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Detroit CFO says higher taxes wouldn't help city

  • Article by: ED WHITE
  • Associated Press
  • September 5, 2014 - 3:20 PM

DETROIT — Detroit residents are "highly taxed" and imposing even higher taxes wouldn't be a good way to take the city out of bankruptcy, the chief financial officer testified Friday.

John Hill, who was recruited last fall from Washington, D.C., wrapped up his testimony at a trial that will determine whether Detroit emerges from the largest public bankruptcy in U.S. history. The trial in front of Judge Steven Rhodes began Tuesday and will last for weeks.

Detroit's plan includes cutting $12 billion in debt to about $5 billion and spending $1.7 billion over the next decade on quality-of-life improvements, especially demolition of thousands of abandoned homes. Many retirees would see a 4.5 percent pension cut. No tax increases are planned.

The city is a "highly taxed jurisdiction and one suffering from long-term economic crisis. ... It would be very difficult to imagine a scenario where this city would benefit from raising taxes," Hill testified.

The income tax on city residents is 2.4 percent, highest in Michigan. Non-residents who work in Detroit pay 1.2 percent. Residents also pay a 5 percent utility tax.

In January, Mayor Mike Duggan announced plans to cut property assessments on homes by as much as 20 percent, resulting in lower property tax bills, after years of excessive assessments.

In response to questions from the judge, Hill said it's important that city leaders keep a "crisis mentality" in the months ahead to successfully implement any post-bankruptcy plan.

Hill said it could take two years to get the best use from a new computer system.

Rhodes also heard from Charles Moore of Conway MacKenzie, a turnaround firm that has been advising the city. He testified about the $1.7 billion to be spent on a range of improvements, from removing blight to reopening parks to hiring more people to check parking meters.

Absenteeism is "30 to 40 percent. ... The driver of revenue in this department is the ability to issue tickets," Moore said.

Moore also testified about Detroit's plan to recoup more than $200 million in generous annuity returns from retirees whose accounts were credited with interest by the pension system in good market years and bad.

He said a retiree who invested $100,000 cashed out with $1.4 million, an annual return "well into the 'teens."

© 2014 Star Tribune