The Abatement Debate

City of Detroit

Over the past forty years or so, Detroit has toyed with various tax gimmicks; increment financing, abatements, etc. to attract manufacturing, sports stadiums and/or other building projects. The intent was to shortcut the redevelopment process. By almost any measure, this strategy was a flop.

City and state government recently approved massive public subsidies for millionaire developers and sports franchise owners.

  • A $618 million tax incentive package for Quicken Loans and Bedrock Detroit founder Dan Gilbert’s $2.2 billion downtown development plan.
  • A $16-million incentive went toward the Detroit Pistons $107-million practice facility.
  • About $325 million in public dollars was part of Little Caesars Arena nearly $900-million cost.
  • Ford Motor Company’s purchase of the old Michigan Central Station came with a request for more than $100 million in abatements as part of a $238.6-million aid package.
  • Amazon would have received a whopping $4 billion in tax breaks had it opted to locate its second headquarters in Detroit. Whether taxpayers end up paying more than the sum of the hyped benefits, remains to be seen.

Businessmen, though, shouldn’t be condemned for taking advantage of special benefits. The deterioration of Detroit’s economy compels them to demand a higher-than-usual return on their moneyto offset risks.And there’s little debate that big-ticket projects are important to the city’s growth. But not at any price.

Advocates swear on tax diversions as necessary economic development tools. The idea is that once a commercial base is established, other developments will follow. But by their very nature abatements are inequitable.

Subsidies give “preferred” firms an unfair advantage. They send the wrong message to long-suffering politically “disconnected” existing small businesses that come to see the city as being hostile to their bottom line. They cause shifts from other downtown buildings to newer, more attractive sites. As the city goes after mega-deals, it may be driving other prospects away.

Past giveawaysheavily mortgaged the city’s future. Detroit, for example, has yet to receive a return on its investment of $103 million in abatements for the acquisition for equipment at Chrysler’s Jefferson Avenue Plant, and another $60 million in financing for acquisition, relocation, demolition and other alterations at the GM Detroit/Hamtramck Assembly Plant.

Neither delivered on a promise of job creation, retention and expansion. And Detroit rolls the dice in thinking investments in high rises and sports stadiums will result in direct community benefits over the long haul.

As the city struggles to recover from bankruptcy, discontinuing all abatements would be mindless. Its voracious edifice complex adds to the difficulty. Indeed, spending public money to entice private dollars may actually be unavoidable in some cases. Abatements, after all, carry with them an implied threat of job lost if denied. As Oakland County Executive L. Brooks Patterson will attest, competition for businesses and developers is intense.

Instead of trying to pick winners and losers and force-feeding development, tax decisions in Detroit ought to be based on sound fundamentals. A first step is to address the problems that cause businesses to leave. Nothing contributes to Detroit’s inability to compete more than crime and high taxes.

Lowering property taxes would be a good stimulus for the real estate market. This would help attract more residents to the city. If people relocate to Detroit, businesses and jobs will follow leading to more revenue to hire cops. Ultimately, an across-the-board tax cut will help create the environment where businessmen will want to invest without subsidies.

There’s real hope for a brighter Detroit future. Breaking free from corporate bribery and sweetheart deals is smart government. It is these status quo policies that have rendered the city financially, socially and politically bankrupt.

 

 

 

 

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