Commentary
Detroit’s Special Favors Add Up
Only city in Michigan allowed to tax utility bills
Gov. Rick Snyder has proposed a partial bailout of the city of Detroit with a $350 million gift. The state has been providing special favors to Detroit for years and it hasn't prevented the Motor City from slipping into bankruptcy.
Detroit gets special rules from state policies that don't apply to any other city in Michigan. Many of these rules expand the city's ability to collect revenue. For instance, Detroit is the only city in the state that assesses a tax on residents' utility bills.
State law allows the city to assess up to a 5 percent tax on their residents’ utility bills — electricity, telephone, natural gas and steam bills. (Yes, downtown Detroit has a steam utility.) Detroit charges the maximum rate.
The act only allows a "city having a population of 600,000 or more" to assess this tax, meaning Detroit is the only city that gets to charge this tax. The population threshold used to be higher and the state has rewritten these rules so that Detroit can continue to impose utility taxes.
The revenue is general fund money, meaning that the city gets to spend it however it deems fit. Currently, the city dedicates some of the revenue to pay off bonds in its Public Lighting Authority, which is repairing and replacing the city's street lights.
In 2012, the tax raised $40 million. It's not a huge piece of their revenue — it represents 5 percent of the city's total tax revenue in 2012 — but it is an extra bump to finances that no other city receives.
It amounts to another way that the state has already bailed out Detroit.
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Detroit’s Special Favors Add Up
Only city in Michigan allowed to tax utility bills
Gov. Rick Snyder has proposed a partial bailout of the city of Detroit with a $350 million gift. The state has been providing special favors to Detroit for years and it hasn't prevented the Motor City from slipping into bankruptcy.
Detroit gets special rules from state policies that don't apply to any other city in Michigan. Many of these rules expand the city's ability to collect revenue. For instance, Detroit is the only city in the state that assesses a tax on residents' utility bills.
State law allows the city to assess up to a 5 percent tax on their residents’ utility bills — electricity, telephone, natural gas and steam bills. (Yes, downtown Detroit has a steam utility.) Detroit charges the maximum rate.
The act only allows a "city having a population of 600,000 or more" to assess this tax, meaning Detroit is the only city that gets to charge this tax. The population threshold used to be higher and the state has rewritten these rules so that Detroit can continue to impose utility taxes.
The revenue is general fund money, meaning that the city gets to spend it however it deems fit. Currently, the city dedicates some of the revenue to pay off bonds in its Public Lighting Authority, which is repairing and replacing the city's street lights.
In 2012, the tax raised $40 million. It's not a huge piece of their revenue — it represents 5 percent of the city's total tax revenue in 2012 — but it is an extra bump to finances that no other city receives.
It amounts to another way that the state has already bailed out Detroit.
Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.