Making Ends Meet: Options for Property Tax Reform in Detroit

Abstract

Current property tax policies in Michigan severely constrain the ability of the City of Detroit to raise sufficient revenues, particularly in a weak economy. Almost half of the land area of the city does not contribute to the property tax effort and the valuation of the taxable properties has fallen substantially since the Great Recession. This article considers alternative definitions of the city's tax base, including taxes based on land value or land area, as well as special assessments for specific services. These reform options are found to have considerably different impacts on different classes of real property.At the beginning of the twentieth century, Detroit was one of the fastest growing and most prosperous cities in the United States. Buoyed by the rise of the automobile industry, Detroit grew rapidly in area, population, and income level. A century later, Detroit has become one of America's most severely distressed cities, losing population, jobs, middle-class households, and property values.Detroit's decline can be attributed to a number of factors (Galster, 2012;Martelle, 2012;Ryan, 2012;Sands, 2002;Sugrue, 2005). Some of these factors are the result of policy choices that depended too heavily on the fortunes of a single industry (manufacturing), underinvestment in public education, and a parochial approach to managing metropolitan concerns. These challenges were exacerbated by a local government that has been largely ineffective and at times corrupt. But Detroit's problems are not entirely of their own making. Deindustrialization and globalization, especially in the once dominant U.S. automobile industry, have decimated Detroit's blue-collar middle class. As businesses and higher income households left the city, new taxes were introduced to help meet the growing public service needs of an increasingly low-income population. Higher taxes provided additional incentive to leave the city for mobile residents and businesses, fueling the cycle of decline. The reduced quality of public services, especially education and public safety, provided further justification for decisions to leave Detroit. The Great Recession of 2008-2009, along with the concurrent mortgage foreclosure debacle, reduced property tax revenues and pushed the city even further into debt. These internal and external forces are transforming the city and its government; the Detroit that emerges from the current financial crisis is likely to be structurally different than it was prior to the recession.In this article we consider how the existing property tax system in Detroit has not only contributed to the present situation, but also how it continues to limit the potential for recovery. Specifically, we will consider the following questions:

Examining Changes in Long‐Term Neighborhood Housing Vacancy during The 2011 to 2014 U.S. National Recovery

“…The City of Detroit entered bankruptcy during this time after experiencing major problems with delivering basic city services and servicing its debt. The city also experienced increases in vacancies, initially due to mortgage foreclosure and then due to tax foreclosure as the City instituted measures to enforce property tax delinquency (Sands & Skidmore, ). Potential explanations for the substantially higher increases of vacancies in Providence are somewhat less obvious, although metro population growth lagged most other regions, with the region growing at only a 0.1% annual rate over the period compared to the U.S. rate of 0.8% (Regional Economic Analysis Project, ).…”