Entrepreneurs in Detroit face serious regulatory hurdles. While the city’s website features step-by-step guides for entrepreneurs, officials must streamline the actual rules for starting a business and lower fees, while also reducing barriers that disproportionately impact lower-income entrepreneurs, returning citizens, and other at-risk populations.
In Detroit, the cost, delays, and complexity imposed by the regulatory process for small businesses make it difficult—or sometimes even impossible—for entrepreneurs to start the ventures of their dreams and pursue their passions.
Fees for licenses and permits are comparatively high in Detroit. For example, an aspiring restaurateur must pay 15 different fees totaling $6,545 to get started—driven in large part by the need to pay nearly $1,500 for food plan reviews and permits.
Determining how the building permit process works is difficult and confusing. When rules are vague and entrepreneurs are left in the dark, getting to opening day takes longer than necessary, frustrating applicants who get stuck in back-and-forth communication with agency officials.
Regulatory processes are step-heavy: It takes 77 steps to start a restaurant in Detroit—more than in any of the other cities we studied except Boston. With 69 categories on the books, Detroit forces a relatively high number of business types to obtain a city business license before starting up, which creates additional steps for entrepreneurs to complete before starting their businesses.
We calculated this metric by totaling the fees for all the licenses, permits, and registrations each business needs to get started.
Number of Fees
We calculated this metric by counting how many fees governments impose on each business for completing registrations and paperwork.
We calculated this metric by totaling the number of agencies entrepreneurs must work with in order to get up and running—whether in the form of submitting paperwork to an agency’s staff, or in terms of abiding by regulations that an agency has promulgated.
We calculated this metric by counting the number of compliance activities each entrepreneur needs to complete in person, rather than online or by mail.
Number of Forms
We calculated this metric by counting the various forms and applications each business needs to submit
Number of Steps
We calculated this metric by totaling the discrete tasks an entrepreneur must complete to start each of the business types.
Applicants who owe any type or amount of debt to the city are prevented from obtaining a business license, a hurdle acutely felt by returning citizens and lower-income entrepreneurs—often those most in need of economic opportunity. Business license applicants must also certify if they have been convicted of a crime in order to get a business license, potentially deterring or barring returning citizens from even applying. State regulations can add to these burdens; for example, barbers may be denied state licensure if they do not have “good moral character,” which may deter some residents with criminal histories from applying. Applicants must also have completed the 10th grade.
Applicants who are delinquent in “blight violation” fees—fees for failing to maintain derelict or abandoned property—are not eligible to obtain a permit, certificate of occupancy, or variance without getting special clearance. While not as expansive as the city’s debt provision for business licenses, this requirement still handicaps those who are trying to get back on their feet and adds extra bureaucracy to the permitting process.
Our analysis of five common, representative business types found additional burdens. Zoning restrictions limit home-based businesses to only 25%, or 500 square feet, whichever is less, of the home’s floor space, and prevent these entrepreneurs from having client visits and non-resident employees. Food trucks cannot operate within 100 feet of any established business that sells the same goods.
Accommodations for New or Small Businesses
City officials may prorate fees for a license issued for a period of less than six months if they decide that an applicant is experiencing an economic hardship.
Officials and policymakers have the opportunity to make it cheaper, faster, and simpler to start a business in Detroit. City officials should:
Ensure that licensing costs do not keep out those on the first rung of the economic ladder.
Eliminate the “clean hands” requirement that bars applicants who owe any money to the city.
Reduce the number of businesses that need city licenses.
Simplify the process to obtain building permits by combining steps and paperwork, creating more guides for complying with agency rules, and lowering fees.
Remove barriers that target returning citizens.
Remove unnecessary barriers on specific business types. For example, allow home-based businesses to receive clients at the home and have employees and eliminate the proximity restriction for food trucks.
Work alongside state officials to remove barriers that single out returning citizens and low-income residents, such as “good moral character” requirements.
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