Table 1.a

This study compiles recently released 1990 U.S. Census Bureau data to measure the economic and fiscal policy performance of Michigan's eleven largest cities – those with populations of over 75,000. Using an index of economic performance from 1980 to 1990 – based upon poverty rates, population growth, job growth, and per capita income – we find that six of Michigan's largest cities experienced economic growth in the 1980s, and five suffered economic decline.

Michigan's growth and declining cities in rank order, with their 1980 and 1990 populations, were:

Examining both Michigan and national data, this study shows that excessive levels of spending and taxes are a cause, not just a consequence, of urban economic decline . . . .

The major issue addressed in this study is why those five Michigan cities were in a state of urban decline in the 1980s. Quite clearly, the decline of the auto industry had a huge effect on the economic well-being of Michigan cities. The transition toward a service and technology-based economy also played a major role in Michigan's cities that have traditionally had a large manufacturing base. But we find in this study that a factor that has been overlooked in explaining the economic performance of Michigan's cities is their contrasting fiscal policies. There are surprisingly large differences between the taxing and spending policies of Michigan's growth cities and Michigan's declining cities. The most important differences include:

  • Tax revenues were $711 per person in the declining cities, versus just $434 in the growing cities. That is, tax burdens were 65 percent higher in the declining cities. For the typical family of four, this is a difference of just over $1,100 per year in taxes.

  • The reason that taxes were so much higher in Michigan's declining cities is that their expenditures were much higher. Even excluding outlays for welfare, health, and education, the declining cities had per capita municipal expenditures that were 75 percent higher than in the growth cities: $976 per person versus just $557 per person.

This close relationship between high taxes and spending and low economic growth is not just coincidence nor is it attributable to the performance of just one or two cities. In fact, every one of the five declining cities was also ranked in the top five in taxes and spending. Comparing the economic performance of the six low tax and spend Michigan cities with the performance of the five high tax and spend cities, we find:

  • Population declined in the high tax/spend cities by an average of 6 percent, versus no net population loss in the low tax/spend cities.

  • Job growth was more than twice as rapid in the low tax/spend cities: 13 percent versus 6 percent.

  • Poverty grew by 58 percent in the high tax/spend cities, versus only 21 percent in the low tax/spend cities.

  • Real per capita income fell by 5 percent in the high/tax spend cities, but rose by 9 per-cent in the low tax/spend cities.

Examining both Michigan and national data, this study shows that excessive levels of spending and taxes are a cause, not just a consequence, of urban economic decline in cities such as Detroit and Flint. Low growth cities in Michigan and other states have allowed their budgets to spiral out-of-control. This has created a vicious cycle of higher taxes leading to job and population loss. The shrinkage of the tax base then requires even higher tax rates just to raise the same amount of revenue, which leads to more population loss. The only way to unroll this snowball effect is for Detroit and other declining cities to aggressively weed out wasteful and unnecessary spending from their budgets and to examine a range of proven and successful cost-cutting strategies, such as contracting out services, reducing administrative costs, and freezing public sector salaries.