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Why a bankrupt Detroit treats the auto industry like a charity case

September 23, 2013

There's no framing device used more often in writing about Detroit than juxtaposing the plight of the have and the have-not. It's inevitable in a city where stadiums, casinos and high-end restaurants sit side-by-side with abandoned factories and overgrown lots. Today's New York Times offers another such piece, noting how the city of Detroit's bankruptcy comes even as the U.S. auto industry surges to new heights of profits.

Bill Vlasic's story, "Detroit is Now a Charity Case for Carmakers," details how General Motors, Chrysler and Ford have increased their charitable giving in the city as it now faces its greatest financial crisis. And the story lays out how despite the comebacks at General Motors, Ford and Chrysler, the three corporations simply don't employ enough people to lift the city back to prosperity as they once did.

But there's a flip side to this comparison: As much as the auto industry pays alms to Detroit, Detroit has given carmakers millions of dollars in tax breaks over the past decade, even as it went broke.

Well before the GM and Chrysler bankruptcies, the auto industry had whittled away many of its jobs inside Detroit; today, there's only one plant — Chrysler's Mack Avenue factory — building motors in the Motor City. Ford hasn't had a factory in Detroit in decades; Chrysler has one full-size plant building SUVs and another small shop for the Viper, while GM builds the Chevy Volt, Malibu and Impala at its Detroit-Hamtramck plant, for a total of about 7,000 workers. As for white-collar jobs, only GM has corporate headquarters inside city limits; Chrysler moved to Auburn Hills, Mich., in 1993, and opened a small satellite office downtown last year.

Those 2,000 jobs at GM's headquarters in the Renaissance Center stayed in Detroit only after an extraordinary battle during GM's bankruptcy in 2009. After a suburban Michigan mayor offered GM millions of dollars in tax breaks to move, and the RenCen was listed as an asset GM might sell in bankruptcy, local politicians scrambled. Only after President Barack Obama personally intervened did GM drop the idea, but not before winning a package of state and city tax breaks worth an estimated $221 million to stay. Of that, some $15 million to $21 million came from the City of Detroit.

It's not just carmakers who've left; the city has also suffered as auto parts suppliers such as American Axle have moved work to southern states or Mexico. But the job losses and tax breaks combined to speed the decline of much-needed revenues and the city's bankruptcy; as this chart pulled from Detroit's bankruptcy case by Ed Niedermeyer shows, the city's withholding tax income from the auto industry fell from about $56 million in 2001 to less than $5 million in 2011. In that same report, the city warns that it does not expect a gain in corporate income taxes from GM's billions in profits this year because it will use tax credits for previous years' losses that GM preserved in its own bankruptcy.

There's nothing illegal or illicit about such breaks, and one can argue any business in Detroit would have been dumb not to pursue them. According to data from Good Jobs First, a tracking organization, Detroit has granted at least 125 separate property tax breaks over the past 20 years to keep jobs in the city. Chrysler has said earlier this year it still pays $12 million a year in property taxes to Detroit — but it won an exemption valued at $40 million from city taxes in 2008 to re-tool the Jefferson North factory, and has an exemption from some taxes on the Conner Avenue Viper plant good through 2022.

Detroit and Michigan's political leaders granted these breaks with clear eyes and fearful hearts; at the time of the GM tax deal in 2009, Detroit Mayor Dave Bing worried that if the automaker left downtown it could take thousands of supporting jobs with it and leave the city's iconic skyscraper empty. Detroit's bankruptcy has pushed forward its hard choices about how to pay for retiree's health care and whether it should sell treasures from its museums. But the case likely won't change the city's worries that fighting its chronic unemployment will inevitably require more than faith in corporate charity.