Livonia, MI, October 29, 2024 – Today, Citizens Research Council of Michigan released a new analysis of Detroit’s use of tax abatements and policy options to wean the city off tax incentives. The report, titled ‘Detroit’s Use of Tax Abatements and Alternative Strategies to Improve Competitiveness,’ documents the tax abatements granted over the last seven years, offers opportunities to reform Detroit’s processes for granting and tracking tax abatements, and discusses several policy changes that would improve Detroit’s economic competitiveness to lessen the need for tax abatements. 

Detroit primarily uses abatements as incentives to rehabilitate obsolete properties and for commercial properties. This reflects a strategy

1. to capitalize on the revenue generating potential of the city’s income tax by attracting jobs to the city and
2. to rehabilitate and restore commercial buildings that suffered from the loss of businesses in the decades prior to the city’s bankruptcy.

Eric Lupher, president of the Research Council, discussed the city’s continuing need to use tax abatements as part of its business attraction strategy.

“Detroit is on the upswing. The city is far more stable than it was prior to bankruptcy. Still, the demand for space in the city – commercial, industrial, or residential – has not recovered sufficiently that businesses or developers can expect to recoup their investments without government participation.” 

The report recommends a transparent process for monitoring economic activity on the properties during and after receipt of the abatements involving multiple city actors to monitor the actual level of investment and job creation. At some point the city will be able to wean itself off tax abatements as a necessary economic development tool, but without post-abatement monitoring it will not have a data-driven methodology to know when that time is right.

Additionally, the report explores a number of economic development policies that can improve the city’s economic competitiveness and nurture business attraction and retention in less costly ways. Property taxes, long a mainstay of government revenues, have become a minor source of city revenues. Still, the city levies high tax rates that have deterred locating there. Reducing property tax rates can help improve the city’s competitiveness.

Detroit finds itself at the confluence of being ideally located as a hub for international trade and becoming a hub for a nascent entrepreneurial ecosystem. Working with the state government, universities, venture capitalists, developers, and others to provide the space and resources young businesses need to grow in the city will pay dividends in the long run.

In a Nutshell

• Detroit is a frequent user of tax abatements. Between 2017 and 2023, the city helped 171 development projects by abating a total of $842.7 million of property taxation over several years. If the project assumptions hold true, the abatements will result in $7.5 billion of investments in the city and more than 24,000 new jobs.
• Over those seven years, 93 percent of the abatements were in downtown, midtown, and along the riverfront. A changing focus led to more than half of the abatements granted in 2023 being located outside the greater downtown area, but still the largest value of abatements and development is within the greater downtown area.
• City leaders can improve Detroit’s competitiveness for all residents and businesses by putting the property tax rate more on par with surrounding cities and accentuating its advantages with a focus on international trade and nurturing startup companies.

Lupher added, “Tax abatements granted in recent years may pay major dividends in the decades that follow if the developments occur as imagined. Alongside that growth the city needs to keep its eyes on policy reforms that make abatements less necessary to remove government from economic activity in the city.”

This paper is the third of three commissioned by the Detroit City Council. The first and second papers are available on the Citizens Research Council of Michigan website (crcmich.org). 

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Founded in 1916, the Citizens Research Council of Michigan works to improve government in Michigan. The organization provides factual, unbiased, independent information concerning significant issues of state and local government organization, policy, and finance. By delivery of this information to policymakers and citizens, the Research Council aims to ensure sound and rational public policy formation in Michigan. For more information, visit www.crcmich.org.