September 17, 2013

A NEW FINANCIAL HISTORY OF DETROIT:

The story of Detroit’s decline has been told and retold so many times now that you’d be forgiven for assuming there’s nothing more to say. But the Detroit Free Press has put together a new, comprehensive financial history of the city from 1950 to the present, gleaned from tens of thousands of pages of archival data on the city’s finances. It provides a much clearer picture of the city’s collapse than anything we’d seen before.

It appears that the city took all of the hallmarks of blue governance to extremes. For years, it tried to address its revenue shortfall by raising taxes, which drove residents out of the city and shrunk the tax base in the process. Detroit lost 61 percent of its residents between 1950 and 2010, and the total value of its property fell from a peak of $45 billion to $9.6 billion in 2012. Meanwhile, even as the city’s revenue base was imploding, public employee benefits remained generous and in some cases even expanded.

The Free Press notes that there were a few periods of hope during thee postwar period when the city’s finances were relatively strong, but each time the city squandered these opportunities and used its good standing to borrow more rather than address the core problems that got it in the mess in the first place. . . . The city has paid a heavy price. Today, Detroit has more pensioners than employees, and a debt that is more than twice what it had in 1960. It spends considerably more on police and fire retirees than active workers. And despite the fact that the city has the highest income and property taxes in Michigan—by a wide margin—the state’s inflation-adjusted revenue is lower than it was in 1960.

Arthur Laffer, call your office.