There seems little question that the greater downtown area provides the economic heartbeat of Detroit.

The 7.2-square-mile greater downtown covers just 5% of Detroit's land area but contains an estimated 58% of all the jobs in the city, along with Detroit's major sports, culture, government and financial entities.

But if the greater downtown dominance is booming, what remains open to debate is whether the benefits of a revitalized downtown and Midtown are spreading to the city as a whole.

There's perhaps no right answer. But there are bits and pieces of economic data that suggest that the greater downtown may be operating as an economic island unto itself, generating a lot of financial activity that mostly stays within its tight confines.

These data points are suggestive rather than conclusive. But they do provide plenty to talk about.

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Who's not paying taxes?

To cite just one example, when it comes to property taxes, the greater downtown pays less into the city's treasury than one may think.

Among the reasons:

1. Nonprofits by law don't have to pay

Many of the city’s biggest nonprofit institutions that by law don’t pay taxes — schools, hospitals, museums, churches — are located in the greater downtown. They make up about 15% of all the parcels located in the 48226 (downtown) ZIP code and large swaths of the Midtown area, home to Wayne State University, the Detroit Institute of Arts and similar institutions.

That’s not unusual among cities, where such institutions typically cluster in the central part of a city. But it does reduce the tax bounty that a vibrant area would otherwise produce.

2. Big developers negotiate (and governments approve) big tax breaks

In addition, many of the newest private developments in the greater downtown, dozens of them according to state tax records, enjoy tax abatements that reduce their bills. The biggest projects of all, like businessman Dan Gilbert’s Hudson’s site skyscraper now under construction, enjoy lucrative tax breaks under the state’s new “transformational” tax abatement law.

In May 2018, the Michigan Strategic Fund approved tax incentives worth $618 million over the next 30 years for the Hudson's project and three others led by Gilbert. In another recent case, Ford is in line for more than $230 million in public incentives to transform the old Michigan Central Station, including city and state assistance.

Many of the deals have drawn criticism. The deal to create Little Caesars Arena allowed privately owned Ilitch Holdings to reap all the revenue from parking, concessions and naming rights at the city-owned arena. Had the deal negotiated with the city's Downtown Development Authority been structured differently, at least some of that money could have gone to the city instead.

3. Millions in tax revenue goes toward marketing Detroit

A good chunk of the taxes that are collected downtown stay downtown rather than going into the city’s general fund or to local schools. Under the city’s tax increment financing plan, the Downtown Development Authority “captures” a slice of property taxes that otherwise would go to support schools and the city’s general fund.

In fiscal 2018, that tax capture totaled about $35 million. Of that, $13.8 million that might otherwise go to the city's general fund is a relatively small piece of the city's roughly $2 billion annual revenues, but big enough, say, to pay for at least 100 more police officers.

Under the TIF plan, created in the 1970s, a portion of property taxes from new developments goes to the DDA to use to promote further new development. That’s been crucial for downtown’s revitalization, said Glen Long, chief financial officer of the Detroit Economic Growth Corp. Without that TIF tax capture, he said, the DDA would have no money to help bring about the many new developments that are creating thousands of new jobs and millions in tax base.

“Just look back to the arena, right?” he said in a recent interview, referring to Little Caesars Arena. “You know what was north of the freeway. There was not too much there. And obviously the arena isn’t taxable but all the other things are.”

But some argue that even if TIF helps create development that otherwise wouldn’t occur, more of the downtown taxes collected should be going to schools and the city’s general fund.

In a recent opinion piece, John Mogk, longtime professor of development law at Wayne State University, argued that too much of the property taxes generated in the booming downtown are remaining downtown thanks to TIF.

“The unfairness becomes greater as downtown continues to prosper and neighborhoods continue to struggle,” Mogk told the Free Press.

But does it matter?

Some suggest generous property tax breaks and the TIF system may not matter much in a city that relies more on a local income tax, utility tax, parking revenue and casino gaming taxes.

"The thing you have to keep in mind with Detroit that is different than most of the cities in Michigan is that the property tax constitutes a minor share of the total revenue picture," said Eric Lupher, president of the nonprofit Citizens Research Council of Michigan that periodically offers deep analyses of city and state finances.

And Lupher said that issues like tax abatements and the tax increment system have no easy answer.

"That's an eye of the beholder question," he said. "It’s hard to do the 'but for' — is Dan Gilbert going to leave Detroit but for the tax abatement? Well, probably not, given that he’s made such an investment to be there.

"Is he going to build fancy new buildings without the tax abatement? He will tell you that the math doesn’t work, and for a long time the math hasn’t worked for new buildings in Detroit."

But even admitting that, some skepticism is still warranted, Lupher said.

"I’m personally and professionally skeptical of the tax incentives that we often use in many communities ... handing them out far too freely and (that) don’t have enough clawback provisions" that would allow cities to recover foregone taxes in case the companies benefiting don't deliver on their promises.

Among the questions Lupher asks: "How does the rest of the city benefit from the tax abatements that (downtown) will get? Is there enough retention of jobs built in? Is there enough hiring Detroit talent built in? Are we insuring that these companies are going to stay around long enough that there’s long-term benefit for the city from these types of things?"

About those 'residents'

Even if reduced property taxes don't matter much in Detroit, that places more emphasis of the city's income taxes — and on the residents of the greater downtown who don't pay it.

Tax avoidance in the form of people living downtown but claiming suburban residency to avoid city income taxes or high auto insurance rates is often cited as a problem.

How big an issue is it? One indication comes from the American Community Survey, a product of the U.S. Census Bureau. The survey estimated that in 2016, 20,451 people lived in the 48226 (downtown) and 48201 (Midtown) ZIP codes. But data from the Internal Revenue Service showed tax filers claimed just 9,740 exemptions that year. The IRS believes the number of exemptions approximates a total population for a given area.

And if a 2-1 ratio of residents to tax exemptions claimed was not enough of an indicator of possible tax avoidance, consider this: While the population of those two ZIP codes increased 33% between 2011 and 2016, the number of exemptions claimed on IRS returns actually dropped, to 9,740 from 9,816. That would normally indicate a smaller population, not a boom in new residents.

In recent years, the City of Detroit has tried to ferret out tax avoiders in several ways, including demanding downtown landlords turn over the names of residents to be checked against tax rolls. Generally, landlords have refused, citing the privacy of their tenants, but gradually the city has made progress in collecting back taxes.

City officials agree some downtowners have valid reasons for not filing tax returns. Many elderly residents may not have any taxable income and therefore don’t need to file. The number of government-subsidized senior residential units in the greater downtown indicates that this population could number a few thousand.

But any level of tax avoidance deprives the city of needed tax revenue, said Gary Sands, a longtime professor of urban studies and planning at Wayne State University who has written extensively about tax policy in the city.

“City residents claiming a suburban home address is definitely a problem,” he said. “The short-term gains from their spending in Detroit is probably more than offset by the taxes that they do not pay.”

And Mogk, the Wayne State law professor, echoed that.

“All city income tax payments that are avoided mean less revenue to support services citywide where there is a great need,” he said.

What downtown, Midtown contribute

Now, there’s no doubt that downtown and Midtown support Detroit in many ways. Major employers like Wayne State University, Detroit Medical Center and local courts are all found there.

So, too, are many of the cultural and sports venues that help create Detroit’s identity, from the Detroit Institute of Arts to the home of all four of the city’s major league sports franchises. The soon-to-be-renamed Cobo Center draws millions of visitors a year, and signature events like the annual North American International Auto Show reinforce Detroit’s reputation for design and innovation.

Those events and venues generate sales and income tax revenue as well as millions in revenue for hotels, restaurants, and other private businesses.

And Detroit’s growing reputation as a “comeback” city relies largely on the new vibrancy found in the greater downtown, where dozens of new restaurants and shops have opened in the past few years.

Having said all that, it’s also clear that the web of financial and tax arrangements created to boost development in downtown and Midtown means that potential tax revenue that in theory would support the city isn’t being collected.

Urban experts such as authors Richard Florida and Alan Mallach have argued recently that the newly vibrant downtowns of many cities, once hailed as something that would spread benefits citywide, have mostly operated as enclaves unto themselves.

In his book "The Divided City" (Island Press, 344 pages, $30), Mallach writes of the divide between downtowns and neighborhoods in many metropolitan areas: "These cities are turning into places of growing inequality, increasingly polarized between rich and poor, white and black, with unsettling implications for the present and the future."

Changes needed?

In a way, the greater downtown's recent revival may still be too new to force a course correction, even if one is needed. But the debate continues over tax abatements and other things that cut into badly needed revenue.

"There’s certainly room for improvement," Lupher concluded. "When you’re on the path to bankruptcy, you want anybody who’s willing to think about coming.

"The stronger Detroit gets, I think the more leverage the city gets to not just hand it out indiscriminately but really make those decisions."

Contact John Gallagher:313-222-5173 or gallagher@freepress.com.Follow him on Twitter@jgallagherfreep. Read more on business and sign up for our business newsletter.