Sample Economics Paper on Detroit’s Municipal Bankruptcy Petition Analysis

Detroit city attained great success when its automobile industry was thriving in the United States, but the lack of visionary leaders to stir its development in the right direction and poor financial management placed it on the verge of bankruptcy and quick decline. According to the 2020 U.S. Census, Detroit is the largest municipality in Michigan, with a population of about 667,270 people. The mean age in this city is 34 years, with the population characterized by more women than men (Markel, 2020). Detroit comprises different ethnic groups, with the majority being African American, followed by Whites, Asians, Native Americans, and then Native Hawaiian.

Revenue Sources and Expenditures in The Last Three Years

Detroit’s tax structure is directly connected to the local economy’s operations, despite the declining revenue streams. The city has several revenue sources, including local and shared taxes. The local taxes comprise property, income, wagering, and utility taxes. The municipal’s utility tax was estimated at an average of $40 annually over the past four years, with taxes derived from the gas industry, telephone landlines, steam, water, and electricity (Abott & Singla, 2020). The authors further note that there has been a 1% increase in wagering tax over the past three years, attributed to the fact that 11.8% of the total receipts earned by the various casinos and gaming centers contribute to it (Abott & Singla, 2020). Other sources of revenues emanate from service charges, penalties, and fines. Salaries and wages constitute the largest share of the city’s expenditure, followed by others like employee benefits, housing, fire, and revitalization.

Impact of the Issues Contributing to the Municipality’s Budget Deficiencies

In 2013, the Mayor of Detroit announced the resolution to file for bankruptcy in the Federal court following serious financial problems that faced one of Michigan’s largest municipalities. The economic decline was attributable to young, educated individuals moving to other cities searching for greener pastures. Political interference and the disintegration of the automobile industry, which was the significant economic activity in the area, also contributed to the decline. The decrease in revenue collection resulted from a decrease in the city’s population (Markel, 2020). The city’s escalating debt also poses a challenge to budgetary allocation and depletion of the reserve cash. Policies, racial discrimination, and corruption have also contributed to this deficit. The budget deficit resulted in salary cuts in some industries and reduced the city’s credit value. Some of the companies/industries experienced permanent closure, which led to an increase in the rate of unemployment, poverty levels, and crime in the city.

Alternative Financing Options

Detroit’s experience is an indication of the various challenges faced by cities and the high level of preparedness they require to survive by expanding their financing options. The city experiences growing demands against a tight budget. In the face of this calamity, various alternative options can help the city raise funds for its critical needs. Crowdfunding is the most suitable alternative financing option through which the city’s industries will sustain their production. This involves several investors giving small contributions to prevent the industry from collapsing due to bankruptcy. Grants can also be used to settle debts since they do not have to be paid back. These alternative options would enable Detroit to expand its financial sources. However, it is the voters that ultimately decide the level of services and taxes to fund the city’s operations.

 

References

Ponder, C. S., & Omstedt, M. (2019). The violence of municipal debt: From interest rate swaps

 

Markel, S. (2020). The Impact of Bankruptcy, Duty Related Stress, and Policing in Detroit.