Detroit’s rebirth as ‘America’s Great Comeback City’ hits roadblock.....

[iheartthed]

San Francisco was never hit nearly as hard as Detroit and Michigan are when the Auto Industry cycles downward.

I doubt this is true but have no evidence on hand right now so won't dwell on that point.

However, the problem with Detroit and the auto industry is that there is no more growth to extract from the auto industry. It's unlikely that the auto industry will ever need more workers in the future than it has today. Each recession is a reason for the industry to become more efficient [[in other words, do more with less). The same has not been true of the tech industry because we're probably still very early in the Information Era, while we passed the high water mark of the Industrial Era some time in the mid-20th century.

[313WX]

And even during the dot.com recession, Detroit and Michigan were hit hard as people who were losing their tech jobs stopped buying cars.

By 2001, the "good ol' days" of the 90s quickly became a thing of the past around here and Michigan was stuck in a one-state recession [[failing to recover like the rest of the country) until the 2007-2009 Great Recession.

[ABetterDetroit]

As a FYI, the biggest clients of the tech, law and finance firms in downtown Detroit are the Big 3 automakers.

And the health care industry of course depends heavily on the Cadillac insurance benefits [[no pun intended) the UAW and salaried Big 3 workers get...

Also, the biggest difference between the Finance industry in NYC, the tech industry in San Francisco and Detroit's auto industry is that neither NYC or San Francisco's main industries are nearly as cyclical as the auto industry.

Even in recession, people will always be spending/saving money and will always need other people to assist them with managing their money. Just as well, in the 21st century, people must have the latest and greatest technology to remain competitive in our society.

Purchasing a new or CPO Automobile, on the other hand, is something people can put off forever if they're struggling to pay for their other necessities, especially if they live in a region where there are other means for transportation besides a car.

Building a economic climate that thrives is tricky enough on its own, if you are trying to hand pick the sector near impossible. If it was that easy we all would be "building windmills" like Jenny wanted to.

NYC and San Francisco are terrible comparisons to Detroit. It's like comparing a 747 to a bicycle, they both are vehicles for transport but that's where it ends.

[313WX]

NYC and San Francisco are terrible comparisons to Detroit.

I agree, for the reasons I stated before.

But since another poster brought them up any way, so I used them to make my point as well.

[iheartthed]

And even during the dot.com recession, Detroit and Michigan were hit hard as people who were losing their tech jobs stopped buying cars.

Yes, exactly the point I was making. And a decade later, the tech industry is far larger than it was then so all of those people have jobs again. There was no prolonged loss of jobs or wages because that industry is gobbling up talent faster than it can be produced. The auto industry probably does not have more workers than it did a decade ago.

[313WX]

Yes, exactly the point I was making. And a decade later, the tech industry is far larger than it was then so all of those people have jobs again. There was no prolonged loss of jobs or wages because that industry is gobbling up talent faster than it can be produced. The auto industry probably does not have more workers than it did a decade ago.

And the point I was making is that, even during downturns, there's still a strong demand for what the tech industry is producing [[as people still need their cell phones, computers, etc. in order to function), which is why they're able to gobble up all of the people you reference so fast.

In the auto industry, that's not the case. People only buy cars when they have the disposable income to afford them.

[iheartthed]

And the point I was making is that, even during downturns, there's still a strong demand for what the tech industry is producing [[as people still need their cell phones, computers, etc. in order to function), which is why they're able to gobble up all of the people you reference so fast.

In the auto industry, that's not the case. People only buy cars when they have the disposable income to afford them.

It doesn't matter if they didn't sell a single car during a recession. At some point the auto industry started selling cars again but they didn't need as many people to do it for as much as they were paying before. It's a matured industry on the path that agriculture went down a century ago.

[ABetterDetroit]

I'm with both of you on the overall economic conditions of the whole state over the last two decades. I remember the "one state recession" very well. I think it does a disservice to our future to lay the blame solely at the feet of the contraction of the auto industry as the fault. Awful government played a far bigger role in my opinion. That's why I get frustrated when posters point out the failings of Detroits political leaders. Did they suck? Absolutely yes, but they had no monopoly on bad government in this state. Lansing has done a pretty terrible job of breaking the "business as usual" mindset in the face of a long term growing problems.

[313WX]

It doesn't matter if they didn't sell a single car during a recession. At some point the auto industry started selling cars again but they didn't need as many people to do it for as much as they were paying before. It's a matured industry on the path that agriculture went down a century ago.

The fact is the Auto Industry has yet to return to even 1990s-level prosperity because people aren't buying cars like they used to. That's the reason so many people have been let go and so few people are being hired back. It's basic supply and demand. That's a huge [[albeit overlooked) elephant in the room of Detroit's comeback also.

Things have recovered some as people who still have good-paying jobs no longer fear losing them and folks are getting relief at the gas pump. But until Americans start buying 4-5 million+ cars from them again, the Auto Industry will continue to struggle with recovering from the hit it took during the last recession. And all it's going to take is another severe recession to convince more Americans to buy even fewer cars.

[313WX]

I'm with both of you on the overall economic conditions of the whole state over the last two decades. I remember the "one state recession" very well. I think it does a disservice to our future to lay the blame solely at the feet of the contraction of the auto industry as the fault. Awful government played a far bigger role in my opinion. That's why I get frustrated when posters point out the failings of Detroits political leaders. Did they suck? Absolutely yes, but they had no monopoly on bad government in this state. Lansing has done a pretty terrible job of breaking the "business as usual" mindset in the face of a long term growing problems.

Absolutely.

Every time it cycles upward, the city and state overnment buys into the delusion that the good times with the auto industry will last forever and that it won't be hit hard again like it was in the previous recessions.

The problem we've faced over the last 50-75 years is successfully using the wealth we have built up from the Auto Industry to attract other industries to our city/state [[to avoid repeating what happened in the late 70s/early 80s or the late 2000s/early 2010s). There's no shortage of political clout or dollars, just the lack of will power to do things differently by those with the political clout and dollars.

[mwilbert]

The problem we've faced over the last 50-75 years is successfully using the wealth we have built up from the Auto Industry to attract other industries to our city/state [[to avoid repeating what happened in the late 70s/early 80s or the late 2000s/early 2010s).

The real problem is that is was impossible for other industries to compete with the auto industry for labor until the late 70's--at that point the Detroit metro still had the highest wages in the country, by a fairly wide margin. That was a great thing in many ways, but it was the result of conditions that could not survive increased foreign competition and then the outsourcing that occurred largely in reaction to that competition. Along with continuous improvements in productivity, these combined to drastically reduce the employment in US auto industry.

The idea that there was any action that Michigan government could have taken to make that different seems incorrect to me. Now that the Detroit area's labor costs have moved back toward the rest of the country's, there is more opportunity to encourage other businesses that would diversify the economy, and I agree with you that I'd be happy to see more of that, but with the best policies in the world, which we don't have, it is going to take decades for anything else to reach a significant fraction of the scale of the auto industrial complex in terms of bringing money into the region from outside. The auto industry, as you have observed, is highly cyclical, so expect the usual bumpy ride as the national economy ebbs and flows.

There's no shortage of political clout or dollars, just the lack of will power to do things differently by those with the political clout and dollars.

It would be helpful to have people with clout and dollars focusing on improving the state's economic environment, but any results from that are going to take a long time to show up. In the meantime, I doubt people could agree on what improving the state's economic environment might involve. For example, everyone agrees that Michigan's roads are a problem for businesses in the state, but apparently a lot of people don't think they are more of a problem than whatever tax you would need to raise to fix them. Hence the dollars and clout on each side may basically cancel out.

[Cincinnati_Kid]

Its not the state's job to diversify our economy, although RTW and other progressive reforms should help build the non-auto segment.

RTW isn't creating the jobs that the Governor was touting when he signed the bill. Most employers are hiring employees for contract or part-time jobs, to keep from adding full time employees with bennies to the tax rolls.

[RaumVogel]

RTW isn't creating the jobs that the Governor was touting when he signed the bill. Most employers are hiring employees for contract or part-time jobs, to keep from adding full time employees with bennies to the tax rolls.

Exactly.
And the tech industry is not hiring as much as people think. The education system is pumping out tons of new techies and many will only find work through temp services.

[BankruptcyGuy]

A couple of points:

Michigan's lost decade was assisted in large part by a relocation of manufacturing automotive jobs, compared to non-manufacturing jobs within the automotive industry. There was some dead white collar weight that was cut as well, but nothing like the manufacturing side.

The SF area isn't that different. Between 2001 and 2008 there was a significant loss in Silicon Valley high-tech jobs--about 100,000 to be exact. The biggest losses were in [[you guessed it) manufacturing. Those jobs [[both auto and tech) have [[IMHO) been permanently relocated to other parts of the globe.

There is an argument to be made that wage inelasticity contributed to the duration of the recession in MI. Average annual wages in Silicon Valley manufacturing fell, probably more quickly that union-protected wages fell in MI. That inelasticity can delay recoveries in some economic models.

http://www.bls.gov/opub/btn/archive/...d-2008-pdf.pdf

There is no question, however, that the auto industry is "mature" and Silicon Valley is more "growth." On the other hand, there is a significant amount of overlap--three of the biggest presenters at CES were autos. They dubbed the show "The Year of The Car."

[ABetterDetroit]

A couple of points:

Michigan's lost decade was assisted in large part by a relocation of manufacturing automotive jobs, compared to non-manufacturing jobs within the automotive industry. There was some dead white collar weight that was cut as well, but nothing like the manufacturing side.

The SF area isn't that different. Between 2001 and 2008 there was a significant loss in Silicon Valley high-tech jobs--about 100,000 to be exact. The biggest losses were in [[you guessed it) manufacturing. Those jobs [[both auto and tech) have [[IMHO) been permanently relocated to other parts of the globe.

There is an argument to be made that wage inelasticity contributed to the duration of the recession in MI. Average annual wages in Silicon Valley manufacturing fell, probably more quickly that union-protected wages fell in MI. That inelasticity can delay recoveries in some economic models.

http://www.bls.gov/opub/btn/archive/...d-2008-pdf.pdf

There is no question, however, that the auto industry is "mature" and Silicon Valley is more "growth." On the other hand, there is a significant amount of overlap--three of the biggest presenters at CES were autos. They dubbed the show "The Year of The Car."

OK if a comparison between Detroit and SF "isn't that different" then why have not the less affluent areas of the Bay Area been depleted of there housing stock anything like Detroit has? Oakland has issues and problems for sure but abandonment of $5000 homes sure isn't one of them that they have to worry about.

[BankruptcyGuy]

I'm not implying [[sorry if there was confusing) that SF and Detroit are in similar situations. They clearly are not. I'm saying that the job loss of the dot com collapse hit Silicon Valley hard, just like the auto decline hit Detroit and southeast Michigan hard.

No place I've been to or lived in has the "grass is always greener" syndrome worse than Detroit.

[Hermod]

Even in the "good old days" of the fifties, the auto industry was very cyclical. 1954 and 1958 were horrible years for the car companies and there were massive layoffs in the Detroit area.

Another factor is that modern cars don't rot away in three years any more so people can keep a car going for ten or twelve years and new cars are more of an impulse buy than a necessity.

[ABetterDetroit]

No place I've been to or lived in has the "grass is always greener" syndrome worse than Detroit.

I'm not sure that there is anywhere else where devastating problems remain completely unaddressed by local and state government for decades like Michigan. There are numerous examples, one of the most obvious is the "roads" which is currently the subject of another thread.

Another one that is equally obvious and was mentioned in the article that started this thread is the high rate of property tax in Detroit that contributes to people losing their homes and a cycle of blight and abandonment. This problem exist in several other cities as well.

The state of California had real property tax reform though not perfect it was very successful in stopping property from becoming worthless. It is one thing to have a low value of a residential house become worth 30% of the states mean value and altogether different to let it get to 1% or 3%. High property tax rates also drastically slow or stop new devolopment of residential real estate which is a huge loss to the local economic base.

[Hermod]

I'm not sure that there is anywhere else where devastating problems remain completely unaddressed by local and state government for decades like Michigan. There are numerous examples, one of the most obvious is the "roads" which is currently the subject of another thread.

Another one that is equally obvious and was mentioned in the article that started this thread is the high rate of property tax in Detroit that contributes to people losing their homes and a cycle of blight and abandonment. This problem exist in several other cities as well.

The state of California had real property tax reform though not perfect it was very successful in stopping property from becoming worthless. It is one thing to have a low value of a residential house become worth 30% of the states mean value and altogether different to let it get to 1% or 3%. High property tax rates also drastically slow or stop new devolopment of residential real estate which is a huge loss to the local economic base.

I have always thought that "ad valorem taxes" such as the real property tax should be subject to challenge in that the taxee can say to the taxor "if you think it is worth that much, buy it from me." The taxing authoriity then can either buy the property at that price or lower the assessment to the point where the taxee isn't willing to sell.

[BankruptcyGuy]

I'm not sure that there is anywhere else where devastating problems remain completely unaddressed by local and state government for decades like Michigan. There are numerous examples, one of the most obvious is the "roads" which is currently the subject of another thread.

Another one that is equally obvious and was mentioned in the article that started this thread is the high rate of property tax in Detroit that contributes to people losing their homes and a cycle of blight and abandonment. This problem exist in several other cities as well.

The state of California had real property tax reform though not perfect it was very successful in stopping property from becoming worthless. It is one thing to have a low value of a residential house become worth 30% of the states mean value and altogether different to let it get to 1% or 3%. High property tax rates also drastically slow or stop new devolopment of residential real estate which is a huge loss to the local economic base.

Home abandonment doesn't really have to do with the rates; it's the vast overvaluations that cause the problem.

If you buy a house worth $10,000, the assessed value should be $10,000. It is entirely irrelevant what the home sold for in 2006. On a $5,000 SEV with a 68 mill rate, your property taxes should be around $340/year. That's probably lower than fuel, utilities, cable TV or anything else in the home.

Property taxes in Michigan are lower than Illinois or Wisconsin, and much lower than Texas. I think it's the overall rate and mix that tends to move things around. What does not help Detroit is when their rate is substantially higher than neighboring suburbs without an appreciable benefit in terms of public services. All the factors blend together, but on balance, that is one factor that causes flight from the outer parts of Detroit.

Downtown is a different animal altogether--it has amenities, and it is attracting a particular brand of resident [[young, single, auto-less). That's a good thing.

So are "taxes" hurting "Detroit"? Not to go all Bill Clinton on everyone, but it depends on what those words mean.

[ABetterDetroit]

Home abandonment doesn't really have to do with the rates; it's the vast overvaluations that cause the problem.

If you buy a house worth $10,000, the assessed value should be $10,000. It is entirely irrelevant what the home sold for in 2006. On a $5,000 SEV with a 68 mill rate, your property taxes should be around $340/year. That's probably lower than fuel, utilities, cable TV or anything else in the home.

Property taxes in Michigan are lower than Illinois or Wisconsin, and much lower than Texas. I think it's the overall rate and mix that tends to move things around. What does not help Detroit is when their rate is substantially higher than neighboring suburbs without an appreciable benefit in terms of public services. All the factors blend together, but on balance, that is one factor that causes flight from the outer parts of Detroit.

Downtown is a different animal altogether--it has amenities, and it is attracting a particular brand of resident [[young, single, auto-less). That's a good thing.

So are "taxes" hurting "Detroit"? Not to go all Bill Clinton on everyone, but it depends on what those words mean.

I enjoy this discussion.

The rate has a much higher effect when the house still has value. 35k SEV =$2400 in the city. That's a tough nut to swallow if you're in a lower income neighborhood with tough employment options. Increasing the value won't do you any favors either. It just gets worse at 4% per. I don't like to sound elitist but the cat is out of the bag and down the block at 10k, it's game over soon to be blight or a short stop as a drug house.

Illinois has the same problem as parts of Michigan. They just have a lot more wealth and are behind us on this problem but it is starting to really grab hold. Wealthy burbs can absorb the higher rates easier but the growth is still slowed and appreciation is retarded by high rates.

You are 100% correct on high rates being a #1 contributer to sprawl and the struggles in older established neighborhoods.

[BankruptcyGuy]

I enjoy this discussion.

The rate has a much higher effect when the house still has value. 35k SEV =$2400 in the city. That's a tough nut to swallow if you're in a lower income neighborhood with tough employment options. Increasing the value won't do you any favors either. It just gets worse at 4% per. I don't like to sound elitist but the cat is out of the bag and down the block at 10k, it's game over soon to be blight or a short stop as a drug house.

Illinois has the same problem as parts of Michigan. They just have a lot more wealth and are behind us on this problem but it is starting to really grab hold. Wealthy burbs can absorb the higher rates easier but the growth is still slowed and appreciation is retarded by high rates.

You are 100% correct on high rates being a #1 contributer to sprawl and the struggles in older established neighborhoods.

The problem with taxes is that you have to pick your poison, at the state level:

income tax [[flat rate per constitution)
property tax [[regressive, causes flight)
sales tax [[very regressive)
corporate income tax [[causes flight and job loss)

Yet, you have to fund services. Detroit had itself in a hole with the two taxes they could levy. Remains to be seen if they can normalize services and still attract residents and jobs. It's working downtown, so far.

[Canadian Visitor]

The problem with taxes is that you have to pick your poison, at the state level:

income tax [[flat rate per constitution)
property tax [[regressive, causes flight)
sales tax [[very regressive)
corporate income tax [[causes flight and job loss)

Yet, you have to fund services. Detroit had itself in a hole with the two taxes they could levy. Remains to be seen if they can normalize services and still attract residents and jobs. It's working downtown, so far.

I'm going to pick a bone on the issue of sales tax being regressive. We often here that up here in Canada as an argument against raising the provincial portion of HST.

Yet, here at least, the HST does not apply to either basic groceries, or rent or a first time home purchase at below median prices.

So.....whereas housing is 35% [[or more) of most peoples costs and food another 15% Sales tax only applies to 50% of spend. The Tax also doesn't apply [[in Canada) to tuition, or prescription drugs.

So for someone at a subsistence level likely spending above norm on necessities.....so let's say 60%......they might pay in Michigan's case 6%, on at most, 40% of what they spend. So let's say 6% of $10,000 [[assumes as $25,000 income) or $600 per year.

Now take a typical upper-middle income family, household income of $120k.

Likely in a home where sales tax would/could apply; and spending far less of their income on housing/food annually in any event.

So, let's say paying tax on 80% of their spend, which will be 70% of their income allowing for savings.

They spend $84,000 taxable dollars per year, at 6%, that's $5,400 vs $600 for the low income earner

And in % of income...........the low-income household pays 2.5% total, whereas the higher income household pays 4.5%

While that's not as 'progressive' as income tax CAN be.......its hardly regressive.

[ABetterDetroit]

The problem with taxes is that you have to pick your poison, at the state level:

income tax [[flat rate per constitution)
property tax [[regressive, causes flight)
sales tax [[very regressive)
corporate income tax [[causes flight and job loss)

Yet, you have to fund services. Detroit had itself in a hole with the two taxes they could levy. Remains to be seen if they can normalize services and still attract residents and jobs. It's working downtown, so far.

Taxes are a pill that nobody enjoys swallowing in whatever vehicle they take. A lack of empathy and understanding makes it worse. Rural and small town people have different views conflicting with large city folks then suburban types come at it from yet another angle. Next you throw in different political ideologies and yet again opposing view points of what role government and its services to society should be and you have yourself one fine mess to be sure.

What appears to me as FUBAR is that the state has locked up the system pretty tight with the constitutional laws such as there won't be a regional sales tax, the income tax rate will remain flat etc. Their refusal to help local municipalities collect an income tax via withholding hasn't done anybody any favors over the years besides tax cheats.

The thing about tax code is that to remain effective over time it has to remain fluid. What worked well 50 years ago can have pretty crippling side effects today and viseversa. After several different trips to the top of the list for the worst performing residential housing market in the country by state over the last several decades, it has become apparent that Lansing's continuous effort to keep property tax rates among the highest in the country has been a failure. Residential property improvements and new construction has proven to be an excellent vehicle for economic growth and job opportunities that we have not taken part in anywhere near to the degree that the rest of country has for many years. The ray of sunshine I guess is the mayor of our largest city is proud of the fact that we are tearing them down faster that any other city can. Unfortunately, that has not proven to be a long term growth industry.

[Canadian Visitor]

I should add than any gov't has the option of exempting more non-discretionary spend from the tax to make it more progressive.

Car-sharing, Mass transit, Health insurance, and childrens clothes could all be exempt, for instance.