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The critical role of incentives in Detroit’s economic development

Oct 26, 2021

Kevin Johnson, DEGC President & CEO

For too many years, blighted and vacant buildings like the former Cadillac Stamping Plant and Michigan Central Station sat as reminders to the world of what Detroit once was, and what it had become. Thanks to tools that enable economic development, those facilities – and others like them – are seeing new life and providing new opportunities for Detroit residents.

Even as our city continues to feel the impact of the COVID-19 pandemic, Detroit is seeing new growth. Of the more than 50 projects announced in 2019 and 2020, only a handful have been placed on hold. The others are moving forward, under construction or near completion. In fact, 12 new development projects have been announced since March 2020, totaling an additional $170 million. These numbers prove that our development strategy is sound. They’re also proof that incentives work and are critical to the continued growth of our economy.

Rustbelt cities like Detroit are transforming as they compete for new investment, often with communities that offer enormous cost advantages. It’s simple math: Despite what looks like a city with endless fields of opportunity, every square mile of Detroit comes with legacy issues. Before Detroit can court developers and investors, we must first unlock the land. This is a hugely expensive and time-consuming process that can include securing property from private owners, assessing its condition and preparing it for productive use. The $2.8 billion Stellantis investment is a great example of that process.

By comparison, greenfield sites like farmland are essentially shovel ready. They don’t require the removal of contaminated soil, demolition or infrastructure improvements. When you add environmental remediation and blight removal to the rising cost of construction, taxes and other structural expenses, Detroit is often at a competitive disadvantage compared to other sites. Without new investment, the city’s economic engine grinds to a halt.

Incentives are a way to level the playing field and enable Detroit to be economically viable. Unfortunately, this tool is often misunderstood and vilified as a corporate handout. It’s an emotionally easy argument to make: Why do billionaire developers and Fortune 500 companies deserve millions of dollars in incentives that cost our citizens and take from our schools?

First, the argument is a misconception. There are no property-tax incentives that pay developers upfront to start a project in Detroit. Incentives help developers recoup costs associated with obsolescence and environmental cleanup once a project is completed. Second, every project that receives an incentive must have a positive cost benefit to the city and its residents. Third, no school funding is ever diverted to developers. In the case of a tax abatement that impacts future school funding, the gap is closed by the Michigan Strategic Fund.

Research conducted by the Pew Charitable Trusts indicates that targeted incentive programs tailored to address specific local needs are most effective. This includes tax incentives that alleviate concentrated economic distress, such as unemployment and poverty. The DEGC team is addressing these issues by utilizing Enterprise Zones, Community Development Block Grants, Opportunity Zones, Tax Increment Financing (TIF) and other similar tools.

In economic development, DEGC operates on two absolutes:

  1. Only projects that absolutely require an incentive to close the deal receive an incentive.
  2. In any development deal, Detroit always comes out on top. Incentivized projects must create revenue, drive neighborhood investment, provide jobs and bring other benefits that exceed the value of the incentive granted.

DEGC is working closely with the city, state and region to make Detroit competitive, thereby increasing our consideration for new investment. We are committed to removing hurdles that prevent new development and creating a business-friendly environment. As such, incentives will continue to be a powerful tool to make Detroit an economically viable choice for inclusive opportunity.

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