Mogk: Detroit needs to abolish property taxes

John E. Mogk

The Detroit News has reported that the Wayne County treasurer is commencing property tax foreclosure this year upon 62,000 properties in Detroit. The great bulk of them are residential properties in the city’s beleaguered neighborhoods. Of these, reportedly 37,000 are occupied. The outcome will be more evictions of homeowners, abandonment, neighborhood blight and loss of population for the city, just as Detroit emerges from bankruptcy attempting to stabilize its population, rebuild neighborhoods and return to prosperity.

This is not a one-time event. Tens of thousands of tax delinquent properties were sold in previous years with considerable suffering experienced by homeowners and loss to the city. Tens of thousands more will be sold next year if something isn’t done.

The answer to ending the crisis is to abolish the real property tax on residential property.

Homeowners are not paying because they cannot afford to. The median household income of Detroit residents is one of the lowest in the nation ($24,820) and unemployment and poverty rates two of the highest. Compounding the situation are inflated property tax assessments and high tax rates in the city, coupled with elevated insurance rates on homes and automobiles that are second to none.

Unlike most other cities in the nation, real property tax revenues on residential, commercial and industrial property make up only about 10 percent of Detroit’s budget. The income tax, casino tax and state revenue sharing are the city’s major revenue sources. Nonetheless, property taxes contributed from all three sources constitute approximately $100 million in supporting city operations. Of this amount, however, the three casinos, General Motors Corp., DTE Energy, Chrysler and Marathon Petroleum alone account for nearly 20 percent of property tax revenue.

Detroit is operating on a lean budget. Lost revenue from taxes on residential property must be replaced.

A number of alternative taxes might be considered, such as a local sales tax or excise tax. But imposing a small tax on the many tax exempt properties in the city, sharing in increased property tax revenues from new developments downtown, and imposing a modest tax increase on commercial and industrial property may be the best options.

Tax exempt properties are along for the ride. They receive the bulk of city services and pay for none of the costs, a concession Detroit can no longer afford.

In addition, downtown has received favored tax treatment over the neighborhoods for decades. Since 1975, when Detroit’s Downtown Development Authority and companion Tax Increment Financing Authority were formed, taxes on the increase in value of property downtown have stayed downtown. Hundreds of millions of dollars that would have otherwise flowed into the city’s general fund to support services in the neighborhoods have been diverted to improve business conditions and investors’ profits downtown. Now that downtown is on the rebound and the neighborhoods are in crisis, it is time that some percentage of this additional revenue be channeled into the city’s general fund.

The average resident in Detroit can no longer afford to pay property taxes and cover other daily expenses in struggling to make ends meet. The city should abolish its tax on residential property for the good of its residents and the city’s future.

John E. Mogk is a professor at Wayne State University Law School.