It is hard these days not to encounter good news about Detroit’s fiscal profile. According to Detroit’s 2025 Annual Comprehensive Financial Report, the city’s basic governmental funds have moved from a $363 million deficit in 2016 to a $326 million surplus in 2025. This is a major positive swing for a city that emerged from bankruptcy in December 2014.

But all that glitters may not remain gold. The city should act more aggressively now to lower its costs, pay down its considerable unfunded pension liabilities and better prepare for the next great reform opportunity, fiscal storm or both.

The material improvement in the Motor City’s finances provides a unique chance to make permanent reforms. Moody’s rating agency has upgraded the city’s bond rating; the city has a $150 million-dollar rainy day fund, and it was announced recently that it was disbursing final bankruptcy-related debt payments, after which it will ask the court to close its bankruptcy case. The previous mayor cut the city’s property tax levy, and the current one wants to do so, too, which should stimulate vital growth and redound to the budget’s favor.

But a thorough analysis of the city audit, single audit, proposed budget and the initiatives of the new mayor shows that Detroit still faces serious challenges.

The city’s combined unfunded liabilities for retirees are $1.6 billion. This is the gap between the amount saved for employee pensions and what the city expects to pay out in pension benefits. It also is only owed to employees hired before bankruptcy; separate plans for newer employees do not carry such large debts. For all of the city’s gains in its fiscal profile, the debt that is owed here looms large.

City of Detroit employment is also spiking: up 26% since 2016, from 8,588 to 10,829, according to the city’s annual financial report. Mayor Sheffield’s proposed fiscal 2027 budget calls for even more and higher-paid staff. The city’s population declined by 2% over this period. This alone is a red flag for budget sustainability.

The city relies a great deal on support from federal and state governments, as well as gaming revenues. These sources, especially gaming ones, are not necessarily recession-proof. The city’s property tax revenue in fiscal 2025 generated just 23% of its tax total, a lower percentage than it took in from gaming.

The revenues were not aided by growth in the taxable value of property. Taxable value increased from $7.3 billion in 2015 to $8.9 billion in 2025, an 8% decrease when adjusted for inflation.

It is possible, even likely, that general revenue growth is throttled by the city’s use of Tax Increment Financing, an economic development scheme that diverts property tax revenue to specific development projects rather than letting it flow to city coffers. Proponents argue that Tax Increment Financing generates economic development, but the scholarship suggests otherwise.

The improvement in Detroit’s credit rating also needs some qualification. The city’s fiscal 2025 federally mandated “Single Audit” found that Detroit was not a “low-risk auditee.” It is not hard to see why. The Detroit Transportation Corporation processed approximately $320,000 in unauthorized disbursements to a now-former employee who apparently had created fictitious invoices for payment. Single Audits are performed in units that receive and disburse a certain threshold of federal grants.

The city and its recent leadership have made real improvements in Detroit’s fiscal policy and budget landscape. Both past actions (responsible savings, property tax cuts) and some proposed ones are worthy of applause. Detroit’s fiscal improvements have stabilized the city’s finances, but its gains are not yet durable.

The Mackinac Center has supported bold budget reforms in Detroit for decades. In 2000, after a review of the city’s financial position, we recommended the sale of assets such as Belle Isle and reforms to spending on busing, which we estimated then could generate billions in new revenue and save another $207 million annually in spending reforms. We suggested in 2005 that the city downsize bureaucracy, reduce the income tax rate, reform regulations and make other high-profile changes.

Similar opportunities exist today. These and other reform ideas are plausible — even necessary — for a fully revitalized Detroit. The sooner leadership there gets started, the sooner Motown will be less vulnerable to changes in larger economic conditions and the fiscal demands of its own past promises.

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