Detroit restructuring plan will add jobs in city, tax expert testifies
Detroit — The city’s restructuring plan would boost employment in Detroit and lead to growth in taxable income, a forecaster said Monday, marking the start of testimony in the city’s landmark bankruptcy trial.
Tax forecaster Robert Cline is the city’s first witness to testify during a trial that will determine whether Detroit can implement a plan to dump $7 billion in bankruptcy court. Cline is testifying about tax revenue projections for the next decade, data that serves as the cornerstone of Detroit’s bankruptcy plan.
“The restructuring would make a difference in terms of economic growth rates for the city of Detroit,” Cline testified Monday.
The trial is supposed to start Aug. 29 but Cline was allowed to testify early because he is living in Paris and is unavailable during the trial. The city’s legal team said Cline’s testimony is relevant to the feasibility of Detroit debt-cutting plan.
Cline, who is charging $754 an hour to forecast Detroit’s tax revenue, analyzed future casino, income, corporate and utility taxes.
Cline also projected a “strengthening of Detroit’s economy” and a “reasonable but modest increase” in income tax growth over the next 40 years.
He also forecasted a 1 percent growth rate in revenue from the city’s gambling tax starting in 2016.
He also projected Detroit’s population, which has fallen from about 2 million in the 1950s.
By 2050, the city’s population could fall to 641,354, Cline testified.
The rate of Detroiters working in the city will continue to decline over the next decade, Cline said -- but at a slower rate than during the 2009 recession.
Under cross examination, an attorney for holdout creditor Syncora Guarantee Inc. pressed Cline about the city’s desire to boost tax revenues.
Detroit’s tax rate is tops among big cities nationwide.
“No one has expressed a desire to increase tax revenues, have they?” Syncora lawyer Doug Smith asked.
“I believe that is accurate,” Cline said.
Syncora’s lawyer also questioned Cline about whether he asked if Detroit planned to try and increase tax rates in a bid to boost revenue.
“I did not,” Cline said.
Detroit ranked first among the 50 largest cities in taxes and last among property values in a 2011 study by the Lincoln Institute of Land Policy in Cambridge, Mass. Detroit taxes on a $150,000 house were $4,885, twice the national average of $1,983. The city's average house price, $16,800, was nearly 10 times lower than the next lowest, Mesa, Ariz.
Michigan law limits how much cities can levy in taxes, and a growing share is being used in Detroit to pay off its debts. Detroit cannot raise taxes because it is at or near statutory tax limits.
The city’s investment banker, Kenneth Buckfire, has said raising taxes is impractical.
“Because the tax burden is already such that increasing tax rates would have a negative effect on revenue because it would cause delinquencies and mass exodus from the city,” Buckfire wrote in a report.
Buckfire is expected to testify during the trial.
Syncora last week filed a blistering objection to Detroit's bankruptcy exit plan, accusing Chief District Judge Gerald Rosen and attorney Eugene Driker of being “agenda driven, conflicted mediators who colluded with certain interested parties to benefit select favored creditors to the gross detriment of disfavored creditors.”
The bond insurer, which so far has had little success in derailing Detroit's fast-track bankruptcy, wants Rhodes to reject the “grand bargain” on grounds that Rosen's mediation process was “tainted.”
From the outset, Syncora has been the fiercest critic of the “grand bargain” plan to infuse the city's pension funds with the equivalent of $816 million over 20 years in private and public funds in exchange for shielding the Detroit Institute of Arts' multi-billion dollar collection from being sold.
Syncora and fellow holdout creditor Financial Guaranty Insurance Company argue there's more more money to be wrung out of the DIA than the “grand bargain” funders are offering only to 32,000 pensioners, who have approved the plan. City lawyer David Heiman noted Syncora is one of the last major creditors that has yet to settle with the city.
Detroit's art appraiser has valued the museum's 66,000 objects somewhere between $2.76 billion and $4.6 billion, while FGIC's art adviser pegged the collection's value at $8.5 billion.
Chad Livengood contributed