Detroit Mayor Mike Duggan defends use of tax breaks to spur development
Mayor Mike Duggan championed his administration’s use of controversial tax breaks to spur development during his annual State of the City address, confronting criticism by invoking the legacy of his predecessor Coleman Young.
Duggan spent a portion of his Tuesday night speech trying to set the record straight on how he believes abatements and incentives promote development that otherwise wouldn’t happen due to Detroit’s high property taxes and construction costs. Offering tax breaks to developers, he said, remains a “central part” of Detroit’s strategy to compete for business in the decades since Young, the city’s first Black mayor, helped establish downtown development authorities to redistribute tax revenue for projects. Duggan’s focus on the merits of abatements comes as the city weighs a series of approvals tied to a $1.5 billion downtown project.
However, others say Detroit’s reliance on tax abatements shows a need for greater reforms to a broken property tax system that requires the city to “bribe” developers.
“In 1975, Mayor Coleman Young convinced Lansing to pass the Downtown Development Authority Act to capture property taxes downtown,” Duggan said. “He looked out and saw the city buildout and said the City of Detroit is never going to be able to survive on property taxes, they’re going the wrong way. The only way the city has a financial future is to get businesses here and build up the income taxes.”
Nearly 50 years later, Duggan said Young’s foresight proved true; Income taxes provide more than double the revenue for Detroit compared to property taxes.
Duggan said tax breaks remain essential to attract business because Detroit levies 87 mills while suburban competitors like Pontiac, Auburn Hills, Novi and Troy levy less than 60 mills.
“Coleman Young understood that when you have a company with good paying jobs and benefits every city and state wants it,” Duggan said. “This is hand-to-hand combat to get these companies into Detroit so that our residents can get them, and nothing has changed today.”
But others argue the reliance on tax abatements shows the strategy has failed to make Detroit a better place to do business.
Eric Lupher, president of the nonprofit Citizens Research Council of Michigan, said Detroit is more attractive for developers today, but businesses still seek tax discounts because the root of the problem lies with high property taxes and construction costs. Lupher said “we need to bribe businesses to be here.”
“If we’ve been doing this since the 1970s and the city has continued to struggle, isn’t that the definition of insanity, doing the same thing and expecting different results?” Lupher said. “What would the city look like without them (tax incentives) is the question. This is not the tool to get the city over the hump and smooth sailing from here. There is a lot more going on that requires a lot more attention.”
Lupher said it would be difficult, but cutting property taxes and replacing the lost revenue with a local sales tax or entertainment taxes could be a possible solution to provide relief. The mayor’s administration is lobbying for changes in state law to let Detroit create a local split-rate property tax that would collect taxes on vacant land and lower taxes on structures and improvements. That could provide tax relief for homeowners, but Lupher said it wouldn’t lessen the need for tax abatements.
Detroit relies heavily on tax incentives to promote development, according to a 2022 Citizens Research Council report. The city left an average of $20 million in tax revenue on the table from 2017 to 2021 through various business tax abatement programs. Those deals can help attract jobs and investment, but also gives up revenue that could be put toward public services now.
Duggan argues the tradeoff is worth it because tax abatements spur development that raises Detroit’s revenue in the long-term. The mayor used the planned District Detroit project as an example. Detroit collects $249,000 in tax revenue from 10 sites poised for redevelopment. Once complete, the projects are expected to create $21 million in annual tax revenue.
“That is the money we can put into police and parks and community programs,” Duggan said. “It will be there for the General Fund, and that’s why we are pushing so hard. This is going to be a great project for the city’s future.”
Council Member Fred Durhal III told BridgeDetroit that he’s been supportive of tax abatements since his time in the state Legislature. Durhal said abatements allow the city to generate more tax revenue that can go into neighborhood programs.
“I look at that as a great investment,” Durhal said. “When we talk about tax incentives, it’s important to understand that we are not taking money from the General Fund and putting it into the pockets of developers. We are saying we’re going to offset taxes for a number of years … We don’t want to turn down investment here in the City of Detroit. We want to bring more jobs here.”
Developers behind the District Detroit project – Olympia Development of Michigan and Related Cos. – are seeking $800 million in public subsidies for the $1.5 billion project. That includes $616 million largely collected from state income taxes over 35 years through a Transformational Brownfield Plan. District Detroit is also seeking a $133 million abatement of city taxes.
“There is always a balance that needs to be had,” Council Member Latisha Johnson told BridgeDetroit. “I look at (District Detroit) a little differently because of the support coming from the state and recognizing that those dollars could go anywhere within the state. The balance is (getting) something that’s mutually beneficial for downtown Detroit as well as our neighborhoods.”
The proposed incentives are attracting intense criticism from community organizations who see increasing public support for development projects as a sign of failure.
“It sort of escalates on itself,” Lupher said. “Once you set a pattern that you’re willing to do this, why would any developer think about going into the city without asking for it? You’ve sort of created a cycle of dependence.”
Duggan also said that developers expect tax breaks during his Tuesday night speech.
“If we don’t give you a discount, every single time the company comes down to it they’re gonna look and say ‘I can be a lot better off in another community,’” Duggan said.
The research council’s report found Detroit gave up more tax revenue for each resident than peer cities like Memphis, Columbus, Milwaukee and Cleveland. Detroit had $31 in foregone revenue per resident while the other cities averaged $13.50 per resident from 2017-21.
“Tax abatement programs tend to lose their effectiveness if used abundantly and Detroit must be aware of that as it moves forward trying to spur its economic growth,” the report states.
Duggan said tax abatements for District Detroit won’t cost anything for the city, its school district or public library system. But critics say it’s more nuanced; developers get a discount on tax revenues collected from those entities by the Downtown Development Authority, and new projects inevitably draw a greater need for city services.
Theo Pride, an organizer with the Detroit People’s Platform, criticized Duggan for invoking Young to justify tax abatements in a virtual response to Tuesday’s speech hosted by community groups. Pride said Duggan is trying to use “our heroes” to frame abatements as a racial justice project.
“Young governed through intentional white flight, he had to use different types of mechanisms but he understood they were temporary until the recovery,” Pride said. “The market is driving the demand in Detroit and not necessarily the incentives. A lot of these tools are not needed now. They don’t necessarily make projects more feasible, they make projects more profitable for developers.”
District Detroit developers have said without incentives their projects would have a 2% return on the investment, which is not enough to convince investors to participate. With incentives, the return is 4.4%. That return is “at the borderline of viability,” according to a report from Detroit’s Legislative Policy Division.
“It all goes back to the economics of being able to build,” Lupher said. “We put so much burden on the property tax in Michigan and then act surprised when you need to offer an incentive to come here. It seems like simple math to me.”
Pride said tax incentives do spur development and jobs, but that growth doesn’t primarily benefit Black Detroiters who are less likely to get good-paying white collar jobs or afford downtown housing.
“Tax incentives are beneficial, it’s just a matter of who they are beneficial for,” Pride said Tuesday night. “The way in which tax abatements as a development tool is being used in the city is in a way that’s creating and reproducing systems of racial inequity and economic inequity.”
Pride also noted that not all residents benefit from rising property values. Census estimates for 2021 show half of Black Detroiters are renters, and there are 1,765 fewer Black homeowners in the city compared to 2019.
Duggan delivered his 10th annual address from inside the Michigan Central Station, a $740 million redevelopment project spearheaded by Ford Motor Co. to transform the abandoned train depot into a mobility technology campus in Corktown. Detroit approved $104 million in tax abatements to subsidize the Ford project, which received $239 million in total tax breaks.
Duggan said Detroit would look a lot different without tax incentives, pointing to projects like the Lear Stamping Plant, Dakkota Factory and Dan Gilbert’s Hudson’s Site development.
First published at https%3A%2F%2Fwww.bridgedetroit.com%2Fduggan-tax-break-development%2F
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