Detroit water department
The sale of Detroit’s water department facilities and operations could garner over $1.7 billion if the city would consider selling it.

Detroiters have cast their ballots for mayor, and they have voted to keep Kwame Kilpatrick. Mayor Kilpatrick must recognize that his victory brings with it a sobering challenge. Detroit’s decline has been extensively covered by the media for decades as evidenced by a 1961 Time Magazine story entitled "Decline in Detroit." Since the publication of that article, the downward spiral has only accelerated, with Detroit now ranked as the poorest big city in the United States, according to figures released in September by the U.S. Census Bureau.

Mayor Kilpatrick must make fundamental changes to Detroit’s economic landscape. Appalling public services, excessive tax burdens and suffocating business regulations have chased people, entrepreneurial talent and financial capital away from the Motor City for the past half century. The following are five recommendations for returning prosperity to the city of Detroit.

  1. Accelerate reductions in the city income tax. Add no new or increased taxes to the already sky high tax burden.

    The city of Detroit maintains an excessive tax burden that weighs on citizens and job providers alike. According to a study prepared by the Finance Department of Washington, D.C., in 2003 Detroit was the eighth highest-taxed city in the country for a family of four making $50,000.

  2. Contract city services to competitive private firms with proven track records.

    The city should conduct a "Yellow Pages" review of the services it provides — that is, it should ask, "If you can find it in the Yellow Pages, should city government really be doing it?" Whenever private companies can perform a particular activity, the city should either stop offering it or provide it through competitive bidding. Between 1991 and 1998, Indianapolis saved more than $550 million by applying this Yellow Pages test to more than 75 city services. The research literature on privatization shows that with adequate guidelines, private contracting can be effective and avoid cronyism.

  3. Dramatically downsize the city bureaucracy, now one of the largest per capita in the Midwest.

    The use of private contractors would allow the city to decrease its bureaucracy substantially. Through fiscal 2005, the city of Detroit maintained a complement of about 18,600 employees, yielding a resident per-city-employee ratio of just over 48-to-1. By contrast, Indianapolis maintains a ratio of about 203-to-1. Detroit’s poverty makes this gap inexcusable.

  4. Sell assets, such as underused buildings and equipment, and apply these one-time revenues to debt reduction and to retiree health care obligations.

    The city of Detroit is sitting on a mountain of untapped assets. For example, the city could sell its electricity generating department to the highest bidder. It could also sell its bus fleet and contract the operation of its bus system to a private firm. It may even be able to sell its water department, which the Mackinac Center for Public Policy estimated in 2001 could fetch more than $1.7 billion.

  5. Reduce the regulatory burden on the city’s businesses to a level similar to comparable cities.

    The city of Detroit operates a Byzantine maze of regulations that blanket nearly every facet of private enterprise. For instance, Detroit’s movie theaters must submit to an annual city building inspection. This is in addition to a fire inspection, and the extra requirement is only one of many that add both time and cost to the operation of theaters in Detroit.

    The city of Indianapolis, by contrast, requires no annual building inspections for theaters and has a generally milder regulatory regime. Not coincidentally, Indianapolis, with a population of only 784,000, is served by 17 theaters with more than 160 screens. Detroit is a city of 900,000 and hosts only two theaters with 16 screens.

The five steps outlined above would change the city’s fundamental economic climate, rather than relying once again on questionable economic development projects like the Renaissance Center, which was sold in the 1990s at a fraction of its original cost.

Real reform can’t be postponed. If Detroit’s decline persists and the city’s financial problems continue, the state may be forced to appoint an "emergency financial manager" to run the city under Public Act 72, which would an ignominious development for the mayor and Detroit itself.

Michael D. LaFaive is director of fiscal policy for the Morey Fiscal Policy Initiative at the Mackinac Center for Public Policy.