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Forefront Friday – Remote Work Impact
It has been seven years since the City of Detroit emerged from the largest municipal bankruptcy in the history of the United States. The bankruptcy allowed Detroit to come out leaner by shedding $7 billion in debt. COVID-19 and the diverse range of return to the office scenarios employers have implemented, such as reduced, hybrid or remote, threaten the $100 million in annual surpluses Detroit has been operating with post bankruptcy.
Commuters create revenue to cities like Detroit in the form of city income tax on wages. However, if employees don’t live in the City and are working remotely, by state law, they are not required to pay city taxes. This has a direct impact on the finances of cities like Detroit with a large population of commuters.
To give you an idea of the financial impact, GM alone has approximately 5,000 employees in the Renaissance Center most of whom are working remotely from which the city will not receive income tax revenue. Detroit estimates it lost about $55 million in income tax revenue for 2021 with about 40% of nonresidents working remotely. 2022 is expected to see a similar loss of approximately $53 million. The City estimates 30% of non-residents will continue to work remotely through June 2023 and then 20% thereafter at least through 2026. The financial impact is significant since Detroit has to start making $163 million in annual pension contributions in mid-2023.
Time will tell how actual numbers play out but certainly in the near term, Detroit will need to find alternatives to deal with long-term fiscal challenges the post COVID environment has created.