Finance

Detroit's Disappearing Population -- and Revenues

With the loss of 25 percent of its residents, Detroit could also lose its ability to levy higher income taxes.
by | May 2011
 

Detroit is losing the numbers game, and that could have real financial consequences for the Motor City. Since 2000, Detroit has lost 25 percent of its population, slipping to 713,777 residents. That matters, because under Michigan law, cities with populations of more than 750,000 have special taxing authority.

As the only Michigan city with more than 200,000 residents, Detroit has had a unique advantage. It is able to levy a higher income tax than other municipalities, which accounted for $245 million last year and is expected to bring in $215 million this year. Detroit’s special status also allows it to impose a 5 percent tax on utilities, which last year contributed $44.1 million to police department coffers.

The state specifies population size rather than naming Detroit in its statutes because laws pertaining to a particular place require a two-thirds vote of the Legislature. In theory, legislators can now simply lower the threshold to 600,000 or 700,000. But whether state lawmakers are inclined to do that is uncertain.

Gov. Rick Snyder has been seeking big changes in local fiscal management and wants to tie state aid to localities to changes in compensation and pension packages. Lansing observers say that Detroit’s special status may well become a bargaining chip within that larger debate.

"I have no sense that the Republicans will do that, but of course there are no guarantees," says Fred Durhal Jr., a state representative from Detroit. "I don’t anticipate there will be any problem, but if there is, we will do what we need to do to make sure the bill stays as clean as possible."

Legislators will be torn between two competing notions, says Jack McHugh, senior legislative analyst at the Mackinac Center for Public Policy. They recognize that there’s a need to help the struggling city, he says, "but there’s also been a traditional attitude among state officials of, 'Let them stew down there. If they want to impose all those destructive taxes and fees, that’s their problem.'"

The Republican majorities in both chambers contain few members with any connection to Detroit. As a result, the city will likely see its special status preserved, but at a much greater cost than if it had been able to retain 40,000 more residents, suggests Craig Thiel, director of state affairs for the Citizens Research Council of Michigan. "It’s clear that a lot of the changes [from the state level] have been premised more on a stick than on a carrot: 'You show us the reforms, and then we’ll give you the money.'"

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