Details Emerge in New Court Documents in Dearborn Lawsuit Against Developer Burton-Katzman
By now, many of us have either read in the Dearborn Press & Guide, Dearborn Times Herald or the Detroit News about the City of Dearborn’s lawsuit against developer Burton-Katzman.
Dearborn filed the suit last Friday in Wayne County against the Bingham Farms, Michigan, company for failing to live up to a contract it signed with the city in 2003 to build a new hotel, complete a 48-unit residential condo project and for failing to inform city officials that the very company the city had a signed contract with for the actual development was being dissolved.
Click below for a copy of the lawsuit:
city-of-dearborn-vs-burton-katzman-development-company-inc
In all, Dearborn city leaders are asking a Wayne County Circuit judge to order developer Burton-Katzman to complete its projects and pay the city some $349,000 in unpaid taxes and water bills, along with penalties, as well as damages of $16.4 million to cover the city’s costs for two parking decks.
“The lawsuit was filed only after more than 18 months of pro-active discussions with Burton-Katzman to find suitable alternatives that were reasonable given the changing economic climate,” said Dearborn Mayor John B. O’Reilly, Jr. “But it became apparent a lawsuit was our only avenue. That has become even more clear after we discovered that the parties weren’t honest with us.”
The lawsuit really shouldn’t come as a surprise to anyone considering how long this project has taken to get to where it is today. As a general rule, cities don’t typically like to be in court, but Dearborn officials really didn’t have any remaining options. The 20-page lawsuit, along with a packet of exhibits, including letters exchanged between the two parties, provides some interesting details.
The actual contract signed between Dearborn and Burton-Katzman clearly states that construction on the property between the two parking decks for the hotel was to occur not later than 60 days after “substantial completion” of the retail components, according to the lawsuit. The grand opening of the West Village Commons retail section occurred in June 2006. So Burton-Katzman, the city states, was in default.
Dearborn also is suing Burton-Katzman for failing to inform city leaders that the company the city had entered into a contract agreement for the development was being dissolved even while it tried to renegotiate elements of the contract with Dearborn.
“This misleading information constitutes silent fraud,” the city of Dearborn states in the lawsuit.
In fact, on March 28, 2008, the same date Burton-Katzman filed papers with the state to dissolve its operations, both Peter Burton, president of Burton-Katzman, and Charles DiMaggio, vice president of project management for Burton-Katzman, attended a breakfast meeting with city officials at the Dearborn Inn and neither mentioned what was going to take place, the suit alleges. In as many as five subsequent meetings between Burton-Katzman officials and city leaders, the “dissolution of Burton-Katzman remained concealed,” the suit states.
Whether any circuit judge will order Burton-Katzman to construct a hotel during these tough economic times or finish building the remaining 12 condo units of a promised 48 condo project is anyone’s guess. However, the contract between the city and Burton-Katzman also states that “economic conditions are not recognized as a “Permitted Delay” or an “Unavoidable Delay” that would allow construction to be postponed.”
A judge might order the developer to reimburse the city for lost taxes on the estimated value of the buildings that were never constructed and maybe even the $16.4 million the city paid to build the two parking decks.
In letters to Dearborn city officials, Burton-Katzman did cite economic conditions as among the reasons it could not live up to its contact obligations. Burton-Katzman even tried to sell the parcel of land “without the city’s consent” for a hotel that “would not have met projections and obligations under the Development Agreement,” the lawsuit states.
In one letter, Charles DiMaggio, senior vice president of project management for Burton-Katzman, blames the city for his company’s failure to finish the project.
“ . . . the West Village Commons project experienced nearly 2 years of delay as the City initially chose to work with another development company,” DiMaggio writes in a letter to City Attorney Debra Walling dated July 31, 2007. “Had the City initially selected Burton-Katzman, the time for construction on Parcel C (the land between the two parking decks) would have occurred two years earlier, that is March 2004 in lieu of March 2006. Since economic conditions in March 2004 were far superior to those encountered today (July 2007), it is reasonable to anticipate the project may have now been completed.
“Second, it will be recalled Burton-Katzman added second floor office space to the West Village Commons project at the urging of the City. Today (July 2007) not a single square foot (37,000 feet in all) has been leased, and as a result the project’s financial drain on Burton-Katzman can be said to rival that of the parking decks on the City.”
In that same July 31, 2007 letter, DiMaggio lists the work Burton-Katzman was doing to get the vacant land between the parking decks developed, none of which materialized. The list of ideas from Burton-Katzman in the letter include:
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“Numerous meetings and discussions have been held with the Fourmidable Group and Hakim Fakhoury. It was understood from the City the group may have a development proposal it wished to pursue on Parcel C (the land between the two parking decks). Despite our meetings and discussions no proposal has been made to Burton-Katzman or to our knowledge the City, and it would appear any interest this group may have had, has waned . . .”
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“Options for senior housing have been and continue to be explored. We have presented the site to Sunrise Development . . . Sunrise has indicated independent senior living would not be considered for this site, but assisted living is possible . . . We have also partnered with a development entity from St. Louis, HPD Cambridge, Inc., the purpose of which is to develop moderate sized, 50-60 unit, urban senior projects (www.urbansenior.com) . . .”
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“A third area of residential exploration may be student housing related to University of Michigan-Dearborn . . .”
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“The property is being presented to a national hotel chain looking for an opportunity to enter the Dearborn market. . .”
Dearborn Council President Pro-Tem Nancy Hubbard had this to say about the situation the city is faced with: “I’m surprised that they would show bad faith after the City had tried so hard to be patient and find a solution that was best for everyone.”
January 22nd, 2009 at 9:54 am
Let’s hope the city wins this case and is able to recoup what they are asking. Perhaps a large monetary judgment for the city would allow the city to eliminate or modify the parking to something more feasible and successful.
At a minimum it would be nice to again have all lots with parking attendants or all lots capable of cell phone or personal debit and credit card access and payment. This would eliminate tickets which I think are just further bad PR for a downtown that is being hurt far more than other downtowns in this terrible economy.
January 22nd, 2009 at 12:16 pm
Agreed. And I’d be willing to pay three times as much for parking, as long as I could use my credit card for payment. When I’m parking in Ann Arbor, I may bitch about the high prices, but I’ll just swipe my card anyway and park there. But when it comes to paying with change, I have actually driven right past places in Dearborn since I don’t carry change (or cash) with me.
January 22nd, 2009 at 1:11 pm
I’m a little confused…. whatever happened to the ‘Virtual Office’ folks who were going to rent the entire second floor over La Cigar/Maestro’s? And, whenever I contacted the lovely folks at BK ‘s leasing company, about the units on other side of the lot, I was constantly informed that they had ‘prospective tenants’ for each and every un-built office over there and could not possibly quote me a leasing rate at this time. Now that Au Bon Pain and Caribou have left the Commons, and no new tanants developed for the still un-tenanted units… how much longer before someone yelled ‘foul?’
This entire project was a mess from the get-go. Parcel C is waaay too small to develop as a hotel and anyone who seriously believes that a ‘major national hotel chain’ is seriously considering building on that little piece of vacant land should look at buying the Bridge from Matty M. That’s just a smoke screen for “We wanted to build 200k condos but the market imploded. Now it’s your problem.”
Even if the city wins this suit against BK, they will never see the 16 million. And I agree with Michael ( I know, weird huh? ;)) about the level of customer service the Parking company exhibts. When I worked for the dopes at Maestro’s, I constantly tried to buy a long term parking pass, only to time and time again find either the office closed, the credit card machine broke, the boss is at lunch yadda yadda yadda. If Ann Arbor can have the self-serve pass machines, usable at ALL lots and decks all over downtown, WTF is the problem with these folks Dearborn contracted with?
January 22nd, 2009 at 4:05 pm
Liam,
It sure is a mess down there, no doubt about it. According to an old friend of mine who works for the company that installed the parking lot system in DTWD, his company blew all aspects of those lots, especially with the meters only accepting coins and lots that don’t allow cell phone access for payment.
Even though I have no reason to disbelieve him, we should be asking what is and/or can the city do about it to rectify it?
January 22nd, 2009 at 5:55 pm
Another episode in the never ending soap opera of Dbn. politics. They all screwed up, except Tafalski, now Big Jack own up to your ineptness. This is another great mess, just wait for the election, for some new blood.
January 22nd, 2009 at 7:34 pm
People in Dearborn tend to mark in or pull the lever of names that they recognize. It takes a LOT of time, capital and support to run for office, which makes it extremely difficult for an unknown to replace incumbents, most of whom have been in office for years.
It’ll be interesting to see if any new names step up to the plate for council though.
January 22nd, 2009 at 8:38 pm
What does this say of the leadership that hired this developer in the first place?
January 22nd, 2009 at 10:38 pm
Good question Dave.
January 23rd, 2009 at 8:15 pm
A few thoughts about this current (and upcoming) fiasco…
1. This project was a loser from the get-go:
With the City unable to close a deal with any other developer and with BK going in the tank only four years after signing on to this project, it raises the question if BK was financially viable when this deal was struck. Did the City carefully examine the finances of their developer or did the pressure of needing to close a deal (to avoid another Superblock PR disaster) cause them to skip any due diligence efforts? I realize that hindsight is always 20-20 but it seems that proper investigation of the developers financial health could have prevented subsequent disappointment. This leads to our next point which is…
2. The City must stay out of the development game:
The Superblock demonstrated that the City of Dearborn is unable to effectively participate in the development process. While we all admire the activity that project now generates, please remember that the City poured a ton of money into clearing the site only to watch that “Prime” real estate sit vacant (save for an annual Christmas tree) for over a decade. And more recently, the fiasco surrounding the condemnation of Price’s Mens Wear gave the Administration and Council another black eye. The City certainly needs to establish objectives for land use (and does so, via the Master Planning and Zoning processes). But beyond that, they need to let the market dictate what will be developed rather than proposing unrealistically grandiose plans. The fact that there is 37,000 s.f. of empty office space says that there was never a demand for it in the first place. Similarly, hotel operators do not see a need for a downtown hotel; otherwise, someone would have built it (and remember that there is already the vacant motel at Michigan and Brady which could be renovated and opened much more economically). It should be obvious that while the City leaders have a vision of what they want downtown to be, they are woefully out of touch with what downtown will support, leading to our next lesson:
3. We have to stop latching onto red herring proposals.
We all want the same thing out of our downtown: a vibrant, exciting, year-round business/shopping/dining/entertainment destination where we can readily walk to or park at. However, we need to separate out our dreams for downtown west Dearborn with reality. While we all wistfully look back at the circa 1960, pre-Fairlane downtown, today’s downtown area requires a high level of development density in order to succeed. Yes, that includes parking decks, yes, it includes housing. But the necessary level of density cannot be accomplished in one- and two-stories. We need to start thinking of downtown as a seven- to nine-story area (again, the City can control this through Zoning). And if a developer cannot sign on to such a project, we cannot merely accept a red-herring concept (“…well, we thought we would build Student Housing…or two-story condos…or another one-story restaurant…”). Student housing?! REALLY? A hotel is not viable but student housing (the closest thing to tenements allowed by Zoning Ordinance) would work??? The only students that could afford the cost of such accommodations are not going to attend UM-D; they’re going to Harvard! The lesson here is that good, sound planning concepts cannot be swept aside because the current economics do not support it. If it doesn’t work now, don’t accept an easy substitute. You’re only buying yourself a white elephant. And speaking of white elephants…
4. City-funded parking decks are a red flag.
Developing communities always place the burden of placing infrastructure (streets, water mains, sewers) onto the developer. It is a rare (or bankrupt) municipality that purchases land, places utilities, and paves the streets so that developers can sashay in (look it up) and construct profitable buildings. But that is essentially what our City did with the parking decks. “What’s that? Your hotel needs a parking deck? No problem, we’ll build it for you!” Please note that this is not to say that decks are not required downtown; only that the City should not be the entity responsible for building them. So by taking on the responsibility for the decks (and don’t forget, reworking the surface lots to be pay-to-park), the City removed a significant source of motivation for the developer. Think about it: would BK walk away from the Hotel/Office projects if THEY were the ones paying off those two decks? Of course not. But since the City (oops, I mean the taxpayers of Dearborn) is footing the bill, BK has no incentive to complete the balance of this project.
This is as good a time as any for us all to recite Howard’s law of development: “A Developer is anyone who will build anything, anywhere using someone else’s money”. Developers are bright people, totally focused upon protecting their assets, thereby leading us to a final concern about this soon-to-be-a-mess-of-a-lawsuit:
5. The City is asking for trouble by using in-house counsel to file this lawsuit.
I realize that the City maintains a full-time law department for some good reasons. And I’m sure that Burton Katzman also has an attorney or five on staff. However, I suspect that BK is shrewd enough to go out and get some high-octane, high-priced talent to defend itself from this lawsuit. I’m concerned that Ms. Walling et al will be out of their league if this suit proceeds much further. Processing Freedom of Information requests or attending the Council meetings does not maintain a legal mind sufficiently for a lawsuit such as this. As much as I hate the idea of the City hiring another lawyer, this seems like a good time to hand off this important task. After all, the City has not shown that they always make the best choices.
Whew! Well, there is one Citizens opinion. Open fire, guys.
Howard Roark
January 24th, 2009 at 9:33 am
Bang, pow, zoom. I agree with you Howard on most all points. Well spoken.
January 24th, 2009 at 9:53 am
All I can say Howard is that I am sure there are a lot of us that agree with you. Thanks for taking the time to share your thoughts with us. I found myself saying more than once – how true that is.
January 24th, 2009 at 10:13 am
Howard—AMEN!
January 24th, 2009 at 1:57 pm
Howard you were so right on many points, and the factual one for the taxpayeres, is that Walling is out of her league in taking this matter into court, the only one more out of their league would be our Mayor (O’Reilly). He has never defended a case in any court, so its basically t he blind leading the blind. Get some troubleshooters who know how to handle these matters the proper way, and thats to win.
January 24th, 2009 at 4:12 pm
Wonder if that is why the mayor said even if we do win this suit, we may not get any money. We’re going to go after the individual assets.
January 25th, 2009 at 9:50 am
Aren’t the Lawyers whom don’t have to litigate and defend inside a Court Room better Lawyers?
January 25th, 2009 at 8:42 pm
According to my sister who works for a judge and lawyers I’ve worked with, the lawyers who do the research are the best at research and do most of the grunt and hard work, but the lawyers trying the cases are the best showmen and showmen and that’s why it’s the way it is. That is, IF I understood your confusing question Pat. LOL
January 25th, 2009 at 8:43 pm
Sorry I mean showmen and showWOMEN above.
January 26th, 2009 at 9:32 am
Sorry Jamal but I have to disagree with your assertion of the Mayor being out of his league. I know that he has a law degree and I believe he is still a member of the bar. I would venture to say that he is actually one the more qualified area mayors to be dealing with this.
January 26th, 2009 at 11:53 am
Jason, you forget to mention this…
And as licensed member of the State Bar Association, he is one Mayor that is treading into some interesting territory with why it’s taken since 2/17/07 to address this, and also involving Mr. Fakhoury and Mr. Slavik in negotiations on the still BK property on 7/31/07 while Mr. Fakhoury’s own preferred developer agreement had expired with the city.
January 26th, 2009 at 5:18 pm
I could be wrong LX, but I had thought Mr. Fakhoury was simply an owner of a large number of properties in DTWD and never was a preferred developer. Am I wrong?
January 26th, 2009 at 5:31 pm
I believe you are correct Mike, I don’t think Hakim had any legal document signed stating he was and is a perferred developer, unless that had changed recently.
January 26th, 2009 at 7:34 pm
Sorry Michael,
Mr. Hakim Fakhoury was in fact granted an extension with being a ‘preferred developer’. Counsel Walling also made quick reference of this during the December 15, 2008 Fakhoury/Council Meeting fiasco.
Development lurches forward
Despite delays, there is optimism over several commericial projects
By Cristen Kis, Press & Guide Newspapers
PUBLISHED: April 11, 2007
“Fakhoury has also been granted an extension on his preferred developer’s agreement for more of his extensive developments. The new agreement expires June 7 and covers additional plans for a parking structure behind the Oakwood-Muirhead building, near Buffalo Wild Wings and Panera Bread.”
http://pressandguide.com/stories/041107/loc_20070411004.shtml
City tables action on Lot ‘A’ lease extension
Issues with contract language between city, Fakhoury
By Jason Carmel Davis, Press & Guide Newspapers
PUBLISHED: December 17, 2008
DEARBORN – Unpaid taxes and the uncertain economy have slowed one more project in town, as the City Council tabled action on an extension for one of developer Hakim Fakhoury’s projects.
Monday night’s Dearborn City Council meeting featured proposed action by the seven-member council on an extension of the Dearborn Village Partners (DVP, Fakhoury), Dearborn Village Square developer agreement and the lease with an option to purchase city Parking Lot “A” — located on Garrison, north of Michigan Avenue between Military and Howard — through Dec. 31, 2009, subject to certain stipulations.
The measure needed action because Fakhoury’s agreement expires at the end of this year, but the vote never materialized due to a misunderstanding of some contract language on Fakhoury’s part, which caused the council to table its vote. However, a special meeting may be called, as a vote has to taken before the end of the year.
http://www.pressandguide.com/stories/121708/loc_20081217003.shtml
January 26th, 2009 at 7:47 pm
This should’ve read…
Sorry Michael,
Mr. Hakim Fakhoury was in fact granted an extension with being a ‘preferred developer’ [in 2007]. Counsel Walling also made quick reference of this during the December 15, 2008 Fakhoury/Council Meeting fiasco.
Development lurches forward
Despite delays, there is optimism over several commericial projects
By Cristen Kis, Press & Guide Newspapers
PUBLISHED: April 11, 2007
“Fakhoury has also been granted an extension on his preferred developer’s agreement for more of his extensive developments. The new agreement expires June 7 and covers additional plans for a parking structure behind the Oakwood-Muirhead building, near Buffalo Wild Wings and Panera Bread.”
http://pressandguide.com/stories/041107/loc_20070411004.shtml
City tables action on Lot ‘A’ lease extension
Issues with contract language between city, Fakhoury
By Jason Carmel Davis, Press & Guide Newspapers
PUBLISHED: December 17, 2008
DEARBORN – Unpaid taxes and the uncertain economy have slowed one more project in town, as the City Council tabled action on an extension for one of developer Hakim Fakhoury’s projects.
Monday night’s Dearborn City Council meeting featured proposed action by the seven-member council on an extension of the Dearborn Village Partners (DVP, Fakhoury), Dearborn Village Square developer agreement and the lease with an option to purchase city Parking Lot “A” — located on Garrison, north of Michigan Avenue between Military and Howard — through Dec. 31, 2009, subject to certain stipulations.
The measure needed action because Fakhoury’s agreement expires at the end of this year, but the vote never materialized due to a misunderstanding of some contract language on Fakhoury’s part, which caused the council to table its vote. However, a special meeting may be called, as a vote has to taken before the end of the year.
The city put out Requests for Proposals (RFP) for the lot in 2006 and DVP won the bidding battle and has been set to erect amenities such as a movie theater and/or other mixed-use facilities, according to Council President Tom Tafelski.
At issue on the city’s side, which is why the vote had to be taken, is that Fakhoury has become in default on a number of properties, according to a published report by the Wayne County Treasurer’s Office last month.
The City Charter says the city shall not enter into any agreements with any individual or company if they have become in default on any property.
http://www.pressandguide.com/stories/121708/loc_20081217003.shtml
January 27th, 2009 at 4:14 pm
LX,
Thanks for updating us on the fact that Fakhoury was once a preferred developer as I never knew that.
With that said and speaking for myself, while I believe it is the city’s best interests to take Burton-Katzman to the mat for their alleged fraud, what do the city and residents have to gain if we also go after another developer like Fakhoury? I don’t think Newman has developed anything in ages. Who does that leave down there?
I may be wrong, but as has been stated before, we don’t see any developers beating down our doors to develop in DTWD. I also think there are a number of factors and sides of the story we do not know relating to these issues with Fakhoury. Myself, as long as he owns property down there we all have plenty to lose if we don’t hope that he works out his differences with the city and his finances. Let’s remember as well that many businesses are also in dire financial straights including most financial institutions.
The feds bailed all of them out, so why can’t they do the same for the little developer? I know, fat chance of that. Hopefully the supposed billions that are coming to Michigan will result in much being given to Dearborn to resolve these issues.
January 28th, 2009 at 9:59 am
Michael, I have to take issue with just passing along the buck with your raised question.
“Let’s remember as well that many businesses are also in dire financial straights including most financial institutions.
The feds bailed all of them out, so why can’t they do the same for the little developer?”
This is the thinking that began these problems in Dearborn’s West End as is stated by Mr. Roark’s bullet item #2 and in #4.
Past government intrusion in the finance sector created the dangerous lending practices that caused the collapse and now we have more government intrusion with throwing about trillions of taxpayer money indiscriminately as some sort of cure.
$150 billion to AIG, then a $700 billion TARP and now a proposed $800-900 billion “stimulus” package. Oh, and another $50 billion to Fannie that is separate from the TARP.
Fundamentally it disturbs me how easily many Americans now turn to other peoples money as the answer with what got them into trouble in the first place.
Remember this little quote from Margaret Thatcher,
“The problem with socialism is that you eventually run out of other people’s money.”
Well, we’re on the right path for future generations to enjoy that serfdom.
January 28th, 2009 at 10:30 am
I totally comprehend your points LX and agree it’s an unsual solution to the problem, but I don’t see any other options. With Burton-Katzman now being sued by the city and out of business, with Fakhoury and others down there in trouble, what other solution is there?
Besides, it is NOT other peoples money, it is OUR money that us taxpayers of Dearborn and Michigan gave the federal government or for that matter, Wayne County and the State. Michigan and Dearborn always seem to give far more to the feds than they get back, so I would hardly call it a handout since it’s OUR money anyhow.
But if anyone has any other viable solutions as to how to resolve the issues in DTWD other than suing everyone and/or watching them go broke and eventually go out of business and DTWD becoming a ghost town, then I am ALL ears…
January 28th, 2009 at 12:07 pm
Really Michael, I gave money to the federal, city and state government?
I believe you are completely incorrect about that and challenge you to not ‘gift’ this money to any of the named. Sir, when any entity takes my earned possessions, in which, we are talking money now and decides how my money is spent or that it is somehow better in handling my money than me, it is completely wrong. This is not how this nation was started nor should this be how our nation is behaving today.
Mr. Albano, your concept of ‘giving’ that you now write are dangerously along the lines of what caused the Soviet Unions agenda to collapse.
I also now have to raise the question due to you writing for the collective in quote, “us taxpayers of Dearborn”, have you in fact become a City of Dearborn property taxpayer?
To my knowledge as of today’s date, I am unaware that you are. This would further suggest that when you write in quote, “Besides, it is NOT other peoples money, it is OUR money” that in Dearborn this is not your money to have influence over.
This also would further reinforce or at minimum suggest that your above statement is along the philosophical lines of an Orwellian Animal Farm, “All animals are equal but some animals are more equal than others.”
As for the continued hand wringing over DTWD woes, our city governments involvement for now say the last decade has proven a rather complete failure and a rather exhaustive, costly experiment hasn’t it? And one could also draw much the same conclusion with city governments’ involvement with REDICO in the other end of town too couldn’t they?
Government intrusion anywhere has proven to be a flawed concept everywhere in this nation and oppressive on freedom. Look to China and Mexico for evidence of oppression.
Sorry, but Michael with you being centered so deeply in history that I’d been led to believe that you’d have learned that history has taught us these such things.
Please try not to view what I write in an attacking manner but just a strong fundamental disagreement with your concepts of ones freedom in America. “life, liberty, and the pursuit of happiness.”
January 28th, 2009 at 12:42 pm
On the philosophical side I agree with most of what you are saying LX. But if the feds and states won’t help the companies, since it is OUR money, why don’t they at least give every taxpayer a large sum of OUR money back direct to citizens/taxpayers. Many economists and leaders feel this would jolt the economy to start again rather than giving it to businesses. I know that many I talk to lately are broke or short funds due to the economy. In all the businesses I patronized in DTWD owners and employees tell me business is falling off at a rapid pace due to the economy. Perhaps this is one option that might help Dearborn.
Sorry for my shortcoming stating our Dearborn money when I am not a homeowner. What I should have stated was that I am an income tax payer to the state and feds. You are better at detail in some areas than me, so forgive my misquote.
Lastly, I still believe that while I understand that taxes are necessary to run our country and have no problem paying them, I think that most people believe all of our governments tax all of us far too much, from city all the way up to federal. Therefore, if we cannot agree upon giving some assistance to smaller business owners, since it is Dearborn taxpayers money, not the state of feds money, I still believe a very large stimulus check to each taxpayer is viable and may help.
Lastly, no I don’t think you’re attacking me. I just think you’re very passionate and have strong convictions and that sometimes we disagree, but I think we agree far more often than you may know.
January 28th, 2009 at 3:50 pm
Michael, I again have to fundamentally disagree on two issues.
One, when you refer to this concept of government taxation and this somehow still being our money. It is not by definition yours or mine when in the hands of another entity that chooses its disposal, especially with the reckless abandon that has been allowed to occur as of late.
Here’s a fun and rather accurate analogy for you with how our government is working:
Every night, ten men met at a restaurant for dinner. At the end of the meal, the bill would arrive. They owed $100 for the food that they shared. Every night they lined up in the same order at the cash register. The first four men paid nothing at all. The fifth, though he grumbled about the unfairness of the situation, paid $1. The sixth man, feeling generous, paid $3. The next three men paid $7, $12, and $18, respectively. The last man was required to pay the remaining balance of $59.
The ten men were quite settled into their routine when the restaurant threw them into chaos. It announced that it was cutting its prices: Now it would charge only $80 for dinner for the ten men. This reduction wouldn’t affect the first four men – they would continue to eat for free. The fifth person decided to forgo his $1 contribution to the pool, and the sixth contributed $2. The seventh man deducted $2 from his usual payment and now paid $5. The eighth man paid $9, the ninth, $12, leaving the last man with a bill of $52. Outside of the restaurant, the men compared their savings, and angry outbursts began to erupt. The sixth man yelled, “I got only $1 out of the total reduction of $20, and he” – pointing to the last man – “got $7.” The fifth man joined in the protest. “Yeah! I got only $1 too. It is unfair that he got seven times more than me.” The seventh man cried, “Why should he get a $7 reduction when I got only $2?” The first four men followed the lead of the others: “We didn’t get any of the $20 reduction. Where is our share?”
The nine men formed an outraged mob, surrounding the tenth man. The nine angry men carried the tenth man up to the top of a hill and lynched him. The next night, the nine remaining men met at the restaurant for dinner. But when the bill came, there was no one to pay it.
Two, businesses do not pay tax. A business essentially transfers a government mandated free for its business operation with being in business to the consumer in the end product or service it provides. Michael, you have written numerous times on here and elsewhere about Ford Motor subsidizing Dearborn’s tax base, how this has stopped and the effects this has on Dearborn in general. Well, would you also not see that this came about due to Ford Motor no longer being able to pass this cost along in their products?
Be it fed, state or local and be it a fee, tax or duty, businesses do not pay for these government monetary intrusions without passing this along to the product or service of the consumer that is you or me.
January 28th, 2009 at 5:52 pm
Great, entertaining story LX. I loved it and understand your point and this is fun, but we still differ somewhat on our opinions.
Here’s miy 3rd party story. I’ll break it down to 3 classes of people that are individuals and a 4th fourth that is a business that pays high taxes and creates jobs as well.
The 1st person in the low income bracket pays no tax, lives off government subsidies such as welfare and food stamps. IMHO This person should get no tax rebate or refund because this person pays no taxes.
The upper income person pays high taxes and gets a large tax rebate, refund or tax break. I have no issue with this. It would be better though if this person could simply keep more of their money from the get-go.
The business that pays high taxes and creates jobs also gets a large tax rebate and refund. I also have no issue with this as this business helps stimulate the economy by producing a product or service and also employs people, which is what America really needs more so now than ever.
A working middle-class person pays a large percentage of their income in taxes, although nowhere near as high as the upper income person or the business. This working middle class person of which there are less and less of in these tough economic times certainly deserves to keep more of his money with either a better tax break, a tax refund or a tax rebate, whatever.
It would also be nice if this person could net more of their income from the get go. This class of people is declining rapidly and that is sad.
Just as it has been proven that small business owners employ most people in America it has been stated by many sources that the middle class pays the crux of taxes in America. Both the small business owner and the working middle class receive far less back from the government than do the low income, high income and large business owner in tax refunds and/or breaks and I have no issue with this. But the large business owner utilizes a much larger, diverse group of services than does the individual taxpayer. One example is their employees use roads to work that have to be built and maintained and they use them far more than the individual taxpayer.
I understand the point you’re trying to make about Ford. But what I have said is that they are paying less taxes than they used to, far less taxes for sure. But I did not say they are paying no taxes. They are also still passing the expenses onto their consumers as well, not as much of a cost, but it’s still a cost built into every vehicle they sell.
And If you don’t want to call it a tax that is fine with me.
Keep up the 3rd party stories and healthy debate here LX, cause you’re a master at it.
January 28th, 2009 at 8:06 pm
Me thinks LX might be smoking rock or at least missing a few marbles. With his reasoning it’s no wonder his family owned business shut down.
January 29th, 2009 at 10:04 am
Michael,
I see that we are basically talking the same thing and arriving at the same conclusions. However, I’d still question the example of large businesses with this, “One example is their employees use roads to work that have to be built and maintained and they use them far more than the individual taxpayer.”
Are those employees not the individuals paying fed, state and sometimes city if in Detroit, income tax by the shrinking middle class at the large businesses? Then do not those same employees also get to pay their property tax to their county, city, town for said infrastructure?
From my vantage point, the bottom line from the analogy above of our tax code that we seem to meet a common ground upon is completely flawed and is responsible for the decline of the middle class. The shift of burden has been placed directly on two parties, those that create jobs and those that have jobs in the middle-income bracket while 4 in 10 contribute zero.
Ps. George, for those who understand this, no explanation is needed. For those who do not understand, no explanation is possible.
January 29th, 2009 at 10:54 am
Now that I know we’re comparing apples to apples LX, I completely agree with you.
Let me clairfy my statement about business employees pertaining to the roads. Yes they’re paying taxes to many different governmental agencies, but my point was with using Dearborn Ford employees as an example, these employees would come from out of town put a huge strain on the infrastructure of Dearborn, each moreso than an individual, residentail taxpayer og Dearborn. Due to much higher Dearborn road usage from having so many Ford and other company employees, this also puts causes high PM and repair of these roads, but I have no issue with them using them because we need all the employees we can get into Dearborn and moreso because they hopefully shop and spend money here as well.
Best to you…
January 29th, 2009 at 10:55 am
Sorry for not proof reading the above memo, but I’m about to have an important business call and am studying.
January 29th, 2009 at 12:09 pm
I agree Michael. Now let’s really complicate the tax code matters.
Estimated at 9.4% of income, Michigan’s state/local tax burden percentage ranks 27th highest nationally, below the national average of 9.7%. Michigan taxpayers pay $3,694 per capita in state and local taxes. Michigan’s personal income tax system consists of a simple 4.35% tax on an individual’s federal adjusted gross income with some modifications. Among states levying individual income taxes, Michigan’s flat tax rate is 40th highest. Michigan’s 2005 individual income tax collections were $650 per person, which ranked 32nd highest nationally.
Then Michigan levies a Single Business Tax (SBT), which is a modified value-added tax (VAT). The rate is 4.95% and there is an additional modified gross receipts tax at a rate of .8%. In 2006, state-level corporate tax collections (excluding local taxes) were $186.83 per capita, ranking it 14th highest nationally.
Michigan also levies a 6% general sales or use tax on consumers, above the national median of 5.4 percent State and local governments combined collect approximately $1,166 per capita in sales taxes, which ranks 30th highest nationally.
Michigan’s gasoline tax stands at 36 cents per gallon, ranking 5th highest nationally. Additionally, Michigan’s 6% general sales tax is levied on the sale of gasoline purchases. Wait a minute! Isn’t that ‘gas tax’ supposedly used to pay for roads?
Michigan’s cigarette tax stands at $2.00 per pack, which ranks 4th highest nationally.
Michigan is also one of the 37 states that collect property taxes at both the state and local levels. As in most states, local governments collect far more. Michigan’s localities collected $9,886,721,000 in property taxes in fiscal year 2004, which is the latest year the Census Bureau published state-by-state property tax collections. At the state level, Michigan collected $2,091,933,000 in property taxes during FY 2004. That brings its combined state/local property tax collections to $11,978,654,000, or $1,186 per capita, ranking 15th highest nationally.
And then to address your accurate observation about not getting our share of tax monies, Michigan taxpayers receive less federal funding per dollar of federal taxes paid than the average state. Per dollar of federal tax collected in 2005, Michigan citizens received approximately $0.92 in the way of federal spending. This ranks the state 37th nationally and represents a rise from 1995, when Michigan received $0.77 per dollar of federal taxes paid (ranked 45th nationally).
All this is being collected from six of the 10 that the remaining four receive some form of unearned entitlement.
Ps. Best of luck in your pending business endeavor.
January 29th, 2009 at 4:05 pm
Great info LX. You really go deep into these issues. Yes, based upon your last posting, as I said in my 1st posting, us working stiffs don’t get our fair share back and we support too many people who don’t work.
Now on to another topic I guess for both of us.
January 31st, 2009 at 1:55 pm
I received a crash course in LLC’s, Limited Liability Corporations last night. Please tell me if the information I learned is wrong.
I was informed that most Michigan corporations are either LLC’s or form additional LLC’s to protect their main corporations and personal assets should for whatever reason the main corporation not live up to their written contracts and verbal promises.
In other words, as example since BK was allegedly an LLC and even though it was dissolved in April 2008 and even though their officers allegedly continued to present to Dearborn City officials the appearance of still being in business by meeting with them through 2009, we are SOL.’
LX or anyone out there, this is one case where I’d LOVE to be told I am wrong.
February 2nd, 2009 at 4:17 pm
Michael, I’d say your guess is good as any in the outcome.
A “limited liability company” (instead of a corporation), is a hybrid business entity having characteristics of both a corporation and a partnership. It is more flexible and the owners have limited liability for the actions and debts of the company, and it is suitable for smaller companies with a single owner.
1) Did the City also do, as some creditors will require members of up-and-starting LLCs to personally guarantee the LLC’s loans/commitments, thus making the members personally liable for the debt/agreements of the LLC?
2) The principals of LLCs use many different titles — e.g., member, manager, managing member, managing director, chief executive officer, president, and partner. As such, it can be difficult to determine who actually has the authority to enter into a contract on the LLC’s behalf.
So, if not SOL, does getting blood from a stone ring a bell?
February 2nd, 2009 at 4:49 pm
Everything you say makes sense LX. Thanks for the info. Let’s hope this is one case where we are wrong and the city prevails because we need a break from all this is negatively impacting our city.
February 11th, 2009 at 6:07 pm
you guys have no idea what you are saying.
February 13th, 2009 at 9:49 am
I beg to differ April. Everyone else seems to know what they’re saying and it is you who is clueless.
February 16th, 2009 at 1:05 pm
Louie D,
No, you are the one who is the one who is clueless.