Beltway Confidential

Detroit’s real problem: Out-of-control spending

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Beltway Confidential,Michal Conger

Detroit may be teetering on the edge of bankruptcy, but revenue isn’t the problem: out-of-control spending is.

At $1,289 per person, the struggling city has the highest per-capita revenue in the country, according to the Michigan-based Mackinac Center for Public Policy. Between its higher-than-average taxes and a generous portion of state shared revenue, Detroit actually receives more per capita now than it has in the past.

Since 2002, Detroit’s population has dropped 22 percent, and revenue has declined 11 percent. The city’s real problem isn’t revenue, but spending, said James Hohman, a fiscal policy analyst for Mackinac.

“They haven’t adequately planned for a decrease. It’s an administrative issue,” Hohman said.

Not only is Detroit’s per-capita revenue the highest in the nation, it’s 50 percent higher than any other city in Michigan, according to Mackinac. The city gets $325 in state-shared revenue per capita, 60 percent of the state’s total shared revenue.

“They are getting more state revenue sharing than anyone else. They’ve had it cut, but so has everyone else,” Hohman said. “Yes, the revenue has gone down a bit in the last decade, but so has everything else in the city of Detroit.”

Despite hundreds of millions in state and federal dollars intended to keep it afloat, Detroit has run a budget deficit every year since 2003, according to a new report from the Citizens Research Council of Michigan. The city faced a deficit of $326.6 million as of June 2012.

Because of fixed costs like pensions and retiree health care, as well as debt service, the budget is stuck with high expenses that can’t be reduced. At the same time, the city has consistently overestimated its revenues, according to the CRS report.

“They get a lot of money on a per capita basis. They just can’t control their spending,” Bettie Buss, the report’s author, told Reuters.

Michigan Gov. Rick Snyder appointed bankruptcy lawyer Kevyn Orr as the city’s emergency financial manager last month. CRS took an optimistic view of the appointment, saying the decision has the potential to restore the city to economic stability.

“Optimally, better financial management and improved city services will create an environment in which more private individuals will make decisions that result in a better economy and an improved tax base in a virtuous cycle of good government and private investment,” it concluded.

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