On the Menu In Detroit: A Heapin’ Helpin’ of Red Tape

Detroit ranks among the hardest places to start a restaurant, in a recent survey of 20 cities conducted by the Institute for Justice. The Motor City is near the top in almost every category of regulatory obstacles for new dining establishments.

“Entrepreneurs in Detroit face serious regulatory hurdles,” says the February report “Barriers to Business,” which was written by Andrew Meleta and Alex Montgomery. The challenges are acute for aspiring restaurant owners, who must pay 15 separate fees, get clearance from nine city agencies, submit to twelve in-person visits, fill out 20 different forms, and perform a total of 77 steps to comply with various regulations.

Meleta and Montgomery chose 20 large to mid-size cities in geographically diverse regions to study the barriers entrepreneurs face in opening businesses. They looked at five business types that require distinct sets of regulations, including restaurants, retail bookstores, food trucks, barbershops and home-based tutoring businesses.

According to the report, entrepreneurs cited building and zoning permits as the most difficult part of getting to opening day.

For restaurateurs, Detroit was among the most obstructive cities in five out of the six regulatory burdens investigated: total cost, number of fees, agencies involved, in-person activities required, number of forms and steps needed to start a business.

The one category where Detroit is not above average was in the total dollar cost of regulatory burdens. But even here, Detroit is the fifth-most expensive city for restaurant owners. San Francisco, where it costs $22,648 to start a restaurant, leads the pack, while in in Detroit, “an aspiring restauranteur must pay 15 different fees totaling $6,545 to get started.” Nearly $1,500 of the fees a Detroit restaurant must pay are for permits and an official review of its menu, equipment and procedures for conducting business.

The regulatory cost to open a restaurant in many other cities is less than $6,000, with the least expensive city being Raleigh, North Carolina, where it is $1,143.

Detroit is at the extreme end of the remaining categories of regulations on restaurants. It has the fourth-highest number of fees, with 15; the highest for the category is 20. Detroit also requires new restaurant owners to complete 20 forms, while the city with most requiring 22. Detroit’s worst category is the total number of steps involved, with a restaurant owner required to complete 77 steps to to get official approval to open. This is second only to Boston, where 92 steps are required.

Not all types of business face the same level of difficulty. Home-based tutors in Detroit must complete only six steps to get official approval. Bookstore owners must complete 32, food truck operators 43, and barbers 60.

The best ranking Detroit received in the report is for its “One-Stop Shop Score,” which was a four out of a possible five. This score measures how effectively a city organizes and presents information on its website about the regulatory process a new business owner must go through. Detroit missed points in this area for lacking a portal through which entrepreneurs can easily complete forms and registrations. This means the person must go through each agency’s own website.

The report suggests that people reentering society from prison, as well as lower-income entrepreneurs, face special barriers in starting a business in Detroit. According to the report, “applicants who owe any type or amount of debt to the city are prevented from obtaining a business license.” Applicants must also say whether they have been convicted of a crime before getting a business license. The Institute for Justice report argues that these restrictions harm those most in need of economic opportunity.

The report offers several policy recommendations for Detroit. It calls for reducing the number of businesses that need city licenses, simplifying the process to obtain building permits, and working alongside state officials to remove barriers that single out low-income residents, people who owe money to the city, and those who have recently left prison.