As legislators consider a plan to partially bail out Detroit, they should consider some of the favors the state has already made to Detroit’s finances. These include casino taxes, utility taxes and borrowing. Perhaps the biggest favor is state generosity in revenue sharing. The state transfers more revenue to Detroit each year than any other government and its transfers go beyond levels justified by population.
The state splits a portion of its sales taxes with local governments. A part of this is mandated by the state constitution. Another portion is determined by budgetary negotiations and state statutes.
Detroit receives the majority of the optional portion. In fiscal year 2014, the city will receive $136 million from the state in these payments. The rest of the state’s cities, villages and townships will split the remaining $99 million. Detroit accounts 7 percent of the state population but receives 58 percent of the state’s optional revenue sharing.
Detroit also received more in its constitutional revenue sharing than it deserved. This is because population determines this portion and the recent census was a shock for the city. Prior to the 2010 Census, the federal government estimated that Detroit had roughly 1 million people as late as 2009. The decennial census found that the city was home to only 714,000 people. The state had been delivering money to the city based on the higher figures, leading to $86.4 million more in state payments than were justified by its actual population.
Beyond a special bailout, the state is already expected to transfer even more money to Detroit in the upcoming budget. This is because sales tax revenue is increasing and the state has a surplus. While the budget is still being negotiated, the level of optional revenue the state is expected to share with cities, villages and townships is expected to increase 10.4 percent this year and constitutional payments are expected to increase 2.6 percent.
Detroit officials often complain about the decreasing revenue from the state. Yet even with the constitutional portions included, Detroit receives roughly twice as much revenue sharing per-resident as the next highest city (which is Pontiac, a city with other lessons for Detroit).
State policymakers have already been bailing Detroit out. They are continuing to do so. Legislators should consider these state favors as they begin discussing another bailout.
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