Economic restructuring of cities: Detroit etc. (with a comment on local income taxes)

Today, Michigan Governor, Republican Rick Snyder, announced the appointment of Kevyn Orr, a 53-year old bankruptcy lawyer at DC power firm Jones Day, as the Emergency Financial Manager for the City of Detroit. See "Kevyn Orr confidently tackles Detroit EFM job: 'This is the Olympics of restructuring'" from the Detroit Free Press.

Last week, I was reading in Christian Science Monitor about the trial of former Detroit Mayor Kwame Kilpatrick and a past story link ("Detroit retooled") mentioned my old neighborhood, North Rosedale Park, so I was looking up my old neighborhood in terms of real estate values.  I was shocked, flabbergasted, distressed.

Recognize that in the mid-1960s, when we lived there, our Congresswoman lived one or two blocks down our street (which is probably why we had great snow removal services for our street and sidewalk, although sidewalk clearance may have been paid for by the resident association) and one of my fellow Cub Scouts was the son of a future Mayor of Detroit. My old house, over 1,900 square feet on a lot that is 1/5 of an acre, is worth less than $60,000. Although back when I lived there, we had big trees in the front yard--although this was also the period when American Elm trees were dying.


If that doesn't tell you that Detroit's economy is irreparably broken, I don't know what does.

The Main Street commercial district revitalization program is historic preservation based, but mostly focused on the economic elements of a commercial district.

Although the first Downtown manager position was created in the early 1960s in Corning, New York, in response to the impact of the creation of shopping malls, which were known for both common property ownership and management, it was not until the late 1970s, when the National Trust for Historic Preservation, in response to calls for action from small towns in the Midwest seeking a way to rebuild their Downtowns, created the Main Street pilot program.

Going into the project and into the cities, they thought they were dealing with a historic preservation issue, but quickly they realized the issue was more about the functioning of the Downtown business district as a successful or failing economic entity.

But the Main Street Approach calls this function "economic restructuring" and many Main Street groups find the term and the process more harsh than they'd like.

But economic restructuring is what it is.  And you either do it when you see the writing on the wall, or you don't do it and you fail and then it happens anyway.

That's what's happening with cities like Detroit on a much larger scale, although just as the failure of US steel companies in the 1980s presaged the failure of the US-based automobile industry in 2008, the failure  New York City in the 1970s, and later, various cities around the country, including Washington, DC in the 1990s.  Economic restructuring.

The movie, "Citizen Koch," out now on former Mayor Ed Koch of New York City reminded me about this process, and so I was poking through City Limits by Paul Peterson, which has a discussion about NYC's financial straits--due to rising wages and pensions, rising social expenditures (not just the local hospital system, but then they paid the full costs of the City University of New York system as well), and falling revenues.

Because it's very difficult for local politicians to make the kinds of restructuring decisions that they need to to get local budgets in balance, plus they can't usually assess income taxes, cities with massive population and business losses and limited options are likely to tumble into bankruptcy.

A way forward for local income taxes

Some cities levy an income tax or other taxes.  This can be very damaging on a regional basis, when cities have such taxes and suburban jurisdictions do not.  Philadelphia has this problem with their "wage tax."

What Maryland does is probably the best option for localities.  My understanding is that what people consider the State Income Tax in Maryland is actually split 50/50 between the state and the counties (and Baltimore City).  That means that Maryland localities have access to a more regular and stable funding stream.

I think more states should move in this direction.