Detroit Has a Spending Problem

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Detroit Has a Spending Problem

Homeowners are revolting against taxes, the city is bankrupt, Belle Isle is sinking into the Detroit River, and city leaders have no solution.

America needs to learn from the destruction of Detroit. It is a lesson in how people can stubbornly stick to political dogmas—even as financial collapse destroys everything around them that they love.

On February 19, a team of independent auditors appointed by the state of Michigan concluded that Detroit is a total and complete financial mess.

The report says the city will face a $100 million shortfall by June. And that is only the beginning of the city’s problems. The city’s long-term debts and liabilities—mostly unfunded pension promises made to unionized employees—total more than $14 billion.

With Detroit’s population down to a little over 700,000, city debt stands at $20,000 per man, woman, and child. For a family of four that’s 80 grand. If Detroit’s population keeps fleeing, the bill will be even higher. Remember: that is on top of the $53,000 each American owes because of the federal debt.

It is sad to see how dysfunctional and corrupt one of America’s formerly most prosperous cities is. The city is plagued by chronic mismanagement, cases of missing money, and gross incompetence.

According to the report, Detroit leaders were totally unable to even come close to balancing the budget during the biggest economic boom in U.S. history. In 2005, at the height of the housing bubble and resultant tax revenues—the city overspent by more than $150 million. In fact, the city hasn’t balanced a single budget in over a decade. Where did the money go? What does Detroit have to show for all the spending?

Now with the national economy deteriorating, its unionized employees aging, and Detroit’s promises becoming more expensive, its deficits are growing fast. Last year the city had to borrow $326 million to cover its expenditures.

But Detroit’s overspending problem isn’t due to low taxation. Detroit has the highest property tax rates of any major city in America.

The Detroit News reports that a house independently appraised at $35,000 has an annual property tax bill of $4,000. That’s outrageous. Part of the reason the tax bill is so high is because the city apparently still uses housing value assessments from the boom years when calculating tax rates. The city claims this house is worth $107,620 even though houses that have actually sold indicate much less. And it appears that this is a widespread issue.

The result is predictable.

Only a little over half of Detroit’s property owners paid their tax bills last year. Forty-seven percent of all city land parcels were delinquent on their taxes in 2011.

The Detroit News reports that delinquency is so endemic that there were 77 city blocks where only one owner paid taxes last year.

People are revolting.

“Why pay taxes?” asked homeowner Fred Phillips. On his block on the east-side of Detroit, only five people paid their taxes last year “Why should I send them taxes when they aren’t supplying services? It is sickening. … Every time I see the tax bill come, I think about the times we called and nobody came.”

The tax revolt is so pervasive that the city doesn’t know what to do.

Wayne County treasury officials say there were 40,000 delinquent Detroit properties that should have been seized for not paying taxes last year, but were ignored. There are another 36,000 this year that should be seized, but the city will look the other way this year too.

Lou Schimmel, Pontiac’s emergency financial manager, said Detroit’s revenues are falling so fast it can’t afford to provide basic services any more.

If the city can’t provide services—fewer people will be willing to pay taxes. And city revenues will fall even faster.

It is a vicious circle of high taxes for deteriorating service and escalating civil disobedience.

With Detroit nearing the end of its borrowing capacity, its people burdened by the highest property taxes in the nation, and the city on the verge of bankruptcy, surely city leaders are finally ready to make the tough choices necessary to get spending under control—right?

Wrong!

Consider Detroit’s Belle Isle escapade. The state offered to lease the park from Detroit, relieving the city of $6 million in yearly operating costs. The state also said it would restore the island, which has fallen into disrepair and would rebuild it to literally prevent it from sinking into the river.

City council members couldn’t agree on a course of action—they would rather see it sink into the river it seemed, than have the state take over and charge $6 dollar admission fees.

Al Sharpton chimed in: “We ought to be making facilities accessible and not try to balance books on the backs of those that we need to have recreation and ways of peacefully assembling and family assemble,” Sharpton told a radio station.

Because the city couldn’t come to a decision the state rescinded its offer. Now Detroit Mayor David Bing says the city will be forced to close 51 smaller parks to save enough money to keep Belle Isle afloat. So much for helping the families have access to parks.

The Belle Isle debacle is all too emblematic of the self-destructive culture in Detroit.

According to the auditor’s report, although city leaders are fully aware of the gravity of the situation—they still have “no satisfactory plan” to fix it.

More than a decade of massive overspending—and no plan! Decades of population loss—and no plan. Greedy unions still sucking taxpayers dry—and no plan. Three quarters of Detroit students don’t graduate high school. Forty-seven percent of adults are functionally illiterate. Detroit is number one in unmarried births among the nation’s 50 largest cities. The homicide rate is back to levels seen nearly 40 years ago when it was the Murder Capital.

The city is literally dying and its leaders still can’t come up with a viable plan.

So Detroit’s future is now in the hands of Michigan governor Rick Snyder. He will decide whether or not to dissolve the city council, appoint an emergency manager, bailout the city, or let it go into bankruptcy.

Senator Morris Hood iii, a Democrat, essentially wants Michigan taxpayers to pick up Detroit’s tab. “As a bulldozer effect or just coming in and forcing your way in instead of partnershipping up and coming in and helping, and I think that’s one of the push backs that you’re going to have. It doesn’t seem as though you’re coming in to help. It’s coming in to take over,” he said.

“Partnershipping up” is essentially code for state-funded bailout.

Detroit Mayor Dave Bing defended Detroit’s financial condition. Detroit “can’t cut our way out of our problem,” he said.

“We’ve got to think how we raise revenue again. … I do believe Detroit is going to come back again.”

With Detroit leaders, it is always about more taxing and spending? The city faces collapse, it is spending hundreds of millions more than it collects, even though it has some of the highest taxes in the nation, billions of dollars in union promises are coming due, taxpayers are revolting—and the solution is once again said to be taxing and spending other people’s money.

Somebody needs to tell Detroit—and America—that it has a spending problem!