City Studies

How Detroit Drives Out Motor City Entrepreneurs

By Dana Berliner [Economic Liberty]

Read Executive Summary


Introduction

When Henry Ford started his business in Detroit around the turn of the century, he began working with automobiles in his garage. Over time, he developed ideas, implemented them, purchased buildings, and built a huge business, employing thousands of people and bringing increased prosperity to the city. Although few entrepreneurs go on to create businesses as large as Ford Motor Company, many start the same way-with a good idea, the willingness to work hard, and a little bit of room at home.

The tradition of entrepreneurship and industry lives on in Detroit among Detroiters. Throughout the city, people start businesses in their homes and small retail stores in their neighborhoods; they drive cars for money, and braid hair. In fact, 85 percent of Michigan businesses have fewer than 20 employees, and small businesses employ one-quarter of all Michigan workers.1 But unlike the days of Henry Ford, small businesspeople now must confront a bewildering array of legal requirements and regulations in order to earn a living. Many become discouraged and give up their dream; many others simply ignore the rules and hope for the best.

A multitude of licenses, permits, and inspections faces Detroiters hoping to open a business. Indeed, it seems that nothing can be done-no business can be started-without a permit. Completing all the regulatory requirements usually takes a lot of time and money. Finally, it can be extremely difficult even to get accurate information about what is necessary.

From the degree that small business is discouraged one would expect that Detroit's economy was flourishing and business should have to beg for the privilege of operating. Instead, Detroit has high unemployment, high poverty, and empty buildings noticeable even to a casual observer. According to the latest census data, in fact, Detroit had the highest unemployment rate, poverty rate, and rate of persons receiving public assistance in the country.2 While Detroit's economy has begun to look up, the City needs to do everything possible to get out of the way of entrepreneurs seeking to make an honest living.

For a first step, the City should review all regulations that affect small businesses and determine whether each regulation is narrowly tailored to fulfill a legitimate governmental objective without unduly hampering enterprise. If a regulation does not satisfy this standard, it should be reformed or repealed, and all new regulations should be measured against this standard. Second, the City should combine or eliminate all duplicative procedures. The number of licenses and permits required for businesses now is staggering. Governor John Engler's Legal Division and Office of Regulatory Reform has begun this process, rescinding more than 2,000 regulations, but most of the repealed regulations were either outdated or duplicative. Few actual barriers to business start-up were removed.

The State of Michigan requires licenses for 205 occupations. An additional 60 or so occupations require licenses from the City of Detroit; businesses often need building or equipment permits, of which there are more than 70. For example, a junk dealer needs an occupational license; his truck needs its own license; and the junk yard needs yet another license.

Ceilings

Immigrants and those outside the economic mainstream have gained a foothold in this country in two major ways: driving vehicles-for-hire and street vending. These occupations do not require formal education or large financial resources. An entrepreneur can earn a living simply by working hard.

Or at least it used to be that way.

Detroit sharply limits the number of taxicabs and bans other forms of community transportation. Through other ordinances, it also lowers the quality of work life for drivers, drives up the costs of owning a cab and lowers the profit for those who lease. The City also has capped the number of food vendors downtown; while it supposedly has not capped other types of vendors, in practice, securing the appropriate permits for any vendor can be next to impossible.

Taxis

It is a difficult and dangerous occupation,3 but driving a taxicab traditionally has been one of the ways that low-income persons earn money for themselves and their families. However, taxi driving is becoming a less accessible form of self-employment, and the City of Detroit certainly does its part to keep low-income residents out of this occupation.

The most formidable barrier is the limit Detroit has placed on the number of taxi licenses (also called "bond-certificates"). Because there are only 1,310 licenses available, it is expensive to obtain the right to drive a taxi. New taxi-owners cannot purchase licenses from the City and instead must buy them from previous owners. The cost of the licenses ranges from $6,000 to $10,000 on the open market.4 Although technically one may apply for an additional taxi license, the would-be taxi owner must demonstrate "public convenience and necessity" at a public hearing, a virtually impossible task. No one has ever successfully obtained a license through this process. In fact, the larger taxi companies want the City to license even fewer cabs than it does already. As a consequence, many drivers are forced to lease cabs at a rate of $46 for 12 hours or $72 for 24 hours.

Once a driver has found a medallion to purchase, the taxi must pass a police inspection for cleanliness and safety. That seems reasonable enough, but the taxi inspectors are notorious for their capriciousness. One owner of a smaller taxi company reported that police refused to list all improvements necessary to pass inspection. The inspector would mention one item to correct, send the car back, and then raise another problem when the car returned. Thus, it often takes numerous visits in order to secure approval for the vehicle, and inspectors can refuse approval for something as minor as paint scratches. Taxis must undergo this process twice each year, and each round through the process can take the better part of several days. As of January 1997, it will costs $70 per inspection.5

In addition to the inspections, each taxi also must have a vehicle license, and the driver must obtain a police check, a State of Michigan chauffeur's license, and a City of Detroit public driver's license. In all, applicants must satisfy more than ten requirements in order to begin driving a taxi.

On top of the application process, taxi drivers face a final barrier in the form of excessively stringent regulation of their conduct. A Detroit ordinance prohibits drivers from getting out of their cars, for any length of time, while at a taxi stand. Recently, police have begun enforcing the ordinance literally and have ticketed taxis left momentarily by drivers who get out to grab a candy bar or stand outside to wipe the car down. Several drivers have reported that this harassment was the last straw and that they will now leave the business entirely.6

As a result of all these barriers, taxicab medallions command an artificially high price on the open market and entrepreneurs seek to avoid these regulations in numerous ways, both legal and illegal.

Sedans, Limousines and Vans

Vehicles with the appropriate licenses and medallions to operate as a taxicab can operate instead as a "sedan" and charge an hourly rate. The yearly cost of a sedan license is $288. The 1,310 vehicle cap applies to the total of taxis and sedans. As a consequence, only four or five sedans, all licensed to one company, operate in Detroit. In addition, sedans can carry no more than six people, must be no more than two years old, and the driver must wear a uniform.

A 1996 revision to the vehicle-for-hire ordinances announces that Detroit will place a cap on the number of limousines and vans in the city and will establish additional regulations for these services. Under City regulations, a "limousine" essentially is any car service with a fixed hourly rate, while vans operate on a fixed per-person rate. (Michigan does not distinguish between these two categories; the same regulations apply to all vehicles carrying fewer than 15 passengers.)

In 1982, Michigan removed its cap on the number of for-hire vehicles. While the licenses remain expensive, there is no arbitrary limit on their number. The start-up costs of approximately $450 in licensing fees is much less than the $6,000 to $10,000 required to obtain a Detroit bond for a sedan.7 Because the bonds are so expensive, many drivers of car services decided to simply ignore the Detroit regulations and instead comply with the less onerous State of Michigan regulations for limousines.8 The City, of course, maintains that these services fall under Detroit jurisdiction.

Meanwhile, several taxi companies have sued the car services for operating without the proper licenses. One of the issues to be decided in the case is whether the limousines and car services must comply with Detroit regulations. There has been no decision yet,9 but the decision is bound to profoundly affect the future shape of transportation services in the Detroit area.

Jitneys

Detroit's determination to stifle commuter vans and car services is particularly ironic in light of the failure of its public transportation monopoly.10 Dubbed "The Motor City" for its automobile industry, Detroit never evolved an extensive public transportation system.11 However, many low-income Detroiters do not have their own cars.12 This means that their need for affordable transportation is particularly acute. "Jitneys" or, more accurately, gypsy cabs, have become a major source of transportation for the poor community. Their fares are less expensive, and, unlike taxicabs, they are easily accessible in poorer neighborhoods. Despite the great demand and need for the service among low-income riders, Detroit has declared jitneys illegal.

Although the "jitney" drivers in Detroit do not at first seem to be organized, the structure of jitney service is actually quite complex. While there is little camaraderie and no formal organization of jitney drivers, the market produces a structure of needs and services. Unlike in other cities, jitneys are not vans; they are simply cars that their owners use to earn a little money. The jitneys operate mostly out of strip mall shopping centers. When someone leaves the grocery store loaded down with bags, a man will ask her if she needs a ride. Most jitney drivers will not service the whole shopping center but will attach themselves to one store. Thus, each driver has his territory. Well-known jitney drivers often will transport the store's employees to and from work as well. Many of the drivers are older men, now retired, who drive in order to earn extra money. Jitneys charge significantly less than taxi cabs. Generally, a ride costs between three and five dollars. The drivers know that the riders they service cannot afford the cost of a taxi.

Although the jitney drivers are illegal, market systems have arisen to determine the reliability of a driver. First, employees of a store will recommend a particular driver to new employees. Second, employees or security guards will know certain drivers to recommend to customers. Third, drivers almost always reside in the neighborhood they service, so they know many of the persons using their car. Customers will tend to use the same drivers. Fourth, stores will informally designate certain drivers by giving them a card from the store. Store managers hasten to add that they are not responsible for the drivers and that they do not support them (since, of course, their use is illegal). However, the cards indicate that the store knows the driver and that the driver can be relied upon. Drivers who have received such cards display them in the front window in much the same way as taxis display their licenses. Finally, some independent grocery stores will actually list the name and phone number of a jitney service in their circular. This is not common, however. Chain grocery stores, perhaps more concerned about the legality, will occasionally tell such drivers to leave. Mostly, however, the jitneys are tolerated and ignored. Laws against them are rarely, if ever, enforced.

There are a number of ways that these drivers are in violation of the law. For one thing, they do not hold proper taxi licenses. Nor do they wish to. Realizing that their customers could never pay the taxi fares set by the City, they would not profit by charging fares that would make the service unaffordable. Even if they were interested, obtaining a taxi license is expensive, since the cap on the number of permits drives up the price from anywhere between $6,000 and $10,000. For similar reasons, drivers are not anxious to go through the car-inspection process. Their cars usually are used for short distances, and their customers are willing to accept a less-than-ideal means of transportation in exchange for lower prices. When asked about the possibility of jitney licenses, many drivers are suspicious of what it would mean to have to deal with the bureaucracy at the City/County Building.

By overregulating the transportation industry, the City has forced people to find alternatives, often outside the law. And the most efficient ones appear to work precisely because they avoid dealing with the City at all. Phasing out the cap on the number of taxis, not creating caps on other transportation services, and simply relying on criminal background checks for drivers, safety inspections and verification of insurance would go a long way to opening up opportunity in the transportation industry. The current barriers raise the cost of entering the industry and sustaining a business. As a consequence, few consumers can afford the cost of legal transportation services in a city where they desperately need them.

Vending and Merchandise Sales

Vending

Detroit also intensely regulates the occupation of vending-almost prohibitively. Vending should provide opportunities for those without the capital to open a retail establishment. But the high level of regulation means that vending can be a full-time occupation for only a few Detroit residents. The City of Detroit has divided the licensing of vending into a number of subcategories: food vendor pushcarts; street and foot vendors; and stationary vendors. Different rules apply to each, and a prospective vendor must go through different procedures for each of these licenses.

The food vendor pushcarts are most often called "hot dog vendors," because the only hot food they may sell is hot dogs. (They also sell pre-packaged food and drinks.) The Health Department has decided that hot dogs and sausages are the only non-"hazardous" food. Indeed, even the use of sauerkraut with the hot dogs is forbidden. Although Detroit has many different ethnic populations, ethnic food vending is prohibited. Hispanic vendors may not compete with the hot dog vendors by selling tamales, and Arab vendors may not sell falafel. All other food sold by a hot dog vendor must be pre-prepared in a licensed commissary. Preparing food at home, no matter how clean the kitchen, is prohibited.

To obtain a pushcart license, the would-be vendor must bring plans for the pushcart design to the Detroit Health Department for approval, along with a $100 nonrefundable fee. If the design is permitted, the vendor then constructs the pushcart and applies for a license. A license for a food vendor pushcart costs $116 per year. Food vendors also must obtain a food handler's permit, for which they take a one-hour class and pay $5. Finally, all vendors must obtain a Michigan Sales Tax License.

The real barrier for pushcart vendors is not the costs of permits, however. It is the stifling lack of locations where they can sell their wares. There are only 16 approved pushcart locations, and licenses are issued annually on a first-come, first-served basis. Although there is no cap on the number of pushcarts, the cap on locations effectively operates as a cap on the number of carts. In 1996, the City issued licenses for 14 food pushcarts. None of the minority neighborhoods, such as southwest Detroit or the eastside industrial corridor, have been approved as pushcart locations.

Both limiting the types of foods and requiring them to be prepared in a licensed commissary impose burdens on entrepreneurs, but one of the most significant problems for would-be food vendors is the requirement that the pushcart be stored in a licensed commissary. Vendors thus must rent space in a restaurant or catering establishment to store their cart at night. One vendor was able to run a successful food vending business for several years by storing his cart in a friend's catering establishment. However, when the caterer moved to the suburbs, the vendor was forced to give up his business. He has now purchased a building to store the cart, but he has run up against Detroit's zoning rules. The building, although in a commercial zone, was previously used as an office and now must be rezoned for storage. Multiple consultations with the Buildings and Safety Engineering Department, inspections and a public hearing (at a cost of $450) are required. As a consequence, he has been out of business for more than a year. While this one vendor's determination may get him back in business, there is no reason he should ever have needed to shut down.

Stationary Vendors

Stands operating in the "downtown and cultural area" of the City may sell only a few products: balloons, flowers, fruit, candy, snack foods and caricatures. They may not sell T-shirts or any other merchandise. These licenses cost $86, and approximately 20 licenses for edibles and 20 for non-edibles have been issued. The City sets the number of these permits based on a "public convenience and necessity" standard-almost always an impenetrable barrier to competition.

Foot and Street Vendors

Foot vendors must carry their merchandise, and they may sell pre-packaged food. The City has issued fewer than 200 foot vendor licenses. The cost of a license is $86 per year. It is apparently not possible to vend goods from stands or tables in most parts of Detroit. For example, one woman who sells specialty baby clothes at El Mercado wanted to begin vending on a daily basis. When she made initial inquiries, she was told that she would not be able to vend downtown. In order to vend outside of downtown, she would have to operate as a foot vendor and carry her merchandise from place to place. Since this is not a practical method for selling baby clothes, she has given up, at least temporarily, on trying to grow this business.13

Street vendors sell their goods from moving trucks. They may only stop to make a sale. If a truck is used to sell food, it may not be used for any other purpose. Selling from the family van, for example, is illegal. Street vendor licenses cost $115. If the vendor carries only pre-packaged food he does not need a food handler's license. Although they do not need insurance, they need to receive tax clearance. As with foot vendors, street vendors must keep moving after every sale.

There is no reason to limit vending in this manner. The City may have some legitimate interest in keeping the sidewalks passable and maintaining proper sanitation at establishments that sell food. But Detroit's stringent regulations go far beyond such concerns. Other cities freely permit non-food vending and certainly allow the sale of some items other than hot dogs without any discernible harm.14 The current system benefits no one-not potential consumers and certainly not potential entrepreneurs.

Markets

The limited licensing of vendors is alleviated slightly by the approval of markets. Detroit has many special events, conferences, and festivals downtown, especially during the summer months, and the vending rules for these are somewhat less strict. For example, El Mercado has 23 to 25 vendors each Sunday during June through August. Community development groups will host special events at which vendors may operate as well. Many vendors sell their wares only at markets or during special events, because it is too difficult to secure permission to vend on a regular basis.

Occupational Licensing

African hairbraiding and child care are two other occupations that seemingly require little formal education or capital. As home businesses, both are also well-suited to people with children. Detroit and Michigan have, however, determined to make it as difficult as possible to pursue these professions. Extraordinary education requirements for hairbraider licensing, as well as a prohibition on home businesses like braiding, and expensive license and permit requirements for child care conspire to prevent entrance into these fields. Or to force such businesses to operate underground.

Cosmetology

African hairbraiders in Michigan must have a cosmetology license, for which they must receive 1,500 hours of training. Barbering requires 2,000 hours. It is not clear why such lengthy training is justified by the need for public health and safety. Indeed, other activities require significantly less training. Emergency medical technicians must take 1,072 hours of class for licenses; electrologists and manicurists take 300.

Of course, many persons who go to cosmetology school perform haircuts, permanents, styling and haircoloring. However, Detroit has a large population of African-Americans, and there are many people who earn their living by hairbraiding and other forms of natural hairstyling, like locking and twisting. Detroit's cosmetology licensing scheme is particularly ill-suited for hairbraiding. Most people who do hairbraiding learned it as children, from friends or family. One Detroit hairbraider clearly remembers the first time she was paid for her services-at age 11-when she copied an extravagant style in a magazine and styled her sister-in-law's hair. She received $100 and has been earning a living from hairbraiding ever since.

Persons seeking a license to hairbraid generally already have the skills and simply need a license. To obtain the cosmetology license allowing them to braid hair, they must take 1,500 hours of classes, none of which cover hairbraiding technique. A few hours are devoted to learning about hair and skin diseases and the anatomy of hair. A few more teach sanitation techniques. At most, such classes consume 270 hours.15 While nearly all hairbraiders agree that these classes are useful, they also agree that the rest of the curriculum is completely useless. In sum, there is no connection between obtaining a cosmetology license and the purported goal of ensuring the quality of service for the customers.

Sheila Everette-Hale had been braiding hair for 18 years without a license before she decided to get licensed. Because she performed secretarial work at the cosmetology school, she was able to get a discount and paid only $1,500 instead of the usual $4,500. She went to school full-time for eight months, foregoing almost all of her income during that time. At the end, and without having acquired any new skills, she obtained her license and went back to doing exactly what she had been doing before. The only difference was that, as a legal operator, she could now move the business out of her home and open a hairbraiding salon. Now, her salon employs five braiders and has a steady stream of business.

Everette-Hale also took a class entitling her to become a cosmetology instructor. However, shortly after she completed teaching a hairbraiding class at a local community college, she received a call from the cosmetology board notifying her that she was only supposed to teach hairbraiding within the context of a full-accredited cosmetology school. Since the cosmetology schools do not offer hairbraiding classes, this puts her in somewhat of a Catch-22. Fortunately, the cosmetology board mostly seems to ignore this rule. But braiding instructors and students must then rely on non-enforcement of the rules in order to continue in their professions. Allowing the teaching of braiding would seem to be a simpler, and more reliable policy.

Many, if not most, of the Detroit hairbraiders operate out of their homes and without licenses. They get business through word of mouth. One woman who has been braiding hair for 15 years says her clients come from one person seeing a style on someone else and asking the braider's name. Although she has never advertised, she has at least a one-month wait for new clients. She has chosen not to become licensed for a number of reasons. First, hairbraiding is her source of income, and she cannot do without it for the time (between eight and 18 months) it takes to go to cosmetology school. Second, cosmetology school itself is expensive, ranging from $4,000 to $6,000. Moreover, her interest in hairbraiding is connected to a principled commitment to natural haircare, as opposed to colorants and permanent waves. She does not want to learn these skills. She admits that it would be an advantage to be licensed; she could open a salon and has more than enough business to keep her and a staff of other braiders busy, but it's not worth going through the school.

Recognizing the absurdity of the licensing regime as applied to hairbraiders, at least two bills have been proposed in the state legislature in the last few years. Both bills suggested creating a separate braiding or "natural hair cultivation" license. The current one reduces the number of required hours to 400 but requires braiders to practice in a licensed salon under the supervision of a licensed cosmetologist. The previous bill required 800 hours. Neither seems likely to pass. Each bill would be some improvement over the current situation, but both create pointless barriers to establishing a hairbraiding business. Although 800 hours is surely better than 1,500, it is still far more than is required to learn the basics of health and sanitation. Requiring braiders to practice only with licensed cosmetologists creates other problems: A cosmetologist who does not know anything about braiding will not be able to supervise a braider; braiders tend to work different hours than most hair salons and encounter conflicts about keeping shops open late at night; and many braiders and their patrons prefer not to work around the hair chemicals present in most salons.

The means of cosmetology licensing is insufficiently related to the goal of public health and safety. Most hairbraiders favor private certification by practitioners who know about hairbraiding. If Michigan feels compelled to license braiders, it should limit the training requirements to sanitation and health. Such a limitation would cut out more than 1,200 of the now-required hours and allow currently illegal braiders to come out of the shadows.

Child Care

The increasing demand for child care makes it an ideal career for a budding entrepreneur: Caring for children requires kindness and common sense, but not higher education. These qualities should make it one of the easier fields to enter. Moreover, many families are able to combine caring for their own children with caring for a few extra.16 Michigan already has a shortage of child care, especially for infants. Infant care is particularly important as Michigan tries to move women from welfare to work.17 Child care in Detroit cost between $75 and $100 per week in mid-1995, depending upon the age of the child.18 And although child care consumes around 10 percent of income for the average family, it consumes as much as 27 percent of the income of poor families.19 Stringent government-imposed training and educational requirements on licensed centers contribute to the high cost of child care.20 In fact, a 1996 report of the Governor's Advisory Committee on Day Care for Children recommends relaxing some of the licensing requirements.21

Child-care Centers

Opening a childcare center outside of a home requires a number of licenses and permits, educational qualifications, and compliance with a variety of regulations. The center must be run by a program director who has taken 60 semester hours of course work from an accredited college (12 of those hours must be in child development or child psychology). The Michigan Family Independence Agency inspects the premises, as does the local fire department. The rules for a child-care center govern, among other things, staffing ratios, equipment, food, paperwork, space per child, outdoor space, all aspects of infant care, building construction, paperwork to be provided to parents, creation of program plans, and equipment descriptions.

Although the licenses and rules require some effort to obtain and comply with, another major barrier to operating a day care center comes in the form of building regulations, including zoning, and interior and yard-space requirements. These requirements are particularly burdensome for a business trying to provide child care for the children of employees. On the one hand, Michigan wants businesses to provide child care.22 Yet on the other hand, the State makes it almost impossible for a small business to do so. Any facility that is not a home must be licensed as a child-care center, even if only a few children attend the facility. The design, building, space, recreational, and educational requirements are simply too demanding for a small business to handle. With a shortage of good child care and the obvious advantage of having the children near their parents, businesses must choose between simply ignoring the child-care law and hoping not to get caught, or telling their employees to find care elsewhere.

Family and Group Child Care

Both family and group child care are provided in the home by a resident of the home. Family child-care homes have between one and six children, while group child-care providers have between six and 12. The educational requirements are relatively limited. The provider must be at least 18 years old and have taken first aid, CPR, and the State's child-care orientation course. For group child care, the provider must have taken at least 20 hours of class. Specific regulations detail the play and sleep equipment, the amount of indoor space per child (35 square feet), the amount of outdoor space (400 sq. feet), the requirement of a daily activity program, and food to be provided. An inspector must approve the home for child care.

The problem for home-based child care lies not in the personal licensure requirements, but in the strict requirements for the home to be used, the programs to be provided, the excessive cost of complying with the specific regulations, and the difficulty in securing the appropriate zoning for day care. Overregulation results in no regulation at all: as many as 15,000 child-care providers in Michigan operate without a license.23 The State's dimensional and physical requirements for family child-care facilities virtually prohibit child care in apartments. Of course, this disqualifies almost anyone who does not have enough money to own a house from providing family child care. Especially in light of the shortage of affordable child care and the need for child care for the children of poor women seeking work, it makes no sense to virtually prohibit child care in apartments.

Further, while family child care does not require special zoning, group child care does. In areas zoned for one- or two-family homes, a caretaker may not care for more than six children, and any zoning variance requires a $450 hearing. In multifamily areas, more children are permitted. However, to obtain the appropriate zoning, a child-care provider must spend a minimum of $500 and as much as $950 for a variance for problems such as a backyard that is too small. Although child care would seem to be a career well-suited for an entrepreneur with children and few resources except her home, the regulatory costs can be prohibitively high.

Unlike some states, Michigan's educational requirements for child-care providers do not disqualify poorer or less-educated women. And while the regulations are elaborate and seem to go far beyond legitimate public health and safety concerns, the barriers to child care as an entrepreneurial venture are few and easily identified. A few simple legal changes would make providing child care significantly easier. First, home-based child care should be permitted automatically in all residential neighborhoods, including multifamily areas. Many cities use this approach. This would eliminate immediately more than $500 in start-up costs. Second, the detailed physical and dimensional requirements should be modified so that it is possible to provide child care in apartments. Third, small child-care facilities for children of employees at a place of business should be licensed like home-based child care, with exceptions from the regulations for requirements that obviously could not be followed, like yard size. Additional regulatory improvements would reduce the sheer complexity of the regulations governing all child-care facilities.

Red Tape and Fees

Some of the most severe barriers to enterprise in Detroit stem from the stupefying bureaucracy and regulations governing buildings and their uses. Multiple inspections and inspection fees, incomprehensible building requirements, expensive, mandatory public hearings, arbitrary discretion by officials and lengthy processing delays combine to discourage entrepreneurs from undertaking business ventures or improving existing ones.24 In 1994, a mayor's commission undertook a study of the regulatory process. It evaluated licensing and permitting in the city and found systematic problems, concluding that "businesses hesitate to locate or expand in the City because of difficulties in obtaining the licenses and permits necessary to operate."25 Several changes resulted from the task force report, including a "one-stop permit station" for Buildings and Safety Engineering permits.26 The older system required applicants to go to different floors and buildings to seek plan approval. Now applicants go to one room for all buildings and safety engineering requirements and then another room for zoning issues.

The intention of the task force recommendations was that the process would become quick, painless and efficient. However, applicants still must obtain numerous approvals and comply with detailed requirements, so a trip to the City/County Building remains a lengthy and frustrating excursion.27 Those businesses that also need to go through the City's Planning Department are further delayed.28 And while a one-stop shop was also established for licenses, some licenses, such as landscaping, still require a trip to another building.

Permits

Detroit's licensing, permitting and zoning systems seem to be designed to force the deterioration of all businesses and buildings within the city limits. Zoning and permit rules severely discourage any improvements on buildings. Any alteration or repair requires the owner to bring the building entirely into conformance with the code. It is thus more sensible to let buildings fall into total disrepair than to attempt to improve them. Likewise, continuing the same business is easy, while any change in business, even in a commercially zoned area, is fraught with problems.

Each business needs a general "doing business as" license, as well as any licenses required for the particular occupation. In addition, businesses are regularly inspected by some combination of the following: electrical, plumbing, water and sewage, fire, health, cranes, signage, air conditioning, venting, general building and safety.29 Each department or division that visits charges for the inspection. Although the inspections are supposed to be annual, some businesses report more frequent visits by certain departments and non-existent ones by others. Inspectors routinely require minor changes in practice-adding push-pull signs on doors, for example.

There appears to be no coordination among the various City departments. For example, one auto repair business discovered it could not get a license to operate because the property was zoned for a gas station. Rather than challenge the zoning, the business operates without proper zoning, and the owner just hopes the regulators won't notice. Building and other inspectors regularly visit and issue permits. Some businesses have never received a visit from the sign inspector. Others receive them regularly. One printing shop chose to cut its sign out of vinyl and paste it on its building just to avoid the sign tax. There is a charge, depending on the size, for each sign. In order to plant a tree in front of your business, you must obtain a permit. And, if you call the correct department, you will be told which trees are permitted on your street. (As with many Detroit rules, this one is largely ignored. Few people even know about this requirement.)

All construction that takes place in the City of Detroit must be approved by all the necessary departments. "A minimum of three inspections" is required. A certificate of occupancy is also needed. For a business, any additions or alterations require permits. Building storage requires a permit. Adding a handicap ramp, replacing the roof, building a dock, and any changes to electrical, plumbing or heating needs a permit. To apply for a permit, one needs to fill out the appropriate form and bring triplicate copies of building and plot plans, and a number of other documents. Other papers, other permits and public hearings may be required. "The Department must fully understand what you intend to do. That's why so much information is required. And since it becomes a matter of public record, we require that all the necessary information and plans be complete, legible, properly scaled, typed or written in ink and otherwise clear."30 Because the Department is understaffed and inefficient, permits can be almost impossible to obtain. Many people therefore believe it is simply better to proceed without permits. One business owner explained, "We operate on the basis that we just do what we want to do and the permits will catch up with us sometime." Of course, such a policy carries risks. If the Department discovers the violation, there can be penalties.

Obtaining a permit for some change in a building is something few want to even consider. A trip to the City/County Building can easily turn into an all-day affair, involving the payment of various fees. It is never routine. There are fees based upon the building costs. Many activities require public hearings, including change of occupancy, change of use, or any deviation from the zoning codes, and all hearings require additional fees.

Detroit's rule that any change in the structure of a building requires that the owner bring the entire building into compliance with the current code serves to discourage owners from improving their buildings or businesses in any way. One of the most difficult problems for small businesses in Southwest Detroit, says Kathy Wendler of the Southwest Detroit Business Association, is the need to obtain off-street parking for businesses. Thus, any time someone wants to improve a building or begin a business, that person must somehow find off-street parking. Any change in the structure of an old business means that the entire building must be brought up to the current zoning code requirements. Since there is ample on-street parking in the neighborhood, it is not clear why the City requires this. However, in order to ask for a variance, one must make a $450, non-refundable application fee to the Board of Zoning Appeals (BZA). Avoiding a hearing is a definite goal, because the decisions of the BZA are often arbitrary. As one employee commented, "It all depends what they had for breakfast.... You think you know what they're going to do, but sometimes they go off on tangents." Even when the result is favorable, it takes at least two months to secure a hearing and decision.

The need for a zoning variance often discourages small businesses from making improvements or expanding. For example, one small grocery owner wants to build a warehouse to store surplus goods. In order to do so, however, he will need to acquire off-street parking, which he does not own, or secure a variance. He believes it is pointless to apply and does not want to waste his money.

Indeed, sometimes the red tape involved can itself prevent even permitted activities. In one instance, a business owner was repeatedly told that he could not obtain a permit to install car barriers in front of his business. (The building, located at a poorly lit T-intersection, had been repeatedly damaged by cars.) In fact, there was a procedure for obtaining this permit, but none of the many departments consulted seemed to know what it was. After several months of being told the permit would not be granted, the owner gave up. Eight months later, his store was demolished by a car. It was only after a renewed search for a permit to install barriers that a single individual at one agency was discovered who knew the procedure for getting this permit. It remains to be seen whether the owner will actually receive it.

Building permits and zoning constitute some of the most serious barriers for small entrepreneurs in Detroit. Revision of the system of permits and requirements would encourage entrepreneurs to purchase and clean up some of the many abandoned buildings in the City's business districts. For example, the number of types of businesses permitted automatically in business areas should be dramatically increased. The City should eliminate the requirement for a hearing, with its accompanying financial and time costs, every time a business is changed. Zoning and other building requirements must be simplified and reduced. And the City should eliminate the need for an expensive zoning and/or building and safety engineering hearing for most business activities. Only a reduction in the quantity of regulations governing buildings will help. With specifications this intricate, a stalled process is the predictable result. The purpose of the building requirements should be limited to true health and safety requirements.

Home Businesses

Home businesses form a growing segment of business throughout the country, and many of them flourish in Detroit.31 Zoning prohibits home businesses in residential areas of Detroit, even businesses that do not generate any kind of nuisance. Like many other legal rules in Detroit, the home-business prohibition is largely ignored by the government unless someone complains.32 Thus, many businesses operate successfully out of homes-from clothing retail to graphic design. However, having a home business is not without consequence. "The first thing we tell them is to get a location," says Nathan Davis of the Detroit Economic Development Corporation. Businesses cannot secure loans when they are operating illegally, even if the law is unlikely to be enforced.33 Nor do they like to advertise. And they have to be careful about not having too many visitors, or their neighbors might report them.

There are many reasons for choosing a home business: lower costs, no commute, no child care, the ability to spend more time with one's children, flexible hours, and the ability to be one's own boss. For families that cannot afford child care, a home business may be the only option. Cathy McClelland of the Detroit Entrepreneurship Institute works with poor women, primarily recipients of public assistance, to become self-sufficient through entrepreneurship. She explains, "When you're starting out, particularly if you're low-income or on welfare, you don't have the money to rent office space and pay utilities. And if you're at home, taking care of children at home, you can make a decent profit. If you take that away, it's almost impossible." As limits on public assistance come into effect, former welfare recipients will need to become self-sufficient. Government can ease this process by removing pointless prohibitions on home businesses.

Conclusion

Detroit is plagued by an intimidating bureaucracy, stifling and expensive rules, and a lack of easily obtained information. It doesn't need to be this way. Despite its poverty, Detroit is an astonishingly vibrant city. It is full of entrepreneurs with ideas, energy and dreams. "These are the people who make the jobs in the inner city," says Kathy Wendler, executive director of the Southwest Detroit Business Association.

The future of Detroit rests as much with small businesses as large ones. But government will have to get out of the way to allow the residents of Detroit to reach their true potential. "We're only hurting ourselves with these regulations" explains Linda Stingl, Industrial Development Manager at Warren/Conner Development Coalition. "A lot of people are starting their own businesses here but excessive regulation makes them operate underground."

Endnotes

1 Roger Martin, "Michigan Must Refocus to Recruit, Keep Small Employers," Detroit News, May 20, 1996, at F11.

2 U.S. Department of Commerce, County and City Data Book, at xxx-xxxi, Table 3 (12th ed. 1994) (unemployment data from 1991, other data from 1989).

3 The National Institute for Occupational Safety and Health recently found that driving a taxi is the most dangerous occupation in the country. "Cab Driving Termed Riskiest Job in U.S.," The New York Times, July 9, 1996, at A14.

4 When a license is sold, there is a $35 transfer fee. Maintaining a taxi plate (or "medallion") and a paper license to place in the vehicle costs an additional $208 per year.

5 This report attempts to document the costs and procedures for licenses and permits in late 1996. However, both prices and procedures change frequently. Thus, dollar figures and regulations are subject to change.

6 One hypoglycemic cab driver received a $100 ticket while purchasing a candy bar. Jeff Gerritt, "Door Slams on Careers," Detroit Free Press, Aug. 3, 1996, at 3A, 8A.

7 Since Detroit has just established the new categories of limousines and commuter vans, it remains to be seen how expensive the bonds for these will be and how many vehicles the City will allow.

8 Michigan requires several licenses and an annual inspection for limousines. While Detroit's start-up costs for limousines are less than Michigan's (approximately $360 compared to $450, excluding registration and insurance), the annual cost for a Michigan limousine is only $130, compared to $405 for Detroit. And of course, if Detroit classifies the car as a sedan, rather than a limousine, the start-up cost would also include purchasing the bond. Moreover, Detroit requires inspections twice a year, and there is the unknown effect of the yet-to-be-determined cap on limousines.

9 Craig Garrett and Phil Linsalata, "Cabbies ask Judge for Fair Fight over Fares," The Detroit News, May 15, 1996, at D3.

10 "Competition is the Ticket," The Detroit News, April 1, 1996, at A8; George Cantor, "Can Government Really Reshape Bus Service?" The Detroit News, Aug. 5, 1995, at C7.

11 George Cantor, "Can Government Really Reshape Bus Service?" The Detroit News, Aug. 5, 1995, at C7.

12 Over ten percent of working Detroiters depend on public transportation. U.S. Department of Commerce, City and County Data Book, at xxxi, Table 3 (12th ed. 1994). Undoubtedly, many of the unemployed also do not own cars.

13 Detroit regulations in many areas, including vending, are so complex that it can be difficult to get correct information. For example, information about the legality of street vending of non-food items outside downtown is difficult to locate. While it is possible that there is some way to do this legally, only the most diligent of investigators could discover it.

14 The streets of Philadelphia, for example, reveal carts selling falafel, Chinese food, and Mexican food, as well as hot dogs.

15 Sanitation and Bacteriology (90 hours); scalp and hair treatments (25 hours); patron protection (80 hours); applied chemistry (30 hours); anatomy, physiology and histology (45 hours).

16 Some parents choose home day care as a way of spending time with their own children and earning money at the same time. See Charles Ramirez, "For Many, Home is Where the Job Is," The Detroit News, Nov. 13, 1995, at Business.

17 Judy Putnam, "State's Welfare Job Requirements is Creating Child-Care Dilemma," The Grand Rapids Press, Dec. 23, 1995, at A4.

18 Earlisa Gibson, "As Day Care Costs Climb, Parents Just Grin and Pay," The Detroit News, July 6, 1995, at C5.

19 Ibid.

20 Ibid.

21 Child Care: Making it Work, A Report of the Governor's Advisory Committee on Day Care for Children (Feb. 1996), at 5-7.

22 Ibid at 1-2.

23 "Shared Work on Day Care," The Grand Rapids Press, April 24, 1996, at A14.

24 State and local taxes create yet another problem for businesses. Michigan personal income tax is 4.4%. Detroit has a 2% corporate income tax and a 5% utility users tax. Additionally, Michigan, Detroit, and Wayne County, where Detroit lies, have property taxes totalling $76.87 per $1,000 of value per year. Businesses also are subject to the much-despised "personal property tax," which taxes all the movable property owned by the business.

25 Task Force of Mayor Archer, Licenses and Permits: Passports to Opportunity (Aug. 1994), at 4.

26 Lekan Oguntoyinbo, "One-Stop Station Eases City Permits," Detroit Free Press, Jan. 12, 1996, at 1B.

27 "License to Kill," The Detroit News, Sept. 20, 1996, at 8A.

28 Valarie Basheda and Phil Linsalata, "'Quagmire' Puts Development in Detroit at Risk," The Detroit News, July 16, 1996, at A1.

29 The owner of a used bookstore recently reported that his office building must pay nearly $500 in annual fees: fire inspection ($47), general inspection ($105), refrigeration license ($64), awnings license ($44), elevator license ($100), boiler operator license ($28), and plumbing cross-connection control license ($85). John K. King, Letter to the editor, The Detroit News, Sept. 29, 1996, at 6B.

30 City of Detroit Buildings and Safety Engineering Department Brochure, "2-Obtaining Permits" (Nov. 1995).

31 Charles Ramirez, "For Many, Home is Where the Job Is," The Detroit News, Nov. 13, 1995, at Business.

32 Jeffrey McCracken, "Cities Don't Harass Low-Key Home Biz," Crain's Small Business, June, 1994, at 5.

33 The problem of obtaining capital or other business assistance affects all nonlegal businesses.



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