How Detroit went broke

Washington Examiner ^ | 9/17/2013 | Michael Barone

[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.

[Cyman]

“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?

[Caliban]

White flight = tax ase fled from Detroit long ago...

The parasites sit and wat or ad outs...

[caveat emptor]

From what I have read racial politics was a major factor ensuring the demise of Detroit. Here's an excerpt from a letter to Powerline Blog:

...it was pretty clear that everyone gets it that the unions were probably the single biggest economic factor in the decline of the city. However, there was elephant in the room that no one seemed to want to talk much about and that is the role of race in the culture and politics of the current situation. I would submit that it was also a huge factor in the decline of Detroit and will, sadly, probably be the factor that will derail any rebound. The politics of race in Detroit are poisonous and I lay that at the feet of Coleman Young......

The second technique he used was to keep race relations at a boil. When I moved here in 1978 the Detroit metro area was almost unbelievably segregated. Most suburbs, with a few notable exceptions, had only tiny black populations. Almost all the blacks in the metro area lived in the city and almost all the whites in the suburbs. My first drive up Jefferson Ave from the center of the city into the Grosse Pointes was eye opening. Within 3-4 blocks it changed from a filthy street with abandoned buildings and rundown store fronts covered with graffiti and protective steel gratings to a tree lined avenue with large well maintained homes with immaculate landscaping. There was a virtual Maginot line at the border of Detroit.

Young was a master of exploiting this divide and creating friction with the “suburbs” (dogwhistle for “whites”) and regularly used this to foster a “them (white) vs us (black)” mentality in his voter base. He was always the guy standing up to “the suburbs” and they loved him for it. He was mayor for life. Sadly, this technique was extremely effective, to the point where it not only worked on blacks in Detroit, it also worked on the whites in the suburbs. To this day, almost twenty years after Young left office, the animosity is such that any cooperative endeavors between Detroit and its surrounding communities are always fraught with a significant dose of racial politics. Blacks always think that whites want to take over and whites don’t see any benefit in doing anything that helps the city.



Opinions may vary. Don't blame Coleman Young.

[LibLieSlayer]

All those pretty little words to say: COMMUNISM!!!!!!!!!!!!!

[spawn44]

So true, the left will make every excuse but the real reason is Whitie left.

[Truth2012]

Racist Coleman Young
Crack Heads
Gang banging

That is all

[Teacher317]

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,

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.

[RetiredTexasVet]

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.

[nascarnation]

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.

[BunnySlippers]

Good post!

[Neidermeyer]

Detroit seems like it appraises properties much higher than their actual value
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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.

[cripplecreek]

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.

[Neidermeyer]

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?

[lowbridge]

They elected Democrats.

The End.

[TBP]

In a word, liberalism.

[RipSawyer]

“Some $12 in private money went to buy and lease 100 police cars and ambulances.”
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Wow, now that’s what I call value for your buck. Even I could afford that.

[pluvmantelo]

Your population number is way off. The number given for Detroit’s current population is usually around 700,000.

[bill1952]

They could at least go after the banks that foreclosed on tens of thousands of Detroit properties and make them pay.

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