adequate services, where exactly do you think the $3.1 billion in our annual budget comes from? Are you going to argue that it's delivered by the Easter Bunny or something? And that we somehow can't spend it on the things that we need because the Easter Bunny will take it back? [[The Easter Bunny can be rather fickle at times.)

Thank you once more for your not infrequent insulting and condescending tone to me and other members of this forum. It really adds to the discourse and dignifies your position.

I will save you asking the Easter Bunny and give your answer here as to where exactly those eggs come from.


source

It may be hard to to swallow, but a large portion of the population cannot pay taxes yet consume revenue that flows in from a variety of sources including the state, federal governments, casino revenues, non-resident income tax and on and on. The actual amount of tax paid is a small portion of the entire budget.

My point is, again, that it is unfair to expect the Detroit to carry the human burden it does without drastic intervention in the form of outside assistance and burden sharing. It does NOT have the resources to do it and no amount of cost and tax cutting will overcome that fact. It needs a broad state and regional solution that either rewards it for carrying the human burden and / or provides incentives so alluring that residential settlement and safety blossom.

Addendum: I see Novine has made this point more eloquently while I was writing my post.

[mwilbert]

No, but thank you for playing.

The Detroit Police Department has a budget of $332,004,004 for FY 2011. Don't worry, though. You're only off by roughly $240 million.

Obviously I was looking at the wrong budget line for the police. I was completely wrong about that.

I'm right about the 3 billion though.

[Fnemecek]

It highlights that the big cost centers in the city's budget are spending on Police and Fire. People like to target activities like Public Lighting or Planning as places to cut. But those departments have very little impact on the city's bottom line. If you want to reduce city spending in a big way, it's next to impossible to do so without cutting spending on police and fire.

I agree that the Detroit Police Department should have its budget cut. I've argued such repeatedly, both on the forum and elsewhere. DPD spends an enormous amount on administration, has more deputy and assistant chiefs than any city our size, and shortchanges our front-line operations [[patrol and investigations).

If DPD were run by competent law enforcement professionals, we could easily trim $25 million or more from its budget and still have a police department that is as good as, or better than, similar departments in other major cities. Unfortunately, the idea of putting competent law enforcement professional in charge of DPD is still a somewhat revolutionary idea.

However, this does not mean that we cannot also make reforms elsewhere. If we merged the City Planning Commission staff and the Planning Division of the Planning & Development Dept., it would only be a savings of approximately $1 million. In the context of a $3.1 billion budget, $1 million isn't a huge percentage - but it's still $1 million.

That $1 million would still be better spent elsewhere, either in lowering taxes or in improving other services.

While mwilbert didn't get the police numbers correct, the bigger point that the $3.1 billion is overstated is correct. A good percentage of the city's overall budget goes to water and sewer operations and funds to pay down current debt payments, past year deficits and pass-through funds to other activities that may benefit residents but are not direct city services. When you're talking about cutting the income tax and the $200+ million it represents, you're not cutting $200 million from $3.1 billion but from the $1.3 billion that funds police, fire and other general operations of the city. Few cities that are in much better shape than Detroit could absorb a 15% cut in revenue. Detroit's already on the edge and this "solution" would push the city directly into a fiscal emergency situation.

No one ever said that the cuts in taxes need to come from the $1.3 billion that funds police, fire and other general operations of the city. The argument is that if you actually look through the budget and compare it to other cities our size, it's clear that we can make significant improvements to services and still cut taxes.

One of the largest items in our budget is debt service. The 1 page summary that you linked to above highlights a portion of it. However, there's a lot more of that under the "Other Agencies/Non-Departmental" category. [[Total is a little over $300 million, if I recall correctly.)

The turnaround plan that Mayor Bing introduced two years ago called for restructuring our debt. Unfortunately, that still hasn't happened. If that did happen, and we combined it with other improvements, then we would have enough money to cut taxes and/or make dramatic improvements in our services [[e.g., have a police department where response times are better than national averages instead of much, much worse than average).

Even if you ignore those numbers, Mr. Henderson's "solution" makes little sense to me. Does he believe that the only way to force reform is to choke off one of the city's larger revenue streams? Sounds like a Grover Norquist approach to government reform. Does he believe that eliminating the income tax is going to get people and businesses that locate in Canton, Novi or Troy to give Detroit a second look? That's not going to happen.

If you talk to anyone who sells real estate in Detroit, you'll learn that taxes are a huge deterrent to people locating into the city. There's also the fact that Detroit has a lot of "ghost residents" - people who actually live here but list another residence elsewhere for tax purposes. Cutting our taxes will bring a lot of them out of the woodwork, which helps in other areas.

Finally, if you don't believe that bringing our tax burden closer to averages will lure suburbanites into Detroit, you only have to spend a few minutes at any community meeting to learn that it will unquestionably do wonder to stop or slow down the exodus of people leaving the city.

[sehender1]

While mwilbert didn't get the police numbers correct, the bigger point that the $3.1 billion is overstated is correct. A good percentage of the city's overall budget goes to water and sewer operations and funds to pay down current debt payments, past year deficits and pass-through funds to other activities that may benefit residents but are not direct city services. When you're talking about cutting the income tax and the $200+ million it represents, you're not cutting $200 million from $3.1 billion but from the $1.3 billion that funds police, fire and other general operations of the city. Few cities that are in much better shape than Detroit could absorb a 15% cut in revenue. Detroit's already on the edge and this "solution" would push the city directly into a fiscal emergency situation.

Even if you ignore those numbers, Mr. Henderson's "solution" makes little sense to me. Does he believe that the only way to force reform is to choke off one of the city's larger revenue streams? Sounds like a Grover Norquist approach to government reform. Does he believe that eliminating the income tax is going to get people and businesses that locate in Canton, Novi or Troy to give Detroit a second look? That's not going to happen.

For starters, i have never proposed just ditching the income tax in a single act.
What I suggested was a sunsetting of the tax... If you decreased it a half percent per year over five years, you'd be talking about a $40 million decrease each year.
Still not peanuts, but not $200 million...

And again [[I've said this so many times, but no one ever addresses it) the income tax is KILLING ITSELF ANYWAY.. Declined nearly 50% over the past 10 years..

Right now, it's in an unmanaged decline; as the city loses population [[something that will not stop anytime soon) money is flying out of the revenue stream.
The mayor should be managing that decline by preparing the city to not have to rely on as much money as it takes in now.

It's not a question of whether the income tax will effectively die.. but how the city responds to it...

And no, I'm not some anti-tax nut. But I know that the equivalent of 99 mills is an outsized disincentive for people to live in the city. It's absurd to even suggest that a tax burden that high doesn't figure into people's home-buying or business-locating decisions. Of course, services matter too, maybe even slightly more. But taxes mean something to people.

The difficulty is in figuring out how to make services better with less money. That's the reality. Even if the city maintains the current income tax rate, it's not going to start yielding more cash. It will continue to decline, as will the other revenue streams.

You can manage it, and restructure to prepare. Or you can just let it happen through chaotic decline, and essentially keep coming up short every year..

[Fnemecek]

Thank you once more for your not infrequent insulting and condescending tone to me and other members of this forum. It really adds to the discourse and dignifies your position.

I likewise find your tone to be insulting and condescending.

Addendum: I see Novine has made this point more eloquently while I was writing my post.

Eloquent? Yes.

Factually accurate? No.

[Fnemecek]

Obviously I was looking at the wrong budget line for the police. I was completely wrong about that.

I'm right about the 3 billion though.

You were correct that approximately $1 billion of Detroit's $3 billion budget is not generated from service fees rather than tax revenue. $1 billion is the total for all enterprise agencies [[DWSD, DDOT, B&SE, and Municipal Parking). DWSD is about 80% of that.

Regardless, there is plenty of room to begin lowering taxes and improving services.

[SWMAP]

I always value what Fnemecek contributes here. I would hate to loose him as a contributer. His opinions on the city are well-informed and critical in the best sense of the word. Sweet nothings get us nowhere.

[Fnemecek]

Thanks, SWMAP. My frustrations do get the better of me from time to time, but I try to be an engaging critic.

[Novine]

"Factually accurate? No."

Point out which facts I got wrong.

[Novine]

"Finally, if you don't believe that bringing our tax burden closer to averages will lure suburbanites into Detroit, you only have to spend a few minutes at any community meeting to learn that it will unquestionably do wonder to stop or slow down the exodus of people leaving the city."

I've talked to a lot of people who've left the city for the suburbs. If they mention taxes, it's at the end of a long list of ills that would have to be addressed to keep them in the city. Cutting their taxes isn't going to keep them.

[tompage]

Here's my letter on the topic that was published in today's [[June 9, 2011) Free Press:

Taxes are the problem

I'm a returning Detroiter. After 25 years living and working in Los Angeles, I moved back to my hometown of Detroit. I certainly didn't move here because of the excellent city services. For the most part, and with few exceptions, city services aren't even adequate. City departments are rarely even minimally responsive to questions and complaints. In spite of these and other issues, Detroit is an awfully exciting place to be. I believe that those of us who choose to live here may partake in an urban renaissance without peer. The keys to that renaissance are not only the so-called big ideas, such as the Woodward light rail, but the individual, often entrepreneurial, decisions to live, play, work and create here.
Editorial Page editor Stephen Henderson's suggestion that Detroit needs to break its "high-tax habit" is right on the money [["Help Detroit break its high-tax habit," June 5). Even more important than improving city services, the mayor, Council, Wayne County, and the state should embark on implementing a policy of removing the disincentives for people to live and work in Detroit. In my opinion, city taxes and auto insurance rates are the primary disincentives. As Henderson suggests, the city's income tax for both residents and non-residents should be eliminated in gradients over a five-year period. In addition, the city's property tax rate should be pegged at the median for the metropolitan area.
Once the city-tax disincentives are eliminated, the trickle of entrepreneurs, new residents, and jobs will become a flood!