Detroit’s economic development model is broken

October 15, 2023

Detroit’s economic development model is broken.

To create jobs and stimulate economic growth, the Duggan administration, along with many City Council members, have insisted on the necessity of providing tax breaks to wealthy corporations. The model is simple: foregoing property tax revenue in exchange for jobs.

This model involves making up the loss of property tax revenue (awarded to billionaires) with revenue generated from income taxes from the jobs generated from the development projects (paid by working class folks). That is, the city’s bank account grows when jobs grow, not when land is developed. Remember, that’s the trade-off: developers (the billionaires) keep the value of the land, and the city gets a piece of their workers’ paycheck (that’s us).

Over the last 10 years, the model has focused on building live-work-play communities that bring office space, retail, dining, and entertainment establishments concentrated in selected area in the city.

For example, Dan Gilbert’s “transformational” downtown developments received almost $700 million in tax breaks to build more than 800,000 sq ft of office space, 500 mostly high cost luxury housing units, and 170,000 sq ft of retail. Similarly, the recently passed District Detroit received $800 million to build 1.2 million sq ft of office space, 700 mostly high cost luxury housing units, and 100,000 sq ft of retail (1).

These two projects alone account for 2 million sq ft of new office space located in and around the downtown/midtown area of Detroit. Together, these projects have promised 10,000 new permanent jobs. Most of the job projections are based on the office space being filled with new tenants and new workers.

However, it is likely that those 10,000 jobs won’t be created nor the buildings filled with promised tenants. Across the nation and including Detroit the COVID pandemic has made the demand for office buildings and office space all but extinct. Remote work has grown significantly in the post-COVID economy, which means people are working at home, not in downtown offices anymore. Recent reports suggest that Detroit office activity in the downtown area is less than 50% of what is was before the covid pandemic.

The State of Michigan and the Michigan Economic Development Corporation (MEDC) is fully aware of this situation. That’s why the tax incentive laws recently underwent a huge revision at the state level. Big economic development projects like the projects just mentioned are eligible to receive what is called a Transformational Brownfield tax break. This super tax break allows developers to keep, not just the property tax as usual, but the state income tax from the jobs created by the project as well. That’s how they make the tax incentive so large—they add income taxes to the mix.

Knowing the office jobs are not likely to return at the rate as projected and the reality that there will not be the level of income tax for capture, the State had to find a different tax source to fully fund the super tax breaks that can now be awarded the developers. Which brings us to Senate Bill (SB) 289, an amendment that adds sales and use tax revenue to the public money that can be captured by developers. So, even if developers don’t create a single job, they can still get every penny of the tax incentive.

This new model removes jobs from the equation, leaving just “live and play” development. Jared Fleisher, a lobbyist for Dan Gilbert, has even said “jobs aren’t the main focus of development anymore. It’s stimulating sales and consumption where well-paid professionals stay (2).

Which leads us to another law change, Senate Bill (SB) 129, which gives developers brownfield tax incentives for building housing that is priced at 120% AMI, that’s for rents that can be as high as $2500 a month. This amendment will also provide tax breaks to developers to convert office space into housing.

This will allow projects like the District Detroit and the Gilbert developments to get taxpayer money to go back and redevelop all of the office space which taxpayers already paid for, into luxury apartments, while not providing a single job in return.

So, what does this new live-play economic development model mean for Detroiters? For one, it means we won’t get our money back. Detroit’s “property tax for income tax scheme” has given away billions in property value and now, with no jobs on the horizon, the city will never get the income taxes that were promised in return. That means less money for neighborhoods, schools, libraries, and city services.

Also, Black displacement and gentrification will accelerate. Over the last 10 years, Detroit has lost 100,000 Black residents while adding thousands of white residents to Downtown and Midtown. These brownfield amendments focus on building more luxury housing and services to attract outside affluent residents, not building affordable housing and programs for working class, Black Detroiters, who are the majority. As more money is poured into gentrification projects like the District Detroit, more Black residents will be pushed off the land and forced out due to rising rents and living costs.

A recent poll conducted by American Pulse revealed that 88% of Detroiters are opposed to the city’s development model and would rather see a model that prioritizes affordable housing, neighborhood investment, and community-led development (3).

These new changes show just how inequitable and unjust our economic development model is in Detroit. However, it can be fixed. First, we need to make billionaires pay their fair share in property tax. This will put a stop to the raiding of our public coffers and restore proper funding to the commons—libraries, schools, parks and publicly shared resources. Second, we need to stop using taxpayer money to subsidize housing for affluent newcomers and start investing in truly affordable housing.

Lastly, we need to empower residents to control development in their communities by shifting funding and decision-making to the grassroots and away from private non-accountable agencies like the Detroit Economic Growth Corporation (DEGC).