Regulatory Reform

First, Do No Harm: Improving Detroit’s Regulatory Climate

Detroit’s rise and fall is now the stuff of legend, serving as a dark cautionary tale for cities everywhere. Once known as the “Paris of the West,” Detroit saw its population drop sixty percent from its mid-twentieth century peak. In the last decade alone, a quarter of its residents fled the stalled Motor City.

While the misfortunes of the U.S. auto industry certainly didn’t help, it was failed political leadership that ultimately did the city in. After decades of overspending, Detroit faced a 2013 shortfall in excess of $300 million – and a staggering $18 billion in long-term debt. By June of last year the city was in default, and sought Chapter 9 bankruptcy shortly thereafter.

Detroit’s Chapter 9 filing was the largest in the nation’s history. Although it was hardly Detroit’s proudest moment, Chapter 9 offered the city what it needed most: a second chance. A year later, there is already reason for cautious optimism.

After calling itself a “Renaissance City” for so many years, Detroit might finally see its overdue rebirth. Instead of counting on top-down, political solutions, the city is now looking for artists, civil society, and most vitally, entrepreneurs to do what government-driven “urban renewal” has not.

While this new consensus is heartening, the fact remains that Detroit still has much work to do, if it is to attract the human and financial capital it so desperately needs. City officials should, however, resist calls for various taxpayer-funded inducements, and keep in mind the old maxim, “First, do no harm.”

In that Hippocratic spirit, Detroit should resolve to abolish hurdles to new investment within its city limits. The annual Regulatory Climate Index offers a good yardstick for the measurement of progress toward this goal. Inaugurated just this year by the U.S. Chamber of Commerce Foundation, the Index examines five areas of business regulation that might frustrate entrepreneurs.

The good news is that Detroit’s government isn’t the most hostile to business formation. That dishonor belongs to New York City, with its myriad taxes and byzantine zoning regulations. Unlike Gotham, however, Detroit isn’t home to Wall Street and the nation’s largest investment banks. Detroit must, in contrast, be a haven for small business – a segment more vulnerable to heavy regulation.

Out of ten U.S. cities included in the 2014 Index, the Motor City ranks sixth overall. Areas of relative strength are Detroit’s modest administrative fees to start a business, as well as low sales and unemployment tax rates. There remains, however, plenty of room for improvement.

If Detroit truly wants more economic development, it will have to streamline its process for acquiring construction permits. Of the ten U.S. cities in the 2014 Index, Detroit’s process is one of the costliest, in terms of money and time spent. Similarly, the Motor City desperately needs to modernize its property records. Title companies report that Detroit’s records are frequently outdated. The city would also do well to slash its comparatively high real estate transfer tax.

Fairly simple measures would make it easier for those already doing the heavy lifting needed to move Detroit toward a better tomorrow. Moreover, these reforms would boost Detroit’s standing in the Chamber’s 2015 Index and beyond – signaling to would-be entrepreneurs, investors, and residents of all kinds that “Renaissance City” is, at last, more than a slogan.

In Depth: Regulatory Reform

In his first inaugural address, Thomas Jefferson said that “the sum of good government” was one “which shall restrain men from injuring one another” and “shall leave them otherwise free to regulate their own pursuits of industry.” Sadly, governments – both federal and state – have ignored this axiom and…

+ Regulatory Reform In Depth