Michigan native Kate McEnroe travels the country helping companies decide where to locate new manufacturing plants and offices.
Firms typically weigh factors like access to transportation and customers, land and wage costs and the skill level of the labor pool. But one combination can be a deal-killer: high taxes and low quality of life.
“If you are paying a lot and still not getting a lot back and there's not a plan to fix it, nobody is going to vote with their dollars to invest there,” said McEnroe, the Georgia-based owner of a business site consulting firm who does work in Michigan.
“Why would you?”
That description could fit dozens of Michigan communities saddled with high industrial and commercial property tax rates and deteriorating services for everything from police and fire to roads and parks. Compounding this handicap, many of the same communities are also laboring under heavy pension and retiree health care debt tracked in a Michigan State University study released this year.
And this combination can be more than a deal-breaker for business. High tax rates – particularly in a community of broken neighborhoods – can make the proposition of home ownership seem like folly.
“Middle-class homeowners in some of these cities really need to ask themselves if they want to pay hundreds of dollars more in taxes for lower services,” said MSU professor Eric Scorsone, co-author of the report.
As the poster child for this issue, Detroit homeowners paid 67 mills in property tax in 2012, the highest rate in the state for cities over 50,000 people. For the owner of a $200,000 home, that's $6,700 in taxes. The city also levies the highest income tax in the state. According to the Massachusetts-based Lincoln Institute of Land Policy, a nonprofit research organization, Detroit leads the nation's 50 largest cities in property, industrial and commercial tax.
Residents put up with broken streetlights, crumbling roads and abandoned dogs. Many protest their tax bills by refusing to pay them: Analysis by the Detroit News found that nearly half the owners of the city's 305,000 properties failed to pay taxes in 2012.
Add to that the projected tax burden of Detroit’s legacy obligation – which the MSU study pegged at an additional 50 mills – and it’s easy to see why the city’s turnaround prospects remain uncertain.
This combination of high taxes and high debt stretches far beyond Detroit, putting many Michigan communities at a competitive disadvantage for both business and residential development. According to the MSU report, unfunded legacy debt outside Detroit totaled nearly $10 billion.
As one example, homeowners in Lansing pay up to 58 mills in property tax, while the city had $120 million in unfunded pensions, and had paid down just 10 percent of $376 million in health-care liability in 2011.
Mark Kinsler, vice president for international business development for the Michigan Economic Development Corporation, said cities like Detroit still have a card to play in the development game.
Depressed land values and abandoned factories – abundant resources in swaths of southeast Michigan - can be an advantage to companies looking to shave startup costs, and has helped the MEDC close on several recent projects in Detroit and greater Wayne County.
“They have competitive land prices and an inventory of available facilities,” he said.
Community is key
Lou Glazer, president of Michigan Future Inc., an Ann Arbor-based nonprofit economic development organization, said he does not believe cities can cut their way to prosperity. He notes that many businesses, especially technology-based firms, are looking for communities where workers want to live.
“The most successful central cities in the country have high taxes but also high services and amenities. People are willing to pay higher taxes to get something in return,” Glazer said.
Tracey Hyatt Bosman, a Chicago-based business location expert, agrees.
Bosman actually puts tax rates behind workforce talent as a key to business location, which suggests Michigan needs not only more college graduates but more graduates willing to stay. A study released earlier this year found that 35 percent of 2012 graduates of Michigan's 15 public universities had moved to another state.
Bosman notes that New York City has some of the highest tax rates in country but still attracts firms – and workers - from around the world.
“They still do a lot of business there,” Bosman said. “They offer things other cities can't so people are willing to pay for it.”