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Guy Gordon (00:00)
Hello and welcome to the Facts Matters podcast. I’m Guy Gordon coming to you from the Citizens Research Council of Michigan where we are unabashedly unbiased, passionately nonpartisan and dedicated to the proposition that facts should be driving policy, not politics. It is the dawn of a new day in Detroit with a new mayor, a new team, but facing to some degree the same fiscal challenges that previous administrations have. We want to take a look today at the February

Detroit Revenue Estimating Conference, basically telling us how much money is in the kitty as this new team moves forward with its first budget. Joining us, the president of the

Research Council, Eric Lufer. Eric, hello. And for the first time, Douglas Ortiz, the Detroit director of the CRC, who generated this report for us. Douglas, hello to you.

Eric Lupher (00:41)
Good morning.

Douglas Ortiz (00:52)
Thanks for having me.

Guy Gordon (00:54)
So the top line on this, least in some of the newspapers, was a $40 million overall tax revenue bump in the new fiscal year. But let’s take a look at that from a general fund standpoint, which drives most of the spending. Where are we, Douglas?

Douglas Ortiz (01:13)
Well, what we’ve seen from that

forecast was that revenues were largely flat as compared to the conference that they had ⁓ last September.

Guy Gordon (01:25)
And but there was a marginal increase. What was driving that?

Douglas Ortiz (01:32)
That was largely wagering taxes or casino taxes from ⁓ the three major Detroit casinos. ⁓ It was about a 4.5 million increase from the last conference and mostly driven by internet gaming and sports betting.

Guy Gordon (01:54)
And just in historical terms, mean, if we look to that, OK, this is a good thing we have this this increase in revenues estimated. How reliable is that? How volatile are our wagering tax revenues?

Douglas Ortiz (02:09)
It’s been volatile in the past couple of years because ⁓ there’s been an expansion of the gambling industry, ⁓ more just gambling options available to ⁓ Michiganders. ⁓ And ⁓ we also had the launch of internet gaming and sports betting online.

So all of that has created, you know, pretty volatile, ⁓ fluctuating, wagering tax revenue for the city of Detroit. And this forecast that the city is projecting ⁓ assumes that that volatility is going to stabilize and not really continue in the next four fiscal years for the city.

Guy Gordon (02:59)
Okay, so we can’t rely on it in the out years. you look at this, we have absolute ⁓ revenue increases and we have real revenue increases when adjusted for inflation. Where are we in terms of the real increase on a percentage basis?

Douglas Ortiz (03:01)
Mm-hmm.

Well, when we adjusted for inflation, only out of the three major revenues that Detroit has, which is the property tax revenue, income taxes, and the wagering taxes, only property taxes had greater than flat ⁓ annual growth in the forecast when adjusted for inflation.

Guy Gordon (03:37)
Right. Which is about, and especially in the out years, it looks like it’s going to be about a 4 % gain. ⁓ which will, you know, we, we don’t know where that inflation rate will be. know it’s been slowly coming down. ⁓ but, that’s certainly healthier than what we have seen. And it would be a nice indicator.

Douglas Ortiz (03:50)
Mm-hmm.

Guy Gordon (03:56)
we’ve looked at the revenue estimates for 2026. Let’s look at the out years, 27 and beyond. What do we see in the forecast in terms of revenue for that? Maybe absent the wagering revenues, which we’ve already said are pretty much going to be flat.

Douglas Ortiz (04:12)
⁓ in that regard, income and property taxes are what are leading the forecast ⁓ for the next ⁓ four fiscal years, But when we adjusted those two revenue sources by inflation, really only property taxes had greater than ⁓ flat annual growth.

Guy Gordon (04:37)
Eric, from a historical perspective, there’s going to be a big spotlight on Mary Sheffield. Questions about whether she will, with a new administration, have the same fiscal restraint as Mike Duggan did coming out of bankruptcy. In terms of the momentum that we had coming out of, say, 2020 after the COVID dip, are these growth estimates in line with sustaining that momentum, or are things flattening out a bit?

Eric Lupher (05:06)
Yeah, there’s a couple of things to say about that. So we can look at pre-bankruptcy and part of the problem was we didn’t have a process like this. So the mayors, the city councils could grab numbers and sometimes you would estimate revenue growth to meet your spending needs, even if they weren’t realistic. You know, it’s raining all around you, but you’re walking out without a coat or hat or anything like that. You just.

live in your own little world and then you get out there and you find out it’s raining and the revenues don’t meet projections and you run a deficit and that got in trouble. the good news is coming out of bankruptcy, they put this process in place. ⁓ We can look over the last 10 years since bankruptcy and the revenue estimating conference has generally projected rather conservative estimates.

On the one hand, that’s a healthy way to approach it. You don’t want to bankrupt a formerly bankrupt city. Let’s go crazy and overestimate revenues and run up deficits again and get right back into the hot soup that they just cleaned up from you. On the other hand, you want the revenue projections to reflect

our sense of what reality is going to look like as much as possible so that the resources being brought in are used as efficiently as possible. These are paying for police and fire and part cleanup and garbage collection and everything else that goes on. ⁓ So not using them for those purposes, but ending up with a reserve ends up in some sort of a slush fund that

is meeting needs, somebody’s needs, and you have to have city council sign off on that. But arguably ⁓ one more police officer or one more firefighter, one more dollar going into economic development would be very helpful in those circumstances.

Guy Gordon (07:20)
i was going to say so can we say based upon this r e c is the as an incoming new mayor is mary chef fields road going to be bumpy or about what previous administrations have faced over the past twelve years

Post bankruptcy, I should say.

Eric Lupher (07:36)
Well, you know,

mayor Duggan, ⁓ he did a great job. He surrounded himself with a great team, but the reality is there was years of economic growth. the, the city shed itself of some of the state oversight because it met the needs for balanced budgets and finishing in the black. ⁓ it’s fun to sail when the winds are with you. ⁓ mayor Sheffield,

has started surrounding ourself with good people as well. But there are some signs that the winds are shifting and there might be some more difficulty. The city is very dependent on income tax revenue and income taxes and sales taxes are the first to show signs of economic slowdowns. So we have high confidence that they’re going to do their best to manage the budget.

but the economy might create some challenges.

Guy Gordon (08:38)
And we should point out that in Doug’s report, and for those of you that want to see it, you can find it at crcmish.org. Scroll to the bottom of the page, and you’ll see that it’s our most recent update. The average annual percent change for revenue stretched out through 2030 is 2.93%. So almost one point above inflation, which is not a bad thing.

Property taxes look even better 4.11 percent again. These are numbers that are not adjusted for inflation But if we take the CPI which is hovered around 2.7 to 2.9 Recently, those are pretty solid numbers going forward some other data points that they pointed out in the city’s press release gentleman the week we come out of fiscal year 25 with a 15 million dollar budget surplus that may not sound like much but they were forecasting a 55 million dollar

deficit, correct?

Eric Lupher (09:35)
They were, but again, ⁓ working with conservative revenue estimate. So they also recently, ⁓ the assessors reports and looking at growth of assessed values and growth of taxable value. we see healthy ⁓ property tax revenues, which is a good thing signs of.

continued recovery for the city. The city continues to struggle with getting workers. know, people are still enjoying three days in the office and two days working from home or arrangements like that, that is good for them, but doesn’t help the city’s income tax revenue, things like that. So yeah, definitely a good sign that they’re finishing in the black and revenues flowing in.

Guy Gordon (10:34)
Two other data points that bear repeating from the city’s release of their report. One about the wage gap between Detroit residents and the statewide average. ⁓ has been quite high in the past. It is narrowing even further with this report. Also, the jobless rate gap between the city and the state. It used to be as high as 12 percentage points back in 2010. That’s been now reduced.

to 3.3 percent. So it’s no longer the case of when the state gets a cold, Detroit gets pneumonia, ⁓ maybe it just gets a ⁓ cold that’s slightly worse. Both encouraging signs about how Detroit residents are coming up in the economic sphere.

Eric Lupher (11:25)
Right. So the issue of the wage growth, the depopulation of the city was largely reflected with a loss of the middle class. And I think what we’re seeing with the new growth of, ⁓ new housing units with people coming in and rehabbing housing units, there’s a bit of that. The middle class in Detroit is being reborn and, that’s reflected in the wage growth. ⁓

The employment numbers are also very encouraging. We know from the past, you know, there was a bit of a black market and a gray market with people being paid that weren’t always showing up in the numbers. ⁓ But now we see them in the numbers and more and more people, more and more Detroiters gainfully employed and those wages are showing up. The employment numbers are showing up. So yeah, definitely good signs for the city of Detroit.

that ⁓ these key economic indicators, things that we want to look for to show the continued rebirth of the city, the Renaissance is on the right track.

Guy Gordon (12:38)
Yeah. Any final thoughts from the two of you Douglas?

Douglas Ortiz (12:43)
Oh, well, there’s marginally more revenue for the upcoming Sheffield budget for FY27. It’s driven by wagering and casino taxes, but the mayor is going to have to work within their resources. There is not more revenue in the city coffers.

Guy Gordon (13:04)
It’s not getting any easier. And Eric?

Eric Lupher (13:07)
Yeah, I just, you know, sort of an intercity perspective here that Detroit is like many cities, many counties, many townships in Michigan, as they’re looking, putting their budgets together, many of them starting a July fiscal year. Revenues are tight. The property tax limitations, revenue sharing has been pulled back as the state’s adjusted its budget.

So some of the cities with income tax revenue dealing with the same sorts of issues, know, workers working from home and other issues. So ⁓ it’s good sign that we’re hearing about some tax reform up in Lansing. And I think a lot of local governments are hopefully watching that this is a positive sign that can help. ⁓

Guy Gordon (13:44)
Mm-hmm.

Eric Lupher (14:01)
continue to pay their workers, make the pension payments, do the things they need to do to create quality of life in their communities.

Guy Gordon (14:09)
yeah will the administration knows at least how much money is in the pot as they begin the process of formulating ⁓ their first budget gentlemen we thank you for joining us in the facts better podcast

Eric Lupher (14:20)
Always good to be here.

Guy Gordon (14:21)
All right and Douglas thank you for your first round. Great job. We want to remind you that if you appreciate the work of the Citizens Research Council of Michigan and the Facts Matter approach that we have to analyzing and looking at both state and local issues, you can support us because we do not get any special interest money. We do not get any funding from the government. You can support us by going to crcmich.org and maybe throwing a few shekels in our kitty.

Until next time, I’m Guy Gordon for the Citizens Research Council of Michigan. Thanks for joining us.

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