Property tax reform

[Dumpling]

Any commentary from Duggan and his backers and supporters about vacant parcel taxes is just a little bit disingenuous unless recently imposed drainage fees are mentioned as part of the burden.

[Richard]

The tax system in Michigan did get some relief many years ago with passing the Headlee Amendment. It lowered property taxes, and increased the sales tax from 4% to 6%.

This really helps homeowners who live in their house for many years, but doesn't help new buyers.

I purchased my house in SCS in 1990 for 84K. This year my next door neighbor, in an almost identical house to mine, sold his for 215K. Now I am paying $2,200 for my property taxes, but my new next door neighbor is paying nearly $4000.

The Headlee Amendment caps property tax increases so that long time homeowners benefit much more than new owners...

How the cap works. In Michigan, homeowners have an overall cap on how much the value of their home can go up each year. The annual assessment increase for each property is constitutionally limited to 5% or the inflation rate, whichever is less.

However, very high property tax areas such as Detroit don't benefit from this as much, since they have high tax rates to begin with. That's where those "zones" come in... but they only help for a set number of years, with a potential additional cap. But the majority of Detroiters don't live in one of those reduced tax rate "zones".

My 80 year old home that I bought for $6000 7 years ago,now valued at $220 has increased in taxes from $450 to now $540,another house that I have valued at $320 and non homestead is $1800.

To get into a $4000 a year in property taxes it would take a $500k home.

Under the Save our homes program,I am capped at 3% increase,plus multiple different caps,veterans,older no school taxes,after 65 less taxes etc.

It does not matter if the house next to me sells for $1 million,it does not effect my taxes,just the next buyer and my caps follow me if I sell and purchase.

The whole intent was to keep people in their homes long term in order to stabilize neighborhoods.

When you look at taxes in Detroit it mimics most northern industrial or past industrial cities with the exception of what you get in return.

I have looked at lots of cities in the south that make Detroit look like Paris but share the same rates,the only difference is they are just abandoned,buildings are still there and there are more large potholes and water fountains from leaking water mains then actual pavement.

I think in Michigan the problem is the system that was there to support a larger population never really adjusted to accommodate a lower population or the same amount of government providing the services or lack of.

It no different then us,when our income changes we figure out how to stay within budget and trim the fat.

It’s like they are not looking at the root cause,you can say legacy costs but with all of the tax credits being handed out it’s extending the legacy costs to future generations and not lowering costs to existing taxpayers,which is the whole intent of development,it’s like paddling upstream by design.

But then again people seem to be adamant about supporting a system that is strangling them,so you get your reward,the problem is instead of changing it most are just leaving compounding the problem.

The bankruptcy was supposed to be a wake up call but sometimes it is like people went back to sleep after it was over.

I guess that is the most puzzling part,why is it that some cities can provide a full range of services to the taxpayers at a affordable rate while others struggle to do so at double or triple that rate ?

[ABetterDetroit]

The tax system in Michigan did get some relief many years ago with passing the Headlee Amendment. It lowered property taxes, and increased the sales tax from 4% to 6%.

This really helps homeowners who live in their house for many years, but doesn't help new buyers.

I purchased my house in SCS in 1990 for 84K. This year my next door neighbor, in an almost identical house to mine, sold his for 215K. Now I am paying $2,200 for my property taxes, but my new next door neighbor is paying nearly $4000.

The Headlee Amendment caps property tax increases so that long time homeowners benefit much more than new owners...

How the cap works. In Michigan, homeowners have an overall cap on how much the value of their home can go up each year. The annual assessment increase for each property is constitutionally limited to 5% or the inflation rate, whichever is less.

However, very high property tax areas such as Detroit don't benefit from this as much, since they have high tax rates to begin with. That's where those "zones" come in... but they only help for a set number of years, with a potential additional cap. But the majority of Detroiters don't live in one of those reduced tax rate "zones".

All the proof of failure is right in your post. Stay in your house for “many Years” never pull a permit, add on etc… then you benefit. Have a growing family? - your screwed. Want to upgrade business or home?- more screwed. Thinking of moving here for a new job?- absolutely screwed because you’re coming from somewhere with a much lower property tax rate.

The way the property tax laws are they actually encourage by financially rewarding economic stagnation. Or, getting the hell out of Michigan…

[expatriate]

"I guess that is the most puzzling part,why is it that some cities can provide a full range of services to the taxpayers at a affordable rate while others struggle to do so at double or triple that rate ?"

I'm guessing that those cities didn't experience such a drastic population/tax loss. There is still 140 sq. miles of infrastructure to maintain and many buildings are not even subject to property taxes. There must be hundreds of "churches" in the city getting a free ride on this exemption.

[mwilbert]

"I guess that is the most puzzling part,why is it that some cities can provide a full range of services to the taxpayers at a affordable rate while others struggle to do so at double or triple that rate ?"

I'm guessing that those cities didn't experience such a drastic population/tax loss. There is still 140 sq. miles of infrastructure to maintain and many buildings are not even subject to property taxes. There must be hundreds of "churches" in the city getting a free ride on this exemption.

Yes. It's mostly just the low tax base. Required city expenditures don't scale up and down with city assessed values, so in order to keep even Detroit's relatively low level of city services functioning, Detroit needs higher tax rates than a city with more taxable value and less infrastructure to maintain. It was absolutely hopeless prior to bankruptcy, because of Detroit's gigantic legacy costs from the much larger workforce of the past, and it's still not easy. That's not the only thing going on, but it's most of it.

[ABetterDetroit]

"I guess that is the most puzzling part,why is it that some cities can provide a full range of services to the taxpayers at a affordable rate while others struggle to do so at double or triple that rate ?"

I'm guessing that those cities didn't experience such a drastic population/tax loss. There is still 140 sq. miles of infrastructure to maintain and many buildings are not even subject to property taxes. There must be hundreds of "churches" in the city getting a free ride on this exemption.

What is clear is the property tax is becoming a smaller and smaller piece of revenue generator for city services. At this point why keep such a punishing tax that prevents capital improvement to structures when it has turned into such a bureaucratic nightmare to manage? Keeping folks employed to decipher the myriad of abatements, NEZs, economic hardships, assessments, etc.. isn’t a good enough reason. Replace the income with new tax vehicles with no bureaucracy and move the heck on to a growth era.

https://detroitmi.gov/sites/detroitm...%20%283%29.pdf

[Richard]

"I guess that is the most puzzling part,why is it that some cities can provide a full range of services to the taxpayers at a affordable rate while others struggle to do so at double or triple that rate ?"

I'm guessing that those cities didn't experience such a drastic population/tax loss. There is still 140 sq. miles of infrastructure to maintain and many buildings are not even subject to property taxes. There must be hundreds of "churches" in the city getting a free ride on this exemption.

City of Detroit residents have a $7,800 legacy cost debt with most comparable cities being in the $12,000 range.

New York as an example $18,411 per citizen

Country wide national debt is $9,700 per citizen

Michigan as a whole does not even rank in the top ten

Wyoming is at $3,347 per citizen.

So as a city you are actually about or a bit lower and a lot lower then some in the average U.S. city and state.

Detroit as a city and when it comes to population loss,is not alone and as much as people like to beat on it like it is the worst place in America,it’s actually not,and in a much better position then a heck of a lot of other city’s.

So your legacy cost debt,although a factor,is really not out of line with the rest of the country.

Its not what is drowning you because it is a cost incurred just like any other city has through the decades,infrastructure decline or not,population decline or not,you are middle road.

It’s a debt but comparatively in the bigger picture it’s not as much as a mitigating factor like it is constantly being pushed as.

That number is always going to be there,the only way to change it is by going crazy with hiring a bunch of unnecessary city employees that would increase it in the future,you are also middle road with amount of city employees per 100,000 citizens so it is in line for future obligations.

How to deal with aging infrastructure is not a city of Detroit specific problem,it’s country wide and is just another one of those things that is a part of running a city.

To me anyways,you do need need to come up with hair brained schemes in order to lower property taxes,because all it is doing is kicking that can down the road for future generations,you guys already know and have pointed out core issues that are effecting property tax rates.

If the core issues are not going to be addressed and enforced creative bookkeeping that looks to increase a revenue source is like putting a bunch of nice apples on top of the bushel in order to cover up the bad apples underneath so it looks nice to sell.

That’s how this mess got created in the first place,putting the shiny apples on top of the rotten ones,until one day the rot transferred to the top ones,then none of them were sellable.

[Gistok]

^ Doesn't Illinois have a massive per capita state debt.... nevermind, I'll check... YIKES!!

Experts with Truth in Accounting examined state financial reports for fiscal year 2021 to determine Illinois failed to pay $210.5 billion worth of its bills, leaving each taxpayer responsible for $49,500 in debt. Illinois ranked third-worst in the nation, rating an “F” for fiscal management.

[Richard]

Yea,I think that is why Detroit is a favorite whipping post,it makes for a good distraction for the others whose house is not in order and is in far worse shape.

The only difference is they have more shiny trinkets that covers up the bad stuff.

The biggest question is what is the real property tax rate or obligation not based on the $600 million that 175,000 properties were overcharged?

It does not help matters much when you artificially inflate property taxes and remove the ability of the taxpayers from being able to get a clear picture of where they stand.

It’s almost like the age old marketing ploy,jack the price up before the sale then give a discount as a sale so people think they got a reduction in price when they actually did not.

[Jimaz]

This excerpt from the Freep is the best explanation I've found.
Editorial: Duggan’s Detroit property tax shift is important, necessary [[freep.com)

How Duggan's tax proposal would work

Current state law requires local assessors to slash the value ― and thus the taxes ― of both vacant lots and lots with structures so derelict they are unusable, Duggan explained in his Mackinac Island address. At the same time, occupied residential and commercial properties are taxed at a whopping 86 mills, the highest rate in the state. Many former Detroit homeowners and small businesses have been lured by more reasonable rates in Detroit’s suburbs. Duggan wants to increase the tax on vacant land to 246 mills, and cut the tax rate on buildings to 60 mills. Cutting that rate would provide a tangible boon to longtime Detroit residents, prospective new residents, old and new businesses.

Equally important, the mayor says, the tax change will prompt Detroit property owners to reconsider the value proposition of allowing vacant land or derelict buildings to languish. The average tax bill for a vacant lot, Duggan says, is $30, and there are some 30,000 neglected vacant lots from which the city must pay crews to clear illegally dumped trash and mow the grass. The foreclosure auction all but invited speculators to acquire mass quantities of land, gambling on future development boosting the property’s value. Sometimes, that means decades of waiting, while property sits unused or in disrepair.

Just eight new single family homes were built in Detroit in 2022. There are nearly 1,000 abandoned, privately owned commercial and industrial buildings in Detroit, Duggan said last week. Rehabbing a derelict building, or new construction on a vacant lot, returns the property to the 86-mill tax rate — a disincentive for many property owners.

The new proposed tax structure seems to make so much common sense that it raises the question: How did the original tax structure get established in the first place?

[ABetterDetroit]

The new proposed tax structure seems to make so much common sense that it raises the question: How did the original tax structure get established in the first place?

Hmm… To benefit old white people that have money? Just a wild guess, could be wrong. Something like that has certainly never happened before. It’s not like that group has ever had political power or anything.

[Jimaz]

The new proposed tax structure seems to make so much common sense that it raises the question: How did the original tax structure get established in the first place?

Hmm… To benefit old white people that have money? Just a wild guess, could be wrong. Something like that has certainly never happened before. It’s not like that group has ever had political power or anything.

Heh, I admire your spirit.

I was more curious about how it was originally justified to the public, or even whether it was justified to the public.

If the former, maybe we could learn to avoid such mistakes in the future. If the latter, we might have a case of taxation without representation.

Or maybe no one remembers? I'm just trying to scratch a legislative archaeology itch here.

I think most agree that the result of the original tax structure was suboptimal {an understatement}.

[Rocket]

For every seemingly valuable lot that the Illiches knock down with our money, and then illegally operate as a parking lot in downtown, there are probably another 300 worthless lots in other parts of Detroit.

If you tax those lots too much, no one will hang on to them or purchase them. Then instead of being able to tax the owners $30 million, and force them to mow the lots, and write them blight violations if they don't, the city would instead have to pay $72 million to maintain them.

For sure the tax on them could be raised a bit, but the City needs to be careful.

[Jimaz]

This 2013 article might be relevant:

How a Progressive Tax System Made Detroit a Powerhouse {and Could Again}

...From 1890-1930, Detroit's population boomed from 205,000 to 1,569,000, the fastest growth of any US city. The auto industry did it, but why Detroit? Detroit had produced horse-drawn carriages from hardwood lumber, but so had other places. It was not low wages; Detroit paid better than most -- that's why so many people rushed in. It was not business-dominated politics; Michigan was a Progressive, Bull Moose Teddy Roosevelt state. It was not low taxes on wealthy "job-creators"; Michigan relied on high state and local property taxes. As most people recognized in those days, {and as we have documented here and here}, property taxes are wealth taxes, dramatically more progressive than income taxes.

Detroit Mayor Hazen Pingree, 1889-1897, was an early Georgist Progressive. He supported the idea of American economist and reformer Henry George {1839-1897} that all taxes should be shifted onto land and other natural resources. Today, Nobel-Prize-winner Joseph Stiglitz advocates this as the "Henry George principle." Applied to cities, it means raising property tax rates on land and lowering them on buildings. In cities, poor renters own no land, heavily-mortgaged middle classes own very little. So shifting taxes to land turns property taxes into wealth taxes on steroids. Better yet, taxing land discourages rich speculators from holding valuable property out of use. Mayor Pingree was a mentor to and model for the Georgist soon-to-be Mayors Tom Johnson and Newton Baker of Cleveland, and Samuel Jones and Brand Whitlock of Toledo.

The crash of 1893 hit Detroit soon after Pingree's election. The city was riddled with vacant lots held by land speculators; Pingree arranged for the unemployed to plant vegetables. "Pingree's Potato Patches" inspired other cities to follow. Meanwhile, he had campaigned for "higher taxes on the vast landed estates of the city"; when big industries threatened to leave town, he responded by raising just the land assessments. This won the support of small business....