How Detroit went broke

Sam Dao / Shutterstock.com

Series of decaying mansions on April 14, 2011 in Brush Park, Detroit. Detroit has undergone a dramatic level of urban decay over the past few decades due to economic depression.

Article Highlights

  • Detroit's debt skyrocketed under Mayor Kwame Kilpatrick (02-08)who is now a convicted felon.

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  • Detroit's revenues currently are less than half what they were in 1960.

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  • Detroit property tax revenue declined from a high near $1 billion in 1960 to about $200 million in 2012.

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Give Detroit's newspapers some credit. They may no longer publish print editions seven days a week, but they still are producing enterprise journalism of a high order. Last February the Detroit News, after an exhaustive search of the city's tax rolls, found that 47 percent of Detroit property owners did not pay their property taxes in 2011. The amount of revenue lost to the city was $246 million. It was a fine illustration of not only the feckless incompetence of the city government but also of the fact that real estate values have been declining. Many of the delinquent property owners evidently calculated that their property was worth far less than the assessed value -- so let the city take it if it wants.

Tuesday the Detroit Free Press released another excellent story, showing how the city government's debt rose to its current levels, requiring the city to declare bankruptcy. The Free Press analyzed the city's finances going back to the 1950s, when its population was 1.1 million more than it is today, and it presents a series of well-designed graphics showing the city's finances over the years in 2013 dollars.
 
The story makes a number of interesting points. One is that the city's debt skyrocketed under Mayor Kwame Kilpatrick, mayor from 2002 to 2008 and now a convicted felon. A second point is that the city's revenues currently are less than half what they were in 1960. That's measuring them in 2013 dollars; it's possible that they're using a number that overstates inflation, but the decline is still remarkable even if it might be a bit overstated.

A third point is that the article portrays Coleman Young, mayor from 1974 to 1994, as fiscally much more conservative than many have thought. He didn't send the city toward bankruptcy, the Free Press (pronounced with Free rather than Press stressed) suggests. I think they're right, but their argument is undercut by another graphic, which shows the decline in property values. They declined (again in 2013 dollars) from $30 billion when he took office to $10 billion when he retired.

Part of the decline represents abandoned industrial property. But it also reflects a decline in real estate values -- a decline, I believe, which can only be explained by Detroit's enormous crime rate during the Young years. Essentially, housing prices never went up in nominal dollars, which means that they sharply declined in real dollars. One example: In 1948 my parents bought a two-bedroom, 1,000-square foot house, newly built, in northwest Detroit for $11,500. In 1989, for an article in U.S. News & World Report, I went back to Detroit and found that the house was worth about $15,000. Neighbors told me that if the house was abandoned, as several on the block were, it would be worth only about $3,000 -- about the same as the salvage value of the building materials and fixtures. Land in Detroit had become essentially worthless.

In the 1990s, and especially after Dennis Archer became mayor in 1994, city property values increased to about $15 billion, as the Free Press article shows. Those were also years of some decline in crime. But they were back to $9.6 billion in 2012. As a result, property tax revenue declined from a high near $1 billion in 1960 to about $200 million in 2012.

Since 1960 the city government has passed and raised its income tax, and in 1999 it passed a casino gambling tax. But income tax revenues have been falling, and total revenues, which peaked around $1.4 billion in 1972, fell to about half that in 2012. I continue to believe that crime played a bigger role than fiscal improvidence in sending Detroit toward bankruptcy, as I argued in my Aug. 14 Washington Examiner column.

Congratulations to the News and the Free Press for some excellent journalism. These articles took a lot of work and made a real contribution to understanding Detroit's plight. Journalism prizes should be in order.

UPDATE: Stefanie Murray, assistant managing editor of the Free Press, informs me that the Free Press continues to produce a print edition seven days a week, as does the News. However, the Free Press is home delivered only on Thursday, Friday and Sunday. I made my mistake because I depended on my observation that when my parents lived in the Detroit area, their Free Press (and News) arrived on only those days. Sorry for the careless mistake and congratulations again to the Free Press on its story.

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