Skip to comments.How Detroit went broke
Posted on 09/17/2013 3:27:32 PM PDT by markomalley
Give Detroit's newspapers some credit. They may no longer publish print editions seven days a week, but they still are producing enterprise journalism of a high order. Last February the Detroit News, after an exhaustive search of the city's tax rolls, that 47 percent of Detroit property owners did not pay their property taxes in 2011. The amount of revenue lost to the city was $246 million. It was a fine illustration of not only the feckless incompetence of the city government but also of the fact that real estate values have been declining. Many of the delinquent property owners evidently calculated that their property was worth far less than the assessed value -- so let the city take it if it wants.
Today the Detroit Free Press released another excellent story, showing how the city government's debt rose to its current levels, requiring the city to declare bankruptcy. The Free Press analyzed the city's finances going back to the 1950s, when its population was 1.1 million more than it is today, and it presents a series of well-designed graphics showing the city's finances over the years in 2013 dollars.
The story makes a number of interesting points. One is that the city's debt skyrocketed under Mayor Kwame Kilpatrick, mayor from 2002 to 2008 and now a convicted felon. A second point is that the city's revenues currently are less than half what they were in 1960. That's measuring them in 2013 dollars; it's possible that they're using a number that overstates inflation, but the decline is still remarkable even if it might be a bit overstated.
A third point is that the article portrays Coleman Young, mayor from 1974 to 1994, as fiscally much more conservative than many have thought. He didn't send the city toward bankruptcy, the Free Press (pronounced with Free rather than Press stressed) suggests. I think they're right, but their argument is undercut by another graphic, which shows the decline in property values. They declined (again in 2013 dollars) from $30 billion when he took office to $10 billion when he retired.
Part of the decline represents abandoned industrial property. But it also reflects a decline in real estate values -- a decline, I believe, which can only be explained by Detroit's enormous crime rate during the Young years. Essentially, housing prices never went up in nominal dollars, which means that they sharply declined in real dollars. One example: In 1948 my parents bought a two-bedroom, 1,000-square foot house, newly built, in northwest Detroit for $11,500. In 1989, for an article in U.S. News & World Report, I went back to Detroit and found that the house was worth about $15,000. Neighbors told me that if the house was abandoned, as several on the block were, it would be worth only about $3,000 -- about the same as the salvage value of the building materials and fixtures. Land in Detroit had become essentially worthless.
In the 1990s, and especially after Dennis Archer became mayor in 1994, city property values increased to about $15 billion, as the Free Press article shows. Those were also years of some decline in crime. But they were back to $9.6 billion in 2012. As a result, property tax revenue declined from a high near $1 billion in 1960 to about $200 million in 2012.
Since 1960 the city government has passed and raised its income tax, and in 1999 it passed a casino gambling tax. But income tax revenues have been falling, and total revenues, which peaked around $1.4 billion in 1972, fell to about half that in 2012. I continue to believe that crime played a bigger role than fiscal improvidence in sending Detroit toward bankruptcy, as I argued in my Aug. 14 Washington Examiner column.
Congratulations to the News and the Free Press for some excellent journalism. These articles took a lot of work and made a real contribution to understanding Detroit's plight. Journalism prizes should be in order.
UPDATE: Stefanie Murray, assistant managing editor of the Free Press, informs me that the Free Press continues to produce a print edition seven days a week, as does the News. However, the Free Press is home delivered only on Thursday, Friday and Sunday. I made my mistake because I depended on my observation that when my parents lived in the Detroit area, their Free Press (and News) arrived on only those days. Sorry for the careless mistake and congratulations again to the Free Press on its story.
The free press building sold for a little over $4 million a couple weeks ago and the David Scott building sold for nearly $9 million last week.
Big money is investing heavily in Detroit but the real economic drivers are the small businesses which still face too high a mountain.
I wonder why they aren’t forcing the inner city Democrat voters to pay their property taxes?
Detroit’s “Operation Compliance”
The city is cracking down on small-business owners in terms of zoning, permitting, etc.
Shutting down many, many small businesses:
Detroit seems like it appraises properties much higher than their actual value
That same damn Romney 47%
The initial decline began with the race riots in 1967 and then accelerated during Coleman Young's term. He did not let any white businesses open within the city limits of Detroit. As a consequence the white business owners moved to the suburbs and took their businesses and jobs with them. They were not replaced by any new black or any other color businesses. And it all left a hole that could only spell decay and decline.
Them democrats are such geniuses.
Because they look like Obama?
That 47% seems to be a universal number when it comes to taxes.
Drug dealing and prostitution are businesses.
47% seems to be just as ubiquitous as Pi or the Golden Ratio.
That 47% seems to be a universal number when it comes to taxes
Philly has the same % but their number is $500 million unpaid
Raze the abandoned houses and put the land into growing corn and soybeans. As farmland it would be far more valuable than vacant and unsalable house lots.
What to do with all that scrap lumber from the teardown of the abandoned housing and industrial base? Not into a landfill, but into a power generation system that uses something called Plasma Trash Reduction, and as a byproduct, generates electricity on the spot.
(cut and paste)
This is “green energy” on steroids, and one technology that actually lives up to its hype. At one swoop, highly toxic industrial waste is neutralized, otherwise irrecoverable resources are freed up, vast quantities of trash that would otherwise end up in a landfill are put to productive use, and the co-generation of power from both the syngas produced from the process and capturing the heat energy for additional power generation make the system self-sustaining, so long as the feed of trash as “fuel” proceeds on an adequate supply basis. Existing landfills and “brownfields” are stripped of soil pollution potential. A side product is the formation of a silica “slag”, a form of igneous stone that may be crushed to aggregate, or formed into building material. Depending on the nature of the trash put through the process, this slag may also be a valuable ore for reclaimed metallic elements, as the various elements tend to crystallize out in different strata within the slag, making the concentration much more uniform than found in typical mined ores.
A whole new industrial complex may be built on the ruins of the former industrial complex. And the landscape will be transformed into one of reclaimed utility for multiple non-industrial purposes.
His son currently infects the state senate. His most recent bill.
Senate Bill 474: Impose new regulations on petroleum coke
Introduced by Sen. Coleman Young (D) on September 10, 2013, to impose new regulations on the storage of petroleum coke (pet coke). This is related to a Marathon Oil refinery expansion in Detroit.
How did Detroit go bankrupt?
Two ways, Mike said. Gradually and then suddenly.
And your point is what?
Much inner city income is “off the books” if you know what I mean.
“Big money is investing heavily in Detroit”
Are we really seeing that as investment or are the buyers just speculators looking to flip for a short term profit and not in it for the long haul?
White flight = tax ase fled from Detroit long ago...
The parasites sit and wat or ad outs...
So true, the left will make every excuse but the real reason is Whitie left.
Racist Coleman Young
That is all
That's a little misleading... one might surmise there are a million left today. In fact, there were 1.15 million in the 1950's, and there are only 55,000 today. Over 95% gone.
I would suspect that they just made up property valuations and the foolish 53% paid theirs while the 47% (familiar number) just ignored the tax bills.
Detroit is just going over the debt cliff a few years before the country as a whole.
It will be good to study the winners and losers.
Detroit seems like it appraises properties much higher than their actual value
Not hard to do when buildings routinely go unsold for years listed at $1.
They could at least go after the banks that foreclosed on tens of thousands of Detroit properties and make them pay.
No there is real investment going on in Detroit. Roger Penske seems to be leading the charge to bring business to Detroit. Quicken bought one of the buildings downtown and is renovating it while working out of another building. JP Morgan just opened a regional HQ in Detroit, Ernst & young are now in Detroit. These companies are also dumping big bucks into infrastructure as well. Some $12 in private money went to buy and lease 100 police cars and ambulances. Another $5 million for improvements to schools etc.
Just the other day there was a chamber of commerce meeting about reopening the Detroit stock exchange. Canada is heavily involved as well because the heart of their manufacturing is in Windsor, Sarnia, London etc.
The simple reality is that as other cities like NY Boston and Chicago get more expensive for business, Michigan is getting cheaper at the state level and Detroit will be forced to cut back as well. The new international trade crossing bridge will ease the trade bottleneck and be a major boon to business.
I’m somewhat familiar with that process ... if you feed it all the demo’d buildings you would be introducing a LOT of lead , lead paint , lead pipes , leaded glass ... how good is it from an air quality perspective?
They elected Democrats.
In a word, liberalism.
“Some $12 in private money went to buy and lease 100 police cars and ambulances.”
Wow, now that’s what I call value for your buck. Even I could afford that.
Your population number is way off. The number given for Detroit’s current population is usually around 700,000.
Easy to say, d@mn hard to do. The banks would fight appraisals tooth & nail and if they lost they would do the exact same thing those property owners did - walk away