Half of Detroit property owners don't pay taxes

Detroit — Nearly half of the owners of Detroit's 305,000 properties failed to pay their tax bills last year, exacerbating a punishing cycle of declining revenues and diminished services for a city in a financial crisis, according to a Detroit News analysis of government records.

The News reviewed more than 200,000 pages of tax documents and found that 47 percent of the city's taxable parcels are delinquent on their 2011 bills. Some $246.5 million in taxes and fees went uncollected, about half of which was due Detroit and the rest to other entities, including Wayne County, Detroit Public Schools and the library.

Delinquency is so pervasive that 77 blocks had only one owner who paid taxes last year, The News found. Many of those who don't pay question why they should in a city that struggles to light its streets or keep police on them.

"Why pay taxes?" asked Fred Phillips, who owes more than $2,600 on his home on an east-side block where five owners paid 2011 taxes. "Why should I send them taxes when they aren't supplying services? It is sickening. … Every time I see the tax bill come, I think about the times we called and nobody came."

This week, a state-appointed review team concluded the city can't fix its financial problems. Any emergency manager appointed by Gov. Rick Snyder would have to grapple with a broken property tax system. The city's share of uncollected taxes last year was $131 million — an amount equal to 12 percent of Detroit's general fund budget.

A four-month News investigation found:

Detroit has the highest property taxes among big cities nationwide and relies on assessments that are seriously inflated. Many houses are assessed at more than 10 times their market price, according to new research from two Michigan professors.

Detroit relies on a shrinking sliver of businesses and neighborhoods to pay the bulk of the bills. The three casinos, General Motors Corp., DTE Energy, Chrysler Group LLC and Marathon Petroleum Corp. paid 19 percent of collected property taxes. Five city neighborhoods, most of them downtown and along the river, paid 15 percent of the city's taxes and represent only 2 percent of the city's total parcels. In all, only 41 percent of the city's parcels produced tax revenues last year because of delinquencies and a large number of tax-exempt land.

Detroit's delinquencies are so pervasive that some owners have been allowed to keep their property even if they don't pay taxes. Wayne County treasury officials are so overwhelmed by foreclosures that they ignored about 40,000 delinquent Detroit properties that should have been seized last year and said they will look the other way on about 36,000 this year.

Lou Schimmel, Pontiac's emergency financial manager, said Detroit needs to fix its property tax system — and fast.

"It's broken," Schimmel said. "It has to be fixed. You need the revenue."

"It's just plain simple. Your revenues are falling so fast you can't afford to provide basic services."

Frustrated by the system

Leola Wesley questions what services she gets for her taxes. Bill Lee pays out of his civic duty. Both are frustrated by the system.

Wesley paid $810 last year for her snug home near Chalmers. She was the only resident on her 32-parcel block who paid.

"It makes me not want to pay," said Wesley, 85, who would move from her home of more than 20 years if she could afford it. "If nobody else is paying, why should I?"

A streetlight on her corner is out. Potholes are deep. She lives next to two vacant lots and rarely sees police patrol her block.

"There are so many empty houses, there's nobody to pay," Wesley said. "I'd like to know what is going to be the solution."

Across town, Lee has dutifully paid his nearly $4,000 annual bill despite believing it's too much. His stately brick Tudor in the University District is assessed at $53,810, meaning the city pegs its market value at $107,620. A recent appraisal he paid for found the house was worth $35,000.

"It was my commitment to seeing the city working," said Lee, 67, a consultant who has lived there since 1982. "I know our difficulty is we are still operating like we have a million people. We have to have somebody to support that. … But it's not fair that such a small percentage is paying."

'It's not sustainable'

In Michigan, counties are required by law to foreclose when taxes aren't paid for three years. So the owners of 143,600 properties who didn't pay their full bill last year still have time to avoid foreclosure. Nearly 12,200 of those paid a portion of their bill but are still considered delinquent.

But the delinquency rate in the city shows the severity of Detroit's challenges. Several other large Michigan cities, including Warren, Southfield, Grand Rapids and Dearborn, received taxes from more than 85 percent of their homeowners last year.

Cities with collection rates less than that are in trouble, said Alan Mallach, a Brookings Institution fellow who has studied the city extensively and is a consultant for the Detroit Works project.

Taxes are due Jan. 15. They become delinquent March 1 and it's up to Wayne County to collect them. The county issues bonds to front some of the money to the city and tries to recoup lost revenue by selling foreclosed properties. The property auctions rarely make enough. In the past five years, the city has lost out on $317 million in taxes, county records show.

Property taxes are the lifeblood of most cities, but they've dwindled in Detroit. The funds now comprise 13 percent of general fund revenues, compared to 48 percent to 77 percent in other cities, according to research by professors Mark Skidmore of Michigan State and Gary Sands of Wayne State universities. Money from the state and federal government makes up the remainder in most cities. "The case is clear: The city is on the verge (of insolvency)," said Skidmore. "It's not sustainable. It creates a whole cascade of challenges."

At a breaking point?

Detroit finance director Cheryl Johnson said the city is doing its best under tough circumstances and the "property tax system is not broken."

"It is a tragedy," said Linda Bade, the city's chief assessor. "We had the mortgage crisis, the auto crisis, the tier 1 and 2 suppliers all fled, huge unemployment …"

But critics argue the problems have reached a breaking point.

Property owners increasingly are re-buying their land in tax-foreclosure auctions and legally erasing their debts. Last year, 600 properties were re-purchased by their owners, triple the number in 2010. That cost the city nearly $6 million in unpaid taxes.

"It was a business decision," said landlord Lamont Hunter, who said the $45,400 he owed in taxes and fees were too high on four of his foreclosed rentals that he bought back at auction for $5,801 total.

"Each of these houses I bought back is in bad, poor areas I wouldn't live in. I am better off to bid."

Even some banks are walking away. A 2010 federal Government Accountability Office report found Detroit had some of the highest numbers in the nation of "bank walkaways," or mortgage servicers who start foreclosure proceedings but then opt to abandon the properties and, often, their tax bills.

The review found 500 houses total in four Detroit ZIP codes — including the city's northeast corner and Brightmoor — that were abandoned between January 2008 and March 2010.

Homeowners like Ricardo Kisner question whether the city can survive.

"It makes me wonder why I pay my taxes and keep my property up," said Kisner, a North Rosedale Park resident and former top finance official for the city and Detroit Public Schools. "I keep asking myself, 'Am I the stupid one?'"