The Detroit City Football Club (DCFC) is seeking $88 million in tax breaks to help build a $198 million soccer stadium complex, a parking deck and a 76-unit apartment building at the site of the former Southwest Detroit Hospital.

The citizen group negotiating with DCFC included in its Community Benefits Agreement proposal a $1 per-ticket surcharge, the proceeds of which would directly support home repairs for low-income households in the area surrounding the new stadium.

The ticket surcharge touches upon several topics the Citizens Research Council of Michigan has addressed recently, including Detroit’s use of tax abatements, the feasibility of an admissions tax for sporting events, and the legal nuances between taxes and fees/surcharges.

In another state, the nuances separating taxes from fees or surcharges may be a distinction without significance: either way, money comes out of the payers’ pockets. The distinction matters in Michigan because we have laws that require certain steps in the process for enacting new taxes.

Michigan law requires an authorizing state law before local governments may levy new taxes. Further, the Michigan Constitution requires voter approval of ALL new taxes. With those necessary steps as basic guardrails, courts have been asked to differentiate taxes from fees or surcharges.

In the 1998 Bolt v. City of Lansing ruling, the Michigan Supreme Court established a test to distinguish what constitutes a user fee:

• They must serve a regulatory purpose rather than a revenue-raising purpose;
• They must be proportionate to the necessary costs of the service or commodity, and imposed on those benefiting from the right/service/improvement supported by the fee; and
• They are voluntary in nature.

Conversely, the Supreme Court has also established what constitutes a tax:

• They are levied to raise revenue for the general operation of government;
• They are levied to benefit the general public; and
• They are compulsory in nature.

The proposed surcharge on DCFC tickets to Le Rouge games would be compulsory for all who purchase tickets. It would benefit the general public in the immediate area, regardless of their attendance at a game. While home improvements are not typically considered government operations, Detroit has a recent history of funding home improvements. Those negotiating the CBA would be advised to find a different means of valuing the amount of funding sought from DCFC.

We recently explored the idea of taxing admissions to sporting events, concerts, Broadway plays, and other events. Most major U.S. cities levy an admissions tax. We estimate that the tax could raise as much as $50 million. That is a relatively small amount in the context of Detroit’s $1.6 billion budget, but it could be used to improve public safety services, for other government services such as home improvement, and/or to provide property tax relief.

Our analysis of Detroit’s use of tax abatements found that the cost of developing property in the city is higher than in many comparable cities. For the foreseeable future, the math does not work for developers to invest in the city without government participation. For this reason, Detroit uses tax abatements more than most other cities.

Given the underlying cost pressures, it is no surprise that the proposed DCFC stadium development is seeking public assistance. This speaks poorly of the city’s economic strength, but it is a positive sign that businesses and developers are interested in being in the city. Over the long term, they will pay income and property taxes to contribute to the city’s finances, employ Detroiters and contribute to the economy.

City leaders must continue to lower costs that are within their control. While community benefit agreements share the benefits of new development, they add to the cost of locating in an already expensive location. Local hiring requirements add to costs because many potential workers need to be trained. Stormwater mitigation is positive for the environment, and a sensitive subject for Detroiters who have suffered flooded basements, but it adds costs. And the city can control the tax burden – income and property taxes – it imposes on businesses and residents.

Eric Lupher is President of the Citizens Research Council of Michigan and an expert on Michigan local government policy issues. The Citizens Research Council is a not-for-profit organization that works to improve the efficiency, equity and accountability of government in Detroit and all of Michigan.