Revitalizing Detroit

Detroit’s decline has been reported since 1961, when Time magazine printed a full-page story on the subject, and the downward spiral has only accelerated, with Detroit now ranked as the poorest big city in the United States, according to figures released in late August by the U.S. Census Bureau.

The next mayor must make fundamental changes to Detroit’s economic landscape. Appalling public services, sky-high tax burdens and suffocating business regulations have chased people, entrepreneurial talent and financial capital away from the Motor City for five decades.

To revitalize the city’s economy and bring stability to city government, Detroit’s city officials must do the following:

1. Accelerate reductions in the city income tax. Add no new or higher taxes to the already sky-high tax burden.
   
   The city of Detroit maintains an excessive tax burden that weighs on citizens and job providers alike. According to a study prepared by the Washington, D.C., Finance Department, Detroit was the eighth highest-taxed city in the country for a family of four making $50,000 in 2003.





2. Review each city service. If private firms or other units of government are already providing the service, the city should stop producing it, either by canceling it, or by competitively contracting it to reputable private firms.
   
   The city should conduct a "Yellow Pages" review of the services it provides — that is, city officials should ask, If you can find a service in the Yellow Pages, should city government really be providing it? Whenever private companies can perform a particular activity, the city should either stop producing it or provide it through competitive bidding.
   
   Between 1991 and 1998, Indianapolis saved more than $550 million by applying this Yellow Pages test to more than 75 city services. The research literature on privatization shows that with adequate guidelines, private contracting can be effective and avoid cronyism. The city should show no preference for Detroit-based firms in selecting contractors.
   
   The city should also use the "blue pages" of the phone book to locate and end those city services that are already provided by other units of government. For instance, the city of Detroit runs a public health care department that duplicates services provided by Wayne County. According to a January 2005 editorial in The Detroit News, "The $42 million (city) agency was chided by federal authorities in 2002 for failure" to keep an outbreak of sexually transmitted diseases under control.





3. Dramatically downsize the city bureaucracy, now one of the largest per capita in the Midwest. Detroit’s citizens cannot afford this bloated payroll.
   
   The use of private contractors should allow the city to decrease its bureaucracy substantially. Through fiscal 2005, the city of Detroit retained about 18,600 employees, yielding a resident-per-city-employee ratio of just over 48-to-1. By contrast, Indianapolis maintains a ratio of about 203-to-1. Detroit’s poverty makes this gap inexcusable.





4. Sell underused buildings and equipment. Use the revenues to reduce city debt and to finance unfunded retiree health care obligations.
   
   The city of Detroit is sitting on a mountain of untapped assets. For example, the city could sell its electricity generating department to the highest bidder. It could also sell its bus fleet and contract the operation of its bus system to a private firm. It may even be able to sell its water department, which the Mackinac Center for Public Policy estimated in 2001 could fetch more than $1.7 billion.
   
   The money from such sales should be used for two purposes: to reduce Detroit’s $974 million in General Obligation debt and revenue sharing bonds, and to fully fund the current retiree health care obligations, which amount to a whopping $732.9 million in actuarially accrued liability.
   
   Asset sales and privatization are discussed in more detail in a Detroit-specific edition of the Mackinac Center’s Michigan Privatization Report.





5. Reduce the regulatory burden on city businesses. The city’s maze of regulations impedes private enterprise at every turn.
   
   The city of Detroit maintains a Byzantine maze of regulations that impede nearly every facet of private enterprise. Compare, for instance, the regulation of movie theaters in Detroit and Indianapolis. Detroit requires that a movie theater submit to an annual city building inspection and to an annual fire inspection, among other things. The city fire inspection currently costs the cinema owner $47 per hour — a cost that is scheduled to increase soon to $193 per hour.
   
   By contrast, the city of Indianapolis requires no annual city building inspections for mainstream theaters. Its fire inspections are provided at no charge to the theater owner.
   
   Indianapolis, with a population of only 784,000, is served by 17 theaters with more than 160 screens. Not coincidentally, Detroit, a city of 900,000, is served by only two theaters with 16 screens.
   
   The absence of additional municipal oversight in Indianapolis has not been harmful to consumers. Detroit should do without it, too.

The stakes are high. If the city’s finances continue to deteriorate, the state of Michigan can appoint an emergency financial manager to run Detroit’s government. Detroit can — and should — avoid this fate by seizing the initiative and pursuing the reforms above.

Michael D. LaFaive is director of fiscal policy for the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich. Permission to reprint in whole or in part is hereby granted, provided that the author and the Center are properly cited.