A new report on the financial security of low-income Detroiters is helping inform a City Council member’s plans to give monthly checks to the city’s poorest residents.
At Large Detroit City Council Member Coleman A. Young II requested an analysis this spring from the council’s Legislative Policy Division on the impact of an unexpected $400 financial emergency on low-income families living paycheck to paycheck. LPD’s findings, released late last month, conclude that if faced with an emergency costing a few hundred dollars Detroiters living under the poverty line wouldn’t be able to manage it “without creating greater economic harm by accruing further debt or forgoing other essential needs.”
Young told BridgeDetroit he sought the report to help make the case for his proposal to create a guaranteed basic income pilot. The details are still being worked out, but Young said the idea is to provide $500 monthly checks to 125 Detroiters at or below 133% of the federal poverty level for up to 24 months. The City Council requested a $3 million allocation of federal COVID relief funds to pay for such a program, and Young said he is exploring partnerships with nonprofit groups to find additional funds.
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“We are the poorest big city in America at a 33% poverty rate and this is something that would be absolutely devastating; a $400 emergency for working families,” Young said Wednesday. “It’s something very important that we need to talk about and deal with. We need to make this investment, but also encourage the federal government to do something long-term and take up this kind of policy.”
Young commissioned a separate LPD study in February to examine guaranteed income programs created in Chicago, Los Angeles, Minneapolis, Pittsburgh and other cities. There are at least 40 municipalities engaged in discussions for pilot programs and 22 other pilot programs are underway, according to the report. Most used American Rescue Plan Act funds, while others relied on partnerships with philanthropic organizations and private foundations.
Young hasn’t formally introduced his proposal yet, and didn’t say when he could be seeking the council’s approval, but said the $3 million in ARPA money has been set aside while he works to build coalitions with community leaders to help him gain support
Young said he’s working to partly model his proposal after a guaranteed income pilot launched in Stockton, California in 2019. There, the city gave 125 residents $500 per month for two years. Eligibility was based only on whether residents lived in a neighborhood where the median income was below the city’s overall median income, with no other strings attached.
Independent research on the first year of Stockton’s experiment found people used more than a third of the money for food, with the rest largely going toward utilities, auto repairs, medical care and other basic needs. Less than 1% of tracked purchases, it found, were for tobacco and alcohol.
The research showed that full-time employment rose among those who received the funding. Recipients also reported positive effects on their mental health, as they were relieved from the anxiety, stress and depression that comes with being financially strained. It also provided benefits for networks of family and friends who share resources.
“This changes the discussion about people who are poor,” Young said. “A lot of times we demonize the poor, we don’t want to give them money. The (result in Stockton) is something that really changed a lot of people’s minds about how they feel about the poor and how they feel about providing cash transfers to the community, especially now when they need it during these inflationary times.”
Members of Congress, including U.S. Rep. Rashida Tlaib, D-Detroit, introduced bills in recent years to create a similar pilot program at the federal level. So far those efforts have been unsuccessful, but the idea has gathered steam in the wake of the COVID-19 pandemic. The proposals are similar to a universal basic income platform championed by Andrew Yang in his 2020 Democratic presidential bid.
The 133% poverty threshold is used for various kinds of social programs, including subsidized health care. Using that standard, a single person earning $18,075 and family of four earning $36,908 would qualify for Young’s guaranteed income proposal.
The LPD memo notes that Detroit remains one of the poorest large cities in the country and “with that title comes additional issues related to education, healthcare, and crime.” Despite income levels, most in Detroit are on a tight budget, it reads, with about 75% of the expenditures for families living at or below the poverty line go toward food, transportation, rent, utilities and cellphone service.
The report also points to other challenges; low-income individuals often can’t qualify for a mortgage. They often have no other option except to pay monthly rent which never builds wealth. Many Detroiters live in “food deserts,” with less access to healthy food, and unhealthy living conditions in poorly maintained apartments. This can contribute to health problems which become expensive when left unaddressed.
“Indeed, many of our poorest citizens live paycheck to paycheck, a phenomenon that affects all income levels,” the LPD memo reads.
The $400 emergency is a common benchmark used to study the financial stability of Americans living paycheck to paycheck. The Federal Reserve looked at the question in a recent report on the economic well-being of U.S. households. It found around 64% of adults could cover an unexpected $400 bill using cash, 15% would put it on a credit card, while 12% couldn’t afford the expense at all.
The Federal Reserve found more than a quarter of adults couldn’t afford their living expenses if hit with a $400 emergency. Falling behind on bills can create a snowball effect for vulnerable families, in some cases leading to eviction, foreclosure and displacement.
The effects are likely more disastrous in Detroit, which has a higher rate of poverty and lower incomes overall compared to the rest of the country.
The U.S. Department of Health and Human Services set the federal poverty income threshold as $27,750 for a family of four with two children and $18,310 for a single parent with one child. Detroit’s median household income is $32,498, according to the U.S. Census Bureau, while the state of Michigan’s median household income stands at $59,234.
Detroit’s poverty rate is estimated to be 33% by the census, with 219,317 Detroiters living below the federal poverty line.
The city’s poverty rate is more than double Michigan’s rate of 14% and much higher than the national poverty rate of 11%. Black Americans had the highest poverty rate of any racial group, 20% according to the census. Detroit’s population is majority-Black.
LPD’s report called Detroit’s poverty rate “both horrific and appalling,” but noted that it’s been much worse in recent years. In 2016, Detroit’s poverty level was 39%, making it the city with the highest concentrated poverty rate among the top 25 metropolitan areas in the country.
The city has access to a one-time pot of $826 million in federal funding provided through the American Rescue Plan Act. Detroit allocated $37 million to address intergenerational poverty through home repairs and affordable housing services, among other things.
Detroit officials had another look at the economic standing of its residents during a revenue estimating conference Monday. A University of Michigan report on Detroit’s economic outlook forecast the rising risk of a national recession, but employment here has largely recovered since the pandemic.
The report found wage growth is increasing, but inflation will eat away at those gains, leading to a decline in wages when adjusted for inflation. Household income growth is projected to lag behind inflation this year as well.
“We estimate that the average wage at jobs located in the city treaded water in 2021 as lower wage workers returned from the pandemic,” the UM report states. “Wages are projected to climb by 6.6% this year, but those gains will be outpaced by high inflation.”
Detroit’s unemployment rate sits slightly above 10%, according to the report. Jobs are returning to pre-pandemic levels, but the leisure and hospitality industries are worse off than they were before COVID-19 struck the country.
Jobs that require a high level of education and jobs that don’t require college degrees have also failed to bounce back to pre-pandemic levels, the report found.