The District Detroit is a $1.5-billion project fronted by Ilitch Holdings (net worth $3.8 billion) and Steven M. Ross (net worth $7.6 billion). District Detroit is seeking $800 million worth of public subsidies. Individuals who have made billions in ostensibly free economic markets are lining up in Detroit’s soup kitchen of corporate welfare seeking tax abatements from one of the most impoverished cities in the country.
Peter Hammer is a professor at the Wayne State University Law School and director of the Damon J. Keith Center for Civil Rights.
What would basic economic principles say about tax abatements?
Economics 101 teaches that development projects that need subsidies should not be approved. They are losers. By definition, the projected expenses will exceed projected revenues.
What are Detroiters paying for?
The $800 million in public subsidies are being paid to increase the rate of return of two billionaires from 2 percent to 4 percent. Apparently, the project is viable and would make the billionaires money, just not as much money as they want. Every dollar Detroiters spend on these projects will go directly into the pockets of billionaires.
Who will actually get the jobs?
Seventy-five percent of the jobs in the city of Detroit are held by people living in the suburbs. These are typically the best, highest-paying jobs. Even if District Detroit is successful in generating jobs, most of these jobs, and their high salaries, will go to suburbanites, not Detroiters.
What if we rejected tax abatements and we let the market work?
According to the market, huge mega-projects in Detroit are not presently sustainable. If left alone, the market would adjust the scale of development projects downward, to a point where projected revenues would meet projected expenses, without public subsidies.
Who would benefit most from an unsubsidized market?
The market is telling us Detroit needs a greater number of smaller development projects, ostensibly projects that could be owned and operated by Detroiters. An underappreciated impact of District Detroit will be to artificially increase the scale of development in Detroit. This will indefinitely prevent smaller Detroit-owned and Detroit-based development projects from ever taking place. If money goes to Illich and Ross, countless numbers of smaller Detroit developers will never be given a chance.
What are the root causes of the alleged need for public subsidies?
Mayor Mike Duggan has blamed high property taxes and construction costs to justify the tax subsidies, without acknowledging the legacy of spatial-structural racism that has caused them. Detroit’s economic conditions are the result of a 70-year process of organized abandonment. Tax-subsidized white flight – expressways, the DWSD water infrastructure and federally subsidized mortgages – has resegregated the population at a regional level.
That said, not a dime of the $800-million subsidies is going to address the ultimate causes of the problem.
How is racial segregation related to economic segregation?
The region is not only racially segregated, but economically segregated. Many parts of Detroit, particularly its neighborhoods, are no longer part of the regional economy. Many of Detroit’s neighborhoods are no longer even economically integrated with each other. Indeed, downtown Detroit is more tightly integrated with the regional economy than with its own neighborhood economies. A necessary implication of this is that any economic spillover or trickle-down effects of the money poured into District Detroit will redound to the benefit of the regional and not the neighborhood economies.
When will Detroit’s public dollars go to benefit Detroiters?
The wealth of average Detroiters has been devastated in recent decades. Detroiters would love to get even a 2 percent rate of return on any investment they made. Sixty percent of Detroiters that have a job in this racially and economically segregated region must leave the city to go to work.
They will use a failed (unsubsidized) system of public transportation or pay unimaginable auto insurance rates and be harassed by surrounding suburban police forces as they drive to and from work. Tax abatements have real social opportunity costs. Public dollars spent for one purpose cannot be used for another. Dollars spent for District Detroit cannot be used for schools, libraries, roads, public transportation or other basic social services that benefit Detroiters.
Who is looking out for future generations?
These tax subsidies are 30-year commitments. Tax subsidies are not just stealing essential public revenue from Detroiters today, they are stealing tax dollars from grandchildren not yet born. The legacy of the Duggan administration will be to impoverish Detroiters for generations to come. It is time to spend public dollars for public purposes and to stop subsidizing economically unviable projects that only benefit billionaires.
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