News Story

Special Deals Allow Detroit To Collect Hundreds Of Millions In Extra Revenue

Casino tax, utility fee, income tax all specially assessed by the city

While some are pitching a storyline in Detroit of a bankrupt city in need of more revenue, the city already collects hundreds of millions of dollars in taxes that no other city can.

The state allows only the city of Detroit to collect a "utility users' tax" and a casino "wagering tax" that combined accounted for $221.4 million in revenue in 2012.

Despite that, Gov. Rick Snyder is pitching a $350 million bailout for Detroit. A recent poll shows the bailout to be unpopular among voters, particularly Republicans and independents.

Both of the special taxes for Detroit are in addition to the city's income tax, which is the highest of the 22 cities in the state that have an income tax. 

"Detroit is the only city allowed to do a lot of things," said Gary Wolfram, a professor of economics at Hillsdale College and an adjunct scholar at the Mackinac Center for Public Policy. "Realistically, why? Because they have enough votes to do it."

There also are 22 other cities in Michigan that have casinos operating within their boundaries, but those cities are are not getting extra tax dollars from the gambling operations. Only Detroit gets to collect a special "wagering tax" from casinos, which amounted to $181.4 million in 2012.

Wolfram said it makes sense Detroit would collect taxes from a casino because it attracts a lot of people from outside the city, which can put a strain on city resources, such as police and fire protection.

James Hohman, assistant director of fiscal policy at the Mackinac Center, said Detroit also is allowed to assess up to a 5 percent tax on their residents' utility bills. That includes electricity, telephone, natural gas and steam bills. Detroit charges the maximum rate. 

The law states that a city has to have a population of 600,000 or more to enact the tax, meaning Detroit is the only city that meets the requirement to implement the tax. That population figure has been lowered to specially benefit the city as population dropped. The "utility users' tax" brought in $39.8 million in 2012 and is used to fund the police department.

Wolfram said if the revenue is used to do what residents want government to do — protect life, liberty and property — than it is an efficient way to do it.

On average, Detroit police took 58 minutes to respond to an emergency call in 2013, according to its June 2013 Proposal to Creditors. The national average is 11 minutes. 

"The real problem is not on the tax side, but on the spend side," Wolfram said. "The real problem is what the hell Detroit did with the money."


See also:

The Winners and Losers In Detroit Bankruptcy

Agenda For Detroit: What Role State Government Should Play After Bankruptcy

Detroit Should Look to Pontiac

Michigan Taxpayers Have Already Bailed Out Detroit

More Money, Higher Taxes Not the Solution for Detroit

Detroit Still Sending Tax Notices 15 Years After Company Closed

Is the Problem In Detroit Really a Lack Of Revenue?

Analysis: Incorrect Population Figures Means State Has Overpaid Detroit For Past Decade

Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.