City is near top of list of spenders

Detroit population downsized, but its workforce didn't

March 22, 2005

BY KATHLEEN GRAY and MARISOL BELLO
FREE PRESS STAFF WRITERS

Detroit spends more on city government than most of the nation's big cities, a Free Press analysis shows.

The reality of a bloated workforce and budget drowning in about $200 million in red ink faces Mayor Kwame Kilpatrick as he prepares to deliver his State of the City address at 7 tonight.

"Right-sizing," the new buzzword for cutting city employees, has become a focus for the Kilpatrick administration and the Detroit City Council as they work to balance the budget even as thousands of Detroiters continue their flight to the suburbs.

The Free Press analysis of how Detroit compares with other communities also found overall city general fund spending of $1.58 billion out of whack with most other big cities. Detroit ranks fifth in overall spending per capita, behind New York, Philadelphia, San Francisco and Chicago, spending $1.7 million for every 1,000 residents.

What happened?

While the city's wallet remained wide open, tax revenues have declined. Detroit, which relies mostly on income taxes while many cities' primary revenue is property taxes, has suffered through hard economic times with an unemployment rate of about 14 percent. And the city's needs are unique to other cities'; for example, harsh winters mean it must provide snow removal and aging infrastructure means high repair bills.

The city's median income -- at $26,157 -- is the lowest of the country's 15 largest cities, based on 2003 U.S. census data.

And this year, the city dropped below 900,000 residents after reaching a high of more than 2 million in the mid-1950s. Since the 2000 census, the city has lost a net of 51,883 residents.

Meanwhile, the city's tax burden is among the highest in the nation, according to an annual report compiled by the City of Washington, D.C, comparing its tax burden to other large cities.

"We just can't afford it," said Detroit Auditor General Joseph Harris, a critic of some of the administration's financial decisions.

Detroit does not have the capacity to sustain high spending, Harris said, especially with its poverty and high unemployment rates.

Other cities, such as San Francisco and Chicago, he said, have greater contributions from businesses and residents. He cited San Francisco as a city smaller than Detroit but having one of the highest median incomes in the country.

Harris consistently has said the city must cut its total workforce of about 18,000 by as many as 2,000 workers, otherwise state receivership is likely. But so far, Harris said needed change hasn't occurred.

It's not that the city hasn't tried to cut workers.

Kilpatrick announced more than 600 layoffs in January and the elimination of 200 vacant positions. The mayor said earlier this year that the Belle Isle Aquarium would have to close and that overnight bus service would end to cut $22.5 million from the budget. Protests delayed both actions, now set to take effect next month.

"Nobody said it would be easy," said Earl Ryan, president of the Citizens Research Council, a Livonia-based think tank that analyzes state and local government finances. "Whenever you try to cut back services, you'll get complaints."

Still, other cities have done it. Columbus, Ohio, another Rust Belt city slow to recover from the recession, has slowed its spending. Since 2000, the general budget of the city, with a population of about 728,000, is up by only 1 percent. To accomplish that, the city cut 25 percent of its workforce, eliminating 470 positions the last four years.

The city also cut hours at recreation and health centers, required employees to share more in health-care costs and cut grants to community organizations, said Mike Brown, spokesman for Columbus Mayor Michael Coleman.

"We tried to protect the basic neighborhood services and determine what the priorities are for City Hall," he said. "These are tough decisions that every community is facing."

In Indianapolis, the nation's 12th-largest city with 783,000 people, the city expects a $57-million shortfall this year. But the city has spent the last 15 years reducing the size of its workforce, dropping from 4,700 in 1991 to 3,000 today, said budget manager Jeff Seidenstein.

The city privatized services, including its wastewater treatment plants, to help shed employees, an option that is staunchly opposed by Detroit's unions and several City Council members.

"It was controversial here, too," Seidenstein said. But the city's budget problems likely would have been a lot worse if they hadn't made some move to reduce the number of employees, he added.

The city is now looking to consolidate its police and fire services with the county's.

Anne Kinney, a researcher with the Government Finance Officers Association in Chicago, said many factors have to be taken into account before meaningful comparisons between cities are done. It's not fair, for example, to compare Detroit with Phoenix, the nation's sixth-largest city. Phoenix doesn't have to pay for snow removal.

Older cities like Detroit, also have to deal with aging roads, sewer lines and crumbling public buildings.

"And cities in the Midwest provide full service, while cities in other regions don't supply quite the same services," she added. "In the West and in some places in Arizona, even fire departments are privately run."

Detroit laid the groundwork for its current financial mess in the economic boom days of the 1990s, said Ryan. Despite a declining population, it used surpluses to hire more workers instead of upgrading technology which might have saved money now.

"That simply was not a sustainable policy," said Ryan. "Had the city adopted a strategy of downsizing in the mid-1990s when it had substantial resources, the crisis of downsizing today wouldn't be necessary."

The state of Michigan has had similar problems. During the 1990s, taxes were cut several times when the economy was booming. Since 2001, billion-dollar deficits have plagued legislators.

"During the '90s, the dot.com industry wasn't the only bubble to burst. There were state and local bubbles, too," said Ryan. "And now we're paying the price for that."

Contact KATHLEEN GRAY at 248-351-3298. Contact MARISOL BELLO at 313-222-6178.