Stephen Henderson, Detroit Free Press, November 16, 2011
The City of Detroit is running out of money.
Not in the theoretical terms we’ve imagined for decades, but in literal figures, splayed out over spreadsheets that tell a long story of mismanagement and incompetence, culminating in insolvency.
Cash runs out by April, unless dramatic steps are taken. Tonight, Mayor Dave Bing will address the city to lay out his plan to avoid a financial implosion.
But he’s late–a leader who inherited a financial mess in 2009 but didn’t act swiftly or decisively enough to stop a slide that had been building for decades.
The short-term options now are all either horribly unappealing or beyond the mayor’s grasp. And financial analyses say even the most draconian (massive layoffs or repudiation of the city’s retiree benefit obligations) buy the city only a short reprieve; the imbalance would return by next summer.
So the priority has to be fixing the city’s short- and long-term problems simultaneously, to restore solvency once and for all. That means finally addressing a number of things:
• Jettisoning noncritical services. Detroit still operates a money-losing airport, a crumbling public lighting infrastructure, and a health department that duplicates county services. Bing has promised to prioritize services, but so far has failed to deliver.
• Reversing the city’s revenue trends. Detroit real estate has lost 87% of its value since 2003, according to a study. Property taxes provide just 14% of the city’s general fund; most cities average around 60%. Income tax receipts have dropped nearly 50% in the past decade.
Some of these steps can be accomplished by the mayor. Others may require an emergency manager or, even worse, a bankruptcy declaration.
The city’s profound revenue problems rarely come up in discussions about its budget, but they must be confronted in any plan to stabilize its finances. The numbers are just mind-blowing.
Income tax receipts in the city have dropped from nearly $400 million in 2000 to just over $200 million last year.
Property taxes are even more out of whack. They’ve dropped by 20% in just the last five years and now account for just 14% of all general fund revenues.
In the end, the city has the highest tax rates in the state, both property and income, but is not generating nearly enough money, because so few people remain to pay those taxes.