Detroit property tax relief plan gets new life

Christine MacDonald
The Detroit News
Valeria Graves is a 64-year-old grandmother who is paying about $100 a month to pay $3,400 off in property tax debt on her west-side home, while she battles breast cancer and  deals with a leaky roof that has brought down her bathroom ceiling. Her income is so low she would have qualified for the taxes to be wiped away but she didn’t know the tax break existed. New legislation if passed would be able to exempt up to three years of past taxes for those who qualify.

An unprecedented property tax break that would forgive poor Detroit homeowners their past delinquent bills is getting new life after stalling in Lansing three years ago.

Today the city can't wipe away old property tax debt, even if the owner could have qualified for a little-known poverty exemption that the state allows cities to grant on a yearly basis. 

Proponents say the law needs to change: The application process for the exemption was convoluted and inaccessible in Detroit, which at the same time was overtaxing owners with admittedly inflated assessments

The move could help thousands who have been on repayment plans, paying for inflated property taxes that could have been exempted. 

"There is no way we should not be doing more to help," said Willie Donwell, who heads the Detroit board that decides who gets the exemption. "The homeowner who loses their house to tax foreclosure, what is the cost to the city? The city still loses the money and the city has a blighted property."

Donwell, chairman of the Detroit Citizens Board of Review, is writing new legislation to allow for the retroactive break of up to three years, and Rep. Wendell Byrd, D-Detroit, hopes to introduce it once complete.

The idea sets up a dilemma: what about the people who already lost their homes to foreclosure or who paid their bills?

"It's a complicated mess ... trying to make good on past mistakes," said Michigan State professor Mark Skidmore, who has studied Detroit's property tax system. "You have all these people who faithfully paid their taxes." 

Skidmore said he's not aware of another municipality that has retroactively forgiven property taxes.  

Wayne County Treasurer Eric Sabree, whose office collects delinquent property taxes, said he's had discussions this year with state Treasurer Nick Khouri on the idea. The concern from both was "it would go down an inequitable road" for other low-income homeowners who paid their bills, Sabree said. 

"It’s a disincentive to people who did pay," Sabree told The News. "Those who did pay say, 'Why am I paying, if in fact I just waited it out long enough, I would have been forgiven?'"

Sabree said he'll support what Detroit Mayor Mike Duggan decides. Duggan said through a spokesman that he can't say whether he supports it until he sees Donwell's proposal.

Only those with delinquent taxes would be helped. Those who already paid but could have qualified for the exemption, wouldn't see relief. 

"We have no formal (plan) for reparations or give backs," Donwell said.

Similar legislation was introduced in 2015 by Byrd, stalling over the potential cost of the lost tax revenue to municipalities, Donwell said. A study has not been done yet on the financial impact to the city and other taxing authorities, like the Detroit Public Schools Community District and the Detroit Public Library. 

Donwell said his new proposal would just affect Detroit and would include possible ways to recoup the lost taxes, including having the city recover money the homeowner could typically get by applying for the Homestead Property Tax Credit in their state tax return. 

The average debt for the 15,000 homeowners believed to be on repayment plans with the Wayne County treasurer is nearly $4,500 in Detroit, the nation's poorest big city. The News found in 2015 that more than a one-third of the city had gone through mortgage or tax foreclosure. 

Housing advocates say drastic aid is needed to help people like Valeria Graves.

The 64-year-old would have qualified for the exemption for the last three years but didn’t know about it. Now she’s paying $100 a month to pay off $3,400 in debt, while she battles breast cancer and a leaky roof that has brought down her bathroom ceiling.

"I would love to get rid of that debt," said Graves, who lives in a modest west-side three-bedroom bungalow. "It's really hard to get caught up."

"I've tried so hard to keep a roof over my head."

The ACLU of Michigan sued the city in Wayne County Circuit Court two years ago over how it administered the property tax break for the poor, arguing it violated homeowner's due process rights, in part by setting an artificial deadline. Some applicants didn't get a reason for their denial and others didn't receive a response at all, according to the lawsuit.

The city and the ACLU settled the lawsuit this year, which included the chance for about 170 low-income owner-occupants of foreclosed homes to buy their properties back for $1,000 before they were set to be auctioned off this fall if they could prove they would have qualified for the break.

The city also overhauled the application process to make it easier for residents. 

A spokesman for the state Treasurer Nick Khouri said his department hasn't taken a position on the retroactive break. 

"We will wait to see if the proposal is considered by the Michigan Legislature and gains the support of local governments in Michigan," said Treasury spokesman Ron Leix. 

Tax foreclosures in Wayne County have sunk to a fraction of their highs just three years ago, but the annual process of auctioning off delinquent properties remains controversial. The latest round of the auction ended Tuesday.

The total number of properties headed to the tax auction as of July was 4,676, officials said then. That compared to a high of 24,793 in fall 2015.

While numbers have gone down dramatically, some critics say people are being warehoused in payment plans they will never be able get out of. Sabree acknowledged he may have to extend payment plans for homeowners beyond the five years outlined in the law now. 

"We are absolutely not out of the woods," said Ted Phillips, director of the United Community Housing Coalition. "People are still in tax debt that is not manageable."