Want to Start a Business in Detroit? Great if You’re an Entrepreneur, Not So Much if You Want to Build Something

Despite an exodus that caused Michigan’s largest city to shrink dramatically over the past several decades and its historic $18 billion bankruptcy, there’s reason for optimism.

The U.S. Chamber of Commerce Foundation recently studied municipal business regulations in 10 major American cities, and Detroit falls roughly in the middle of the pack.

The ranking also includes Chicago, New York, Los Angeles, San Francisco, Boston, Dallas, Atlanta, Raleigh and St. Louis.

Not surprisingly given its Chapter 9 bankruptcy proceedings, Detroit ranked dead last in annual income per capita – $15,261 – compared with the high of $46,777 in San Francisco. Detroit and the three cities in the South – Dallas, Raleigh and Atlanta – had the highest unemployment rates.

“While no other major American city has experienced recent decline like Detroit has, a community of entrepreneurs and start-ups are reenergizing and revitalizing the city and its future prosperity,” the report said.

“Pessimism is easy when a city is $18 billion in debt and cannot pay its bills,” the report continued. “Detroit’s bankruptcy and acceptance of its longstanding fiscal woes is an important signal to investors and entrepreneurs that the problems are being addressed. And while these issues won’t be solved overnight, these actions may allow for the local economy to have a fresh start.”

Some areas where the city scored high:

• Detroit requires the lowest number of procedures and waiting time in the area of Starting a Business. The city requires an administrative fee that ranks as one of the lowest of the 10 cities assessed in the report. As a result, Detroit ranks just behind Los Angeles and San Francisco for Starting a Business.

• Detroit ranks second in the area of Paying Taxes, which translates to a low tax burden for entrepreneurs and small businesses. Detroit and other cities in Michigan have a moderate corporate tax rate and a low unemployment tax rate in comparison with other cities. Further, the city has the lowest sales tax rate across the 10 cities covered in the report.

Where Detroit needs to improve:

• Detroit ranks near the bottom in Dealing with Construction Permits, a position driven by its high number of procedures, waiting time for permits, and overall cost. The total cost of construction permits is 1.3 percent of total construction costs, near the higher end of the cities studied.

• Detroit ranks poorly in the area of Registering Property, which is a result of longer waiting times and higher costs for businesses. Local professionals said accessing property records at the Register of Deeds in Detroit is often unpredictable, with inaccurate and out-of-date records, often making it necessary for title companies to purchase commercial databases. The city has a high real estate transfer tax compared to those of the other cities covered in the report.

• While Detroit has the lowest administrative costs for Enforcing Contracts, the city has some of the highest numbers of procedures and waiting time for the business area. Entrepreneurs and small businesses can expect to wait an entire calendar year before the final enforcement of judgment on a contractual dispute in Detroit.

"Local officials and policymakers can better understand the business conditions facing entrepreneurs and small firms by simply looking at the local laws, processes, and costs on the books for starting a business and other regulations common over the life cycle of a business," the study concludes.

» Read the full Detroit section of the U.S. Chamber of Commerce Foundation's Regulatory Commerce Index study

Tell Us:

• What do cities in the Detroit metro and the state of Michigan need to do to improve the climate for small businesses?