According to the 2017 census, Detroit is the most populated city out of 692 cities in Michigan with an area compassing 370 km2 and is home to over 650,000 Americans (“Detroit demographics summary,” 2018). For long, the population of the city had been dominated by Blacks or African Americans, but lately, Whites have started to move into the city. According to a report, Blacks represented 79.4% and Whites represented 9.5% of the city’s population. The median income of Detroit residents was $26,249 in 2016, and the median age of its residents was 34.8 years (“Detroit demographics summary,” 2018).
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Evaluation of Major Sources
According to the Comprehensive Annual Financial Report (CAFR) published on the state website, the significant revenue sources include taxes (property taxes, municipal income tax, and wagering tax, etc.), licenses & inspection charges, and sales & charges for services (“Budget, audit and other financial reports,” 2018). In 2015, property taxes amounted to $190 million, which increased to $205 million in 2016 followed by a decrease of $13 million to $192 million in 2017 (Detriotmi, 2018). The revenue arising from the municipal income tax was $263 million in 2015 and 2016, and it increased to $284 million in 2017 (“Budget, audit and other financial reports,” 2018). The government collected a wagering tax of $172 million in 2015, $180 million in 2016, and $177 million in 2017 from residents. The revenue from services charges was $131 million in 2015, which decreased to $120 million in 2016 and then increased to $133 million in 2017 (“Budget, audit and other financial reports,” 2018).
The substantial expenditures of the city included development and management, public protection, and economic development. The city’s spending on development and management was $548 million in 2015, which significantly decreased to $281 million in 2016 and increased to $319 million in 2017. It allocated significant funds to public protection (“Budget, audit, and other financial reports,” 2018). It spent $408 million on public protection in 2015, $423 million in 2016, and $449 million in 2017. Economic development also represented a significant expenditure account, which amounted to $64 million in 2015, $61 million in 2016, and it considerably reduced to $39 million in 2017 (“Budget, audit and other financial reports,” 2018).
The financial report issued by the city authorities shows a fund deficit of $128 million in 2015. However, a surplus of $206 million and $112 million was recorded in 2016 and 2017 respectively (“Budget, audit and other financial reports,” 2018).
Impact of Issues Leading to Budget Deficiencies
Phinney (2018) suggests that the city’s pensioners and former government employees together with non-taxpayers led to the financial decline. He also added that the austerity programs that aimed to reduce the government’s budget deficit by cutting public spending and increasing taxes impacted racialized poor communities. It implies that the government was unable to manage the city’s affairs efficiently and failed to provide its residents with the required services because of low revenue from taxes. The investors’ confidence in the security of municipal bonds was also negatively affected. Therefore, the government did not receive any substantial investment funds.
Alternative Financing Options
Relying on financial gatekeepers like credit rating agencies and technocratic forms of financial management can be useful for the city government as they can assist in improving the credit rating of its bonds. Lastly, the art collection of the Detroit Institute of Arts is worth billions of dollars, which the city’s municipality may auction to raise sizeable revenue for overcoming the budget deficit.
Budget, audit, and other financial reports. (2018). Web.
Detroit demographics summary. (2018). Web.
Phinney, S. (2018). Detroit’s municipal bankruptcy: Racialised geographies of austerity. New Political Economy, 23(5), 609-626.