In a nutshell

• Detroit’s persistent population declines have resulted in the loss of over 60 percent of its residents since 1950. The last time Detroit had 639,111 residents, as was counted in the 2020 decennial census, was before 1920. 
• The exodus of residents and businesses has eroded the property tax base. Detroit levies property taxes at relatively high rates to generate the same revenues as cities with richer tax bases. 
• Detroit needs to address it’s relatively high property tax burden in order to rebuild its middle class and increase its tax base. To do so, it must consider policy reforms to lower the city’s high property tax rate and incentivize residents and businesses to locate in the city.

Detroit’s Mass Exodus Persists

Over the last seven decades, Detroit’s persistent population declines have resulted in the loss of over 60 percent of its residents. In 1950, Detroit was one of the five largest cities in the United States with a population of 1.86 million residents. Every decade since the city has experienced persistent population declines. Population plummeted by 25 percent between 2000 and 2010. Since 2010, however, the city’s population has declined at a slower rate than the long term trend, but still the 2020 U.S. decennial census shows the city lost 10.5 percent of its residents. The last time Detroit had 639,111 residents was before 1920. 

Detroit Population, 1920-2020

Source: U.S. Bureau of the Census, 1920-2020

Along with the overall population decline, Detroit experienced major demographic transformations since the 1960s. In 1940, Detroit’s population was 91 percent White, nine percent African American, and less than one percent of other races combined. In 1970, the number of African Americans in the city increased to 44 percent while the share of the White population dropped to 56 percent. This general demographic shift continued for the next five decades. In 2010, Whites accounted for just 11 percent of Detroit’s population while African Americans made up 83 percent. Now, Whites account for 15 percent of Detroit’s population, while the number of African Americans has decreased to 78 percent. 

Beginning in the 1950s, the city saw a number of changes that have perpetuated the persistent population decline and resulting demographic shift. During the postwar-era, Detroit saw the implementation of an extensive highway and freeway system that induced mass white flight into the city’s surrounding suburbs. With the ability to commute into the city and the burgeoning increase in the automobile market, this began a process in which businesses also started to move into the suburbs. The city’s low-income workers were disadvantaged in the restructuring of the labor market as they could not access many of the businesses and work that moved into the suburbs. This population loss and change in the distribution of jobs and population would eventually ruin Detroit’s once highly favored tax base. 

It is important to point out this demographic change because throughout its history, Detroit has been one of the most racially segregated cities in the country. As more African Americans migrated to the city, they were subject to economic discrimination, violence, and laws that aimed to keep them excluded from white-only areas of Detroit. Suburban communities of metro-Detroit started to proliferate with white flight from the city, including many middle and upper class families.  The remaining demographic in Detroit was made up of more low-income residents, who tended to be African Americans. 

Why is Persistent Population Decline a Problem?

Persistent population decline creates many problems for a city. The census totals help determine the amount of funding that state governments and local communities receive from the federal government over the next decade. Census counts determine the funding distribution for numerous federal programs such as Medicaid, infrastructure projects, special education grants, education programs, and more. 

Population loss also impacts the amount of revenue the city gets from the state as the U.S. decennial census is used to calculate local revenue-sharing from the state. Cities and villages in Michigan receive revenue earmarked by the state constitution and statute to help pay for core governmental services such as police, fire, roads, water and sewer service, etc. These funds are a primary source of revenue used to maintain the infrastructure and services of the city. Census data is also used for the distribution of state funding to local governments for purposes such as road funding, solid waste management, and court funding.

As the city continues to lose population, neighborhoods face challenges associated with increased housing vacancies and decreased values, closing schools, and loss of other public and commercial services. Persistent population loss impacts the city’s tax revenue and the ability to provide services to its residents. Detroit’s population decline has caused fiscal problems for the city, including tax base loss and a loss in revenue. 

The exodus of middle- and upper-class families lowered the city’s per capita income – an important factor in the city’s tax base. The city’s per capita income (inflation adjusted) in 2019 was $18,621, compared to $19,034 in 1960. This decline in real income exemplifies the tax base hit experienced. The city’s financial bottom line was not immune and, as a result, city services have suffered over the decades.

Consequences of a Decreasing Tax Base 

To remedy the fiscal challenges facing Detroit, policymakers adopted new taxes or raised the rate on existing taxes. Detroit currently has the most diversified local tax structure in the state with exclusive access to higher tax rates and more tax options, such as a municipal income tax, a casino gambling tax, and a utility users excise tax. Local tax diversity alone, however, cannot ensure fiscal health. Detroit continues to have fiscal problems because major sources of revenue have declined. From Fiscal Year (FY)2008 to FY2015, taxable values in Detroit declined by 27.2 percent, state revenue sharing payments declined by 21.8 percent, and city expenditures dropped by 8.4 percent.

Detroit’s high tax rates are one of the major issues that makes it unattractive to residents. Despite a diversified tax structure, the city levies property taxes at high rates compared to other cities, which creates a disincentive for people and businesses to locate in Detroit. In 2020, Detroit’s property tax levy was 36.58 mills for operations and debt; combined with overlapping taxing jurisdictions, owner-occupied property in the city is subject to 69 mills (while non-homestead property pays 87 mills in total).

We can see the impact of an increasing property tax rate by the number of housing structures in the city. In 2019, the number of housing units in Detroit totaled 359,623, compared to more than 553,000 in 1960. This comparison shows that the number of housing units that contribute to the taxable value of property in the city has decreased significantly over the decades, and eroded some of the revenue the city accesses from its property tax base.

With a relatively low taxable value per capita, Detroit must levy property taxes at much higher rates to generate the same amount of tax revenue as cities with richer tax bases. Basic city services are often cut to make up for lost revenue, and this juxtaposition between high taxes and lack of services does not bode well for residents. It creates a vicious cycle that decreases the incentive to live in the city as Detroiters are unable to see a tax-benefit connection between their tax dollars and the benefits they receive. The resultant effect is the prevalence of tax foreclosures and tax delinquencies in the city which has caused the vacancy and abandonment of homes, and the decline of Detroit’s neighborhoods. 

Conclusion

The Research Council has identified the persistent loss of population to be a major challenge facing Detroit’s economic recovery. In order for the city to maintain a steady pace of economic growth, it needs to reverse the trend of population loss to grow its tax base and increase its revenue. Tax rates are a major problem in the city, specifically those levied to support Detroit services and pay off debt. The city must consider fiscal policy reforms that will have a lasting positive impact on all its residents, including policies aimed at lowering the high property tax burden. Attracting middle class residents, who often act as economic stabilizers, can play an important role in the revival of the city, but Detroit needs to find ways to both attract, as well as maintain, its middle-class population before this can be realized. We see effective property tax reform as one way to make that happen.

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