This report on Detroit city government analyses the tax and other revenues available to the city to provide essential public services and to address the many serious financial challenges facing the government. This report is part of a series focused on the City of Detroit municipal government, and prompted by the state and city governments responses to the city's repeated narrowly averted cash crises and by the growth of the city's accumulated general fund deficit from $196.6 million at June 30, 2011 to $326.6 million at June 30, 2012.
Municipal revenues are based primarily on taxing property value and economic activity, on charging for services and goods, on borrowing, and on receiving money from the state and federal governments. As the economic base of the city has dwindled, the city government's ability to raise revenues has been reduced, and the city's finances have become more precarious.
The Detroit city government uses revenue from local taxes, state shared taxes, operations, grants, borrowing, and other sources to support a variety of direct and indirect services to residents. In general, as revenues increase, the municipal government is able to provide additional services; as revenues decrease, services must be cut back. In the case of Detroit, which used to be a much larger city with many more municipal employees, legacy costs associated with former employees (there are more than twice as many retirees as active employees) and already earned by active employees, as well as debt service on money borrowed in the past to pay for operating costs, must be paid regardless of the city's shrinking income. Some revenues are "dedicated," and may be used only for specific purposes, while other revenues may be used for any city government activity that is approved in the budget.
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In assessing the causes of, and solutions to Detroit's fiscal problems, it is important to closely examine the city government's revenue structure. This report provides a comprehensive look at the sources of the city's revenues, how these revenues have changed over time, and how Detroit's revenues and tax burden compare to other large cities in Michigan.
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