The High Cost of Living in Detroit

Two of the foremost problems causing the City of Detroit to hemorrhage are burdensome taxes and high insurance rates. Without a doubt, high property and personal income taxes are near the top of the list for anyone complaining about what ails Detroit.

Lower Detroit Taxes

Everybody in Detroit needs and deserves tax relief. A lower tax rate will attract middle-class people back to the city, thereby improving property values. However, Mayor Kilpatrick has recommended lower taxes only for select groups in Detroit. He promised well-to-do neighborhoods in his 2005 State of the City address they would see property tax relief, and he wants to create neighborhood enterprise zones for well-established areas. But most poor and working-class neighborhoods don’t get breaks under his plan. Kilpatrick doesn’t explain how he will make up the loss of revenue in his tax reduction plan.

That kind of policy doesn’t work for me. During the previous City Administration in which I served we initiated a tax plan in 1998 that would reduce the income tax of Detroit residents from 3 percent to 2 percent, nonresidents from 1.5 percent to 1 percent, and eliminate the corporate tax over ten years, from July 1, 1999 to July 1, 2008. In Dec. 2003 and 2004 the City applied to and received a suspension of the tax reduction from the State of Michigan when Mayor Kilpatrick was unable to balance the budget.

My tax relief proposal calls for across-the-board tax cuts that will reduce the burdensomeness of personal income, real and personal property, and utility taxes. I will ensure a comprehensive tax review and overhaul that moves us to a systematic reduction in the overall tax burden on Detroit residents and businesses.  

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Reduce Detroit’s Homestead Property Taxes

The only way to get across-the-board relief is to reduce rates on homestead taxes. To be economically competitive, Detroit’s rate needs to be about 67 mills, which is the current average of all cities in Wayne County. We need to implement a five-to seven-year plan for gradually reducing the city’s tax rate so that it gets down to this average. If we do, every homeowner in Detroit will enjoy tax relief.  

Stop the “Proposal A” Property Tax Shock

The 1994 “Proposal A” tax laws need to be adjusted to protect new homebuyers from the shock of major property tax increases. As it stands now, the buyer of a Detroit property has to deal with the liability of a major property tax increase the year the property is purchased. The state legislature passed Proposal A to limit property tax increases for homeowners. However, the law mandated that when a property is sold the taxes are recalculated and the buyer owes three to four times as much in taxes as the previous owner. This produces a great deterrent to both buyers and sellers. I want to give new homeowners temporary relief from a huge tax increase and I propose that the Michigan Legislature authorize the mayor of Detroit to phase in the property tax increase over five years, thereby reducing the tax increase to 20 percent a year.

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Give Communities a Tax Break Under Existing Legislation

The State Legislature passed special assessment district legislation in the 1990s in order to give back a portion of city taxes to communities who pay for special upkeep services. There are neighborhoods throughout Detroit that have formed civic associations, which arrange for grass cutting, private security, snow removal and other services that are arranged for through city ordinances. It would be easy to return some portion of residents’ taxes back to those neighborhoods. We would essentially reward conscientious neighborhoods for their civic efforts. This modest rebate would function like commercial tax increment financing: putting paid taxes back into a community at a rate of approximately one-fourth of a mill. 

A Pro-Growth Strategy Will Produce the Tax Revenue Detroit Needs

Detroit will have to embrace a very aggressive pro-growth strategy like the one we had in the 1990s. A pro-growth strategy is one that is anti-crime and anti-bureaucracy, and which levels the playing field for businesses that want to operate and prosper in the city. A pro-growth strategy takes the heavy-handed politics out of decisions regarding who does business in the city of Detroit. A pro-growth economic policy generates more taxes – and therefore more revenue – to the city’s general fund. It will eventually allow for lower taxes. 

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Sensible Tax Abatement Policy

Detroit’s tax abatement policy has deteriorated to where it is no longer doing what was originally intended. It was designed to attract hard-to-get developments, especially in areas of the city that have had difficulty with economic development. When tax abatements are granted to developers or investors in new developments, the incentive is supposed to:

1) Help build the tax base
2) Create jobs
3) Develop new residences; and
4) Fight blight

If you take away any one of those four incentives, you defeat the purpose of a tax abatement for a development project. If the city leverages its future by granting freedom from taxes on nearly every economic development project, we will never reach the plus side of the ledger, an equity position in our finances. We should be more discerning in our use of the tax abatement tool. As it is currently being used, tax abatement helps a developer make profit more than anything.

I believe any business or individual who has ever been given a tax abatement by the city in return for economic investment needs to be held accountable for the promise they made. If they didn’t deliver on the promised investment in Detroit, there is a debt owed to the city. Those beneficiaries of the tax abatement need to make regular payments for the police, fire, and emergency services being made available to them, just as the casinos do. Fairness dictates that everyone contributes to the upkeep of the most essential city services. We’re in this together, rebuilding a major U.S. city. We need to share the costs.

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Better Tax Collection and Funds Management

[Income] Tax collection in Detroit is currently below 90 percent. Other best practice cities are at approximately 97 to 98 percent.

We need better financial management in city government. Right now there is too much waste, too much duplication in how money that the City collects is handled.

Reducing Insurance Rates in Detroit

I turn my attention now to high insurance rates, which are nothing less than an added tax on residents of the city of Detroit.

As mayor, I will appoint an executive assistant who is an insurance expert to help us deal with insurance legislation and policy that will have the impact of lowering rates in the city of Detroit. I want to work with our major insurance companies in a cooperative effort to get those rates down.

I am convinced we will find the proper steps to lower insurance rates in Detroit if everyone who can make a difference – and has a vested interest in this policy crisis – works together to solve it. The city of Detroit must effectively coordinate efforts between the insurance industry, state government, civil rights and community groups, and the auto industry to develop productive new insurance legislation in Michigan.

I will call for a comparative analysis of how insurance companies are doing business in other big cities. The city of Detroit needs to commission the study, and should work cooperatively with the insurance industry to find the answers. One policy change I’m sure will have an immediate positive effect is for the auto insurance industry to start rating Detroit by neighborhoods, not by zip codes.   

A Risk-Averse Community Approach

I also want to develop risk-averse policies and programs that community groups will help all Detroit residents implement. For instance, we need to slow down! Many people drive too fast in residential areas, leading to costly accidents that drive up insurance rates. Also, we need to adjust the placement of streetlights and stop signs at certain intersections in order to reduce accidents.

When it comes to property insurance, we need aggressive programs for property protection to reduce incidents of crime and the insurance claims that follow. There needs to be more of the following: etching programs supervised by the police; the return of police mini-stations that hold classes and meetings for teaching property safety; increased use of alarm systems; the Club and other anti-theft devices in vehicles; putting cars and trucks in locked garages at night; and voluntary neighborhood security patrols. We will be able to track our reduction in crime with those anti-crime measures in place.

I am confident that if we aggressively introduce these improvements in insurance policy, we will start seeing crime reduction, fewer and smaller insurance claims, and ultimately, lower insurance premiums.