A new report commissioned by the City Council recommends that Detroit eventually stop redistributing taxpayer money to downtown developments that are providing “marginal benefits” for everyone else.

The Citizens Research Council of Michigan report is the latest in a series requested by City Council President Mary Sheffield. The report found many Detroiters don’t benefit from controversial tax capture practices that move money from schools and city services into downtown projects. 

“It is clear that investments in the downtown have not lifted the city to share in any levels of prosperity,” the report states. “Hopes that investments in downtown would lead to housing nearby and throughout the city have not been experienced except for anecdotal recent developments.”

Sheffield declined to comment.

The Downtown Development Authority (DDA) was created in 1976 to reverse a steep decline of Detroit’s retail core. Significant progress to rebuild downtown has been made in the five decades since, but new property tax revenue is being increasingly recycled into downtown development activities instead of neighborhoods, libraries, schools and Wayne County institutions.

Critics argue the tax capture strategy disproportionately benefits a whiter, wealthier area of Detroit at the expense of the city as a whole. But supporters argue it’s laid a foundation for long-term prosperity with economic ripple effects for surrounding neighborhoods.

Citizens Research Council President Eric Lupher said the DDA perpetuates the narrative of “two Detroits” – one that prospers while the other struggles due to a lack of investment.

“Mayor (Mike) Duggan talks about the growth of the tax base and good things happening on his watch and the watch of the current City Council, but the reality is the city budget doesn’t really enjoy the benefits of that,” Lupher said.

“So much of that value is being captured by the DDA and funneled into more economic development activity instead of police, fire, parks, transportation and everything else that the city is counted on to do.”

Duggan’s administration argues downtown growth increased income tax revenues generated from new construction-related jobs. It’s part of a post-bankruptcy strategy to forgo some property tax revenues in order to drive up income tax revenues, said Duggan spokesman John Roach.

Roach said the strategy has been “remarkably successful,” creating $234 million in new income tax revenue since 2014 and upgrading the city’s credit and investment ratings. Income taxes created twice as much revenue for the city compared to property taxes in 2023.

Roach said income tax revenue has created “significant improvements” in police and fire services, public parks, new housing and other services that benefit all residents. However, he was unable to say how much income tax growth was specifically created by the DDA. 

The report found fewer downtown jobs compared to when the DDA was created – dropping from 105,000 to 35,700 as of this summer.

The report recommends eventually ending tax captures that have ballooned over the years. Council Member Gabriela Santiago-Romero said the reports are helping inform conversations about dismantling the DDA.

“For me, and maybe some others, we would love to capture those taxes and put them back into resources for people,” she said. “The reports are incredibly frustrating. It’s going to be a long-term conversation.” 

Council Member Fred Durhal III, a leader of budget and economic development committees, said it’s too soon to consider ending the DDA. Downtown has been made more vibrant, he said, but there are significant areas, like the riverfront, that remain underdeveloped. 

“Do we need to do this for another 50 years? I can’t say,” said Durhal, who filed paperwork Monday to evaluate a 2025 mayoral bid. “If we change direction, we also could be put in a situation that can jeopardize our growth.”

Durhal said he’s interested in expanding the use of tax capture districts to fund growth in commercial corridors. Tax captures were used to create a shopping center for Meijer and other retailers at Eight Mile a decade ago.

“The report paints a picture that’s a bit mixed in terms of (the DDA’s) effectiveness,” Durhal said. “Their recommendations are finding a way to sunset the DDA, and from our standpoint, we’re not thinking in the sense of a sunset. How can this model be used to focus on things residents have an interest in and the broader issues our city is facing?” 

Tax captures grow alongside downtown 

DDA activities are largely funded through “tax increment financing.” Property values were “frozen” within the downtown, and increases from that base value are collected by the DDA.

The process redirects taxes to benefit businesses within the downtown DDA boundary. The tax revenue is generally used to repay debt issued for infrastructure improvements and to reimburse private companies for redeveloping properties.

As the downtown grows, the DDA captures more revenue while taxes collected by the city and other jurisdictions remain flat. The DDA tax capture doubled the base value by 2018 and is now close to four times larger.

A massive amount of tax revenue is redirected each year to downtown investments. The DDA collected $65 million in 2023, up from $54 million the previous year. DDA tax collections are comparable to taxes used to fund entire cities like Grand Rapids, Lansing, Royal Oak, Livonia and Troy. 

“You can’t continue capturing that tax revenue forever,” Lupher said. “At some point, the city and the county and the other taxing jurisdictions have to benefit from their willingness to participate in the tax increment financing plan.” 

Taxes collected by the DDA don’t just affect the city’s budget. Captured revenue is intercepted from Wayne County, the Detroit Public Library, Detroit Public Schools Community District, Wayne County Community College District and the county’s regional education service agency. 

Community activists with Detroiters For Tax Justice argue that tax captures take important funding from city services and public institutions like schools and libraries. The advocacy group used public records to estimate $60 million has been collected by the DDA since 2014. 

They found the DDA captured $22 million from the Detroit Public Library and $83 million in operating funds from Detroit Public Schools in the last decade. A library tax approved by voters this year is exempt from DDA tax captures starting in 2026. 

Detroit activist Russ Bellant presented the DFTJ findings at an October meeting of the council’s reparations task force. He said their data was provided to Sheffield, Santiago-Romero and Council Member Angela Whitfield-Calloway. 

Bellant described tax captures as “reverse reparations” for “white billionaires.”

“The (CRC) report reflects the concerns of the City Council,” Bellant said. “Even though they’re seen as a rubber stamp, there are reservations and council members are pretty split.” 

The DDA has half a billion dollars in debt to pay off before the city can seriously consider dissolving it, the CRC report notes.

Bonds were taken out to renovate Comerica Park, make improvements to the Detroit riverfront and Campus Martius, build Little Caesars Arena and the Pistons Performance Center, among other things.

At the start of the year, the DDA had $298 million in outstanding bonds. Interest adds $238 million, raising the total to $537 million in debt owed by the DDA. It could take until 2042 to pay off the debt, according to the report. 

‘Unending’ tax capture 

Former Mayor Coleman Young was a driving force behind the creation of downtown development authorities in state law. It was created amid a cratering of Detroit’s tax base as white residents and businesses fled the city. 

The DDA’s founding documents estimated that $3.8 billion in new construction would be built using $1.6 billion in tax increment revenue by 2050. 

The DDA was originally focused on creating downtown housing, strengthening retail and commercial opportunities, providing parking, implementing the People Mover and expanding entertainment facilities. Creation of new developments was expected to create job opportunities and increase income for residents.

There were detractors at the time. Former Council Member Kenneth Cockrel Sr., a political rival of Young, argued in 1978 that the DDA denied resources to the city’s neighborhoods. He was the lone council member to vote against the DDA’s tax increment financing plan. 

Decades later, the DDA has a long list of projects to show progress on those goals. Downtown hotels, entertainment venues, restaurants and retail businesses are more plentiful. 

The city has tried to improve profitability for developers by subsidizing business costs. The DDA covered 28% of the capital costs of improvements to downtown properties it has been involved with. Other other public agencies contributed 7% of capital costs, and the remaining 65% has been privately funded.

“It takes multiple decades to see what that impact was,” Durhal said. “At the time, to keep Detroit stable, the Renaissance Center was an economic driver, it was a focal point. Decades later we’re looking at how we are building in the area of Cadillac Square, Campus Martius.”

Durhal said he’s interested in expanding the area where tax captures occur, to create revenue for commercial corridors like Gratiot and Grand River that lead into downtown. 

The Eight Mile/Woodward Corridor Improvement Authority was created in 2008 to prepare sites for major retailers like Meijer, Marshalls and Petco into the city. It captured $632,385 in property taxes in 2023. 

“Could the DDA be used in areas adjacent to neighborhoods to create other business districts?” Durhal said. 

Changes to the DDA boundary have been made in the past, most recently to support the “Catalyst Development Project” including Little Caesars Arena and yet-to-be-completed residential, retail and offices.

Durhal noted a first-of-its-kind Baltimore proposal to rehabilitate vacant housing using a tax increment financing district. Durhal said it’s an example of creative uses of tax captures that provide public benefit. 

The report concludes with a recommendation to prevent “unending tax captures.” State law sets the DDA’s goal as reversing economic decline and protecting against future decline, justifying keeping the DDA going. 

“The law works against any DDA ever fully achieving its purpose so that it becomes no longer necessary,” the report states. “The goal should not be to promote economic growth for the sake of growth alone. Without an end to tax capture, or at least periodic resets, the investment in economic development is occurring only for the benefit of the DDA to fund future economic development activities.”

Greg LeRoy, director of Good Jobs First, studies tax incentive strategies across the country. LeRoy also drew a parallel between Detroit and Baltimore’s reliance on tax captures to subsidize development. 

LeRoy said other cities have divided the benefits of downtown projects by requiring developers to strike community agreements. LeRoy pointed to Los Angeles, which requires all new development projects to contribute to citywide benefits like local hiring, affordable housing and workforce training programs. 

Detroit has a community benefits ordinance, but it only applies to publicly supported projects valued at $75 million or more. A competing initiative seeking stronger enforcement and larger investments was rejected by voters in 2016 after facing opposition from Duggan and his allies. 

LeRoy described tax incentives for downtown projects as an “open-ended crutch” that shouldn’t be relied on forever. 

“It’s like taking money out of your back pocket and putting it in the front pocket,” LeRoy said. “It’s not benefiting public safety or education in neighborhoods. Disinvesting in public education in the name of economic development is wrong. The best thing a place can do to improve long-term living standards and personal income is to have people become more educated.” 

Meanwhile, community organizations continue to push council members toward ending the DDA. Detroit Action, a nonprofit advocacy organization, argues the DDA fulfilled its purpose. 

Downtown is stable and the city shouldn’t have to continue losing out on tax revenue, said Detroit Action Policy and Research Director Alejandro Navarrete. 

“The vision for it has been completed and state law says it’s a responsibility of the City Council to identify when its purpose has been fulfilled and then get rid of it,” he said. “It was never meant to keep going in perpetuity.” 

Editor’s note: This story has been updated to correct the spelling of Greg LeRoy’s last name. It has also been updated to clarify Detroiters For Tax Justice is not a nonprofit.