February 22, 2013 at 1:00 am

5 ways for Detroit to fix its broken property tax system

These solutions won't be painless, experts say, but will bring eventual relief for residents

Detroit won't recover from financial crisis until it resolves a property tax system that produces too little money to provide basic services but over-taxes residents to a point where about half don't pay, experts say. "Detroit is already in a state of de facto bankruptcy," said Alan Mallach, a Brookings Institution fellow who has studied Detroit extensively. "The city of Detroit will remain as some kind of physical entity, but it can't survive until it addresses what's driving down the value of property and people's willingness to stay there." It took decades to creep toward the abyss, so solutions aren't cheap or easy, he said. Those who've studied the problem say only extreme reforms can now save the city. "We need to come together as a state and city and acknowledge that we can't keep trying to solve this problem with piecemeal steps," said Mark Skidmore, a Michigan State University economics professor who studies property taxes in Detroit. Here are five ideas experts suggested that might help:

Lower taxes

Detroit has the highest tax rate among the nation's big cities and collects taxes only from about half of its property owners. More property owners might be inclined to pay if taxes were lower and assessments were realistic, said Skidmore, who co-authored a study that found some assessments were 18 times true market value.

"People are willing to pay taxes if they get services in return," he said. "If you have to pay high taxes and don't receive anything in return for it, it's a big drag."

One problem: The city would lose revenues for at least five years before collections compensate for lost tax rates, Skidmore warned.

The city, which is on the brink of receivership, has neither time nor money, he added.

Help from the state

Even if the city declared bankruptcy, it could never recover financially until it addresses its property tax inequities — and the state steps in with financial help, Mallach said.

The city needs to slash taxes, but Michigan taxpayers need to provide the city with lost revenues for at five years until collections improve, he said. That could cost the state $500 million to $1 billion over that period.

"To get Detroit out of this mess, there's going to have to be money from the state," said Mallach, who also works as a consultant for Detroit Works, the foundation-led effort working on long-term land-use plans for the city.

"Unless the state steps in financially, there's no way to solve this."

No chance, said Ari Adler, a spokesman for state House Speaker Jase Bolger.

"What we are seeing repeatedly is the city turning to Lansing for money while rejecting any help we are trying to provide," he said, referring to a recently rejected proposal to turn Belle Isle into a state park.

"Not only do they reject the help, they verbally attack us when we're trying to help … There will be no bailout of Detroit."

Money from nonprofits

Almost one-third of the land in Detroit isn't taxed. That's 29 of the city's 139 square miles, an area roughly the size of Ann Arbor.

Most of that is owned by governments, but 6.7 square miles of that is owned by nonprofits, churches and other entities. That's about the size of Ferndale and Hazel Park combined.

Chief Assessor Linda Bade wants to persuade nonprofits to pay for services they receive from the city. Bade said her office has audited churches to make sure they still qualify for tax-exemption and removed some from the rolls. She said she also wants to explore adding fees to some 7,000 nonprofits throughout Detroit to pay for city services.

"We never thought there would be such a proliferation of (nonprofits)," she said. "They are a heavy burden, and I think it's something worth looking into."

The city has about 770 charities, but Data Driven Detroit analyst Rob Linn estimates that as many as half of the properties with religious designations operate as businesses and should be on the tax rolls.

Special assessments

City services are so spotty that some neighborhoods are petitioning City Hall to allow them to raise money through tax bills for private police patrols, snow plowing and mosquito control.

State law allows Detroit to create special assessment districts that charge per-household fees, so long as 51 percent of owners sign on. The city has yet to approve an ordinance allowing such districts, but one group of activists plan to present one to City Hall in the next few weeks, said Tom Goddeeris, executive director of the Grandmont Rosedale Development Corp.

Neighbors in his group now voluntarily pitch in to pay for snow removal. The group wants to levy a fee — perhaps $100 per household to raise $550,000 — for plowing and private police in the neighborhoods the group represents in northwest Detroit.

"It's a move toward equity," Goddeeris said. "If everyone had to pay, the cost per house would go down. … This is a model that could be replicable citywide."

The city also could charge fees based on square footage, which would allow it to collect money from nonprofits, Skidmore said.

Giving up assessing

Michigan officials pledged to help Detroit collect more delinquent taxes as part of a consent agreement signed last year that increased state oversight of city finances. Among the reforms: shifting assessments of properties from the city to Wayne County, freeing $6 million from the city and perhaps leading to more accurate property valuations.

Months later, there have been no serious discussions about the idea, said June West, a county spokeswoman. She said it's unlikely the county has the staff or resources to undertake the measure.

Terry Stanton, a spokesman for the state Treasury Department, said the state has provided the city with expertise on processing income and property tax returns. The city should develop an action plan to improve assessing this spring, Stanton said.


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