The Fiscal Condition of the City of Detroit

April 2010, Report 361 and Memorandum 1098

The “Great Recession” that began in December, 2007 has exacerbated the effects of population loss, poverty, and disinvestment on the City of Detroit. The tax base, already stressed, has deteriorated significantly, as the number of businesses and jobs has declined, unemployment has increased, and population has dwindled. The recently published Comprehensive Annual Financial Report (CAFR) for Fiscal Year 2007-08 (FY2008) indicates that the city’s general fund deficit increased from $155.6 million at the end of FY2007 to $219.2 million at the end of FY2008. (For purposes of preparing the FY2010 budget, prior to the availability of the FY2008 CAFR, the city had estimated that the FY2008 general fund accumulated deficit had declined slightly, to $155.0 million.) No CAFR is available for FY2009, but city officials budgeted a $280 million prior years accumulated deficit for FY2010 (based in part on the underestimated 2007-08 deficit), and they estimate the current year general fund operating deficit to be in the range of $80 to $100 million. The Crisis Turnaround Team appointed by Mayor Bing to assess city operations and make recommendations estimated that, absent major changes, the average annual (structural) budget deficit for Fiscal Years 2010 through 2012 would be $260 million, and the accumulated deficit would grow to $750 million by the end of FY2012.

The Economic Base

The deterioration of the economic base of the city has accelerated. There were an estimated 81,754 vacant housing units (22.2 percent of the total) in Detroit before the recession; that number increased to an estimated 101,737 (27.8 percent of the total) in 2008. The foreclosure crisis has exacerbated the problem: the U.S. Department of Housing and Urban Development was among the ten largest property taxpayers in Detroit in FY2008. The average price of a residential unit sold in the January through November, 2009 period was $12,439, down from $97,847 in 2003. Remaining businesses and individuals are challenging property tax assessments on parcels that have lost value and, in some cases, cannot be sold at any price. Proposal A guarantees that any recovery in real estate values will be reflected in tax levies on only a limited basis (at a maximum annual growth rate of the lesser of five percent or the rate of inflation).

More than half of employed city residents work outside the city limits; the metro area has the highest unemployment rate of the 100 major metro areas in the U.S. Detroit residents are 82.7 percent Black, 11.1 percent White, and 6.9 percent Hispanic or Latino. They are significantly less likely than the national average to have completed high school (23.9 percent without a high school diploma in Detroit compared to 15.1 percent in the U.S.) or earned a Bachelor’s degree (10.8 percent in Detroit compared to 27.7 percent in the U.S.). They are less likely to be in the labor force (55.3 percent in Detroit compared to 65.9 percent in the U.S.) and more likely to live in poverty (33.3 percent in Detroit compared to 13.2 percent in the U.S.).

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