Can Detroit Afford to Lose 7,000 People per Year?

These people have left Detroit after its population halved between 1950 and 2000. And the remaining population is much poorer than in other big cities. That means the tax base is already at very low levels. Although some businesses have come to Detroit, they are too few to drive the tax base up and offset the drop in the number of people who live inside the city limits.

Much of the news about Detroit has been about people returning to the city, a new middle class emerging and an increase in nice neighborhoods, restaurants and stores. However, these are too few in number to help what continues to be a troubled city.

Detroit’s leaders argued that bankruptcy would clear it of debt, which would in turn improve its “balance sheet.” Like any city, or even company, Detroit still needs revenue to cover its operating costs and its renaissance. If anything, the process has become a challenge. The city faces years of deficits ahead unless it can drive its tax base higher, by a large measure and quickly.

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Michigan Capital Confidential reported last year:

In the fourth quarter of its fiscal year 2014, the city of Detroit projected it would bring in $55 million in property taxes. Instead, it collected just $6.7 million, about $48.3 million short of what it expected.

Also:

Robert Inman, a professor of finance, economics and public policy at the University of Pennsylvania’s Wharton School, called the recent shortfall “extraordinary.”

“While there are surely many possible explanations for the extremely low yield of the property tax recently observed for Detroit, the fact remains that a 10 to 15 percent collection rate for the city’s property tax compares to that in many third world cities,” Inman said. “And perhaps for third world reasons: abandoned properties, declining values and thus an inability to pay, and finally, simply tax cheating. Detroit has its work cut out for it.”

If Detroit’s leadership does not begin to talk about these problems regularly, and in the open, the city cannot begin to set intelligent plans to solve those problems. For now, it is moving back on track for severe financial troubles it cannot reverse.

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