Opinion | Abolish homeowner real property tax to spur Detroit's comeback

John E. Mogk is a law professor at Wayne State University

In the report recently released by Detroit Future City, "Growing Detroit's African-American Middle Class," and highlighted in Bridge Magazine the main point made is that the revitalization of the City's neighborhoods is dependent upon significantly expanding the City's African-American middle class. Detroit lost a substantial percentage of its African-American middle class between 2000 and 2010 when 237,000 residents left the city – 25 percent of its population.

The report's goal can be achieved by abolishing the real property tax on homeowners, along with concerted efforts to improve K-12 education in the city. With no real property tax, middle class homeowners would be motivated to stay in Detroit, middle class buyers outside of the city attracted to live in Detroit and tax foreclosures shattering home ownership and blighting neighborhoods would be ended.   

Lower income homeowners will benefit considerably, as well as the middle class. Many low income homeowners are simply too poor to avoid tax foreclosure.  An expanding industry of investors is flourishing in Detroit scooping up thousands of owner occupied homes at the tax auction and renting them in neighborhoods that were formerly stable owner-occupied communities. The entire city is being transitioned from predominantly home ownership to investor-owned rental housing creating neighborhoods not attractive to middle class home buyers. This trend moves Detroit into uncharted and unstable waters with absentee landlords playing an increasing role in the well being of the city's neighborhoods.   

The real property tax paid by homeowners is not a major source of city revenue. Unlike other cities, real property tax revenues combined on residential, commercial, industrial and residential property make up only about 13 percent of Detroit's general fund budget. The income tax, casino tax, utility tax, state revenue sharing and other revenues are the city's major revenue sources.  Property taxes contribute $133 million to total general fund revenues of more than $1 billion.

Lost revenues from abolishing the real property tax on homeowners would have to be replaced in the city budget. Moreover, other local governments share in the city's property tax bill, such as the Detroit Public Schools, Wayne County and Wayne County Community College. Their lost revenue would have to be replaced, as well. However, replacement is possible.

A number of alternative sources might be considered, such as a local sales tax, excise tax, a sharing of increased property taxes being kept downtown, payments in lieu of tax from tax exempt organizations and a tax increase on commercial and industrial property, to name a few.

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. Tax exempt real property holdings are not insignificant. 

Since the 1970's the increase in property tax revenues downtown have been kept downtown and paid to the city's Tax Increment Financing Authority. The Authority uses the revenues to eradicate blight downtown and support private development. Times have changed dramatically since, with blight largely eradicated and property values soaring, greatly increasing property tax revenues. Within the next decade hundreds of millions of dollars that otherwise could flow into the city's general fund to support services in the neighborhoods will be diverted to improve business conditions and investors' profits downtown. Some or all of this funding should be used to help replace revenues lost from abolishing the real property tax on homeowners. 

The burden of replacing the real property tax on homeowners could be lowered by abolishing the tax only in neighborhoods outside of the city's 7.2 square mile core experiencing a remarkable comeback on its own, or limiting the program to owner-occupied homes built before an earlier date, such as 2000 for example. Either of these methods would target neighborhoods that need a comeback. 

If the Detroit Future City report is to be taken seriously, the city should take steps to abolish the residential real property tax on homeowners for the good of Detroit residents, the building of its neighborhoods and the city's future.

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Tue, 04/09/2019 - 8:13am

Same old song," cut my taxes, and raise them on someone else!", (businesses)! It always works so well when we can have one group who doesn't pay taxes, (or very little), voting to raise taxes on someone else. Let's have Detroit test out that idea and get back to us!

Tue, 04/09/2019 - 10:16am

What a broken record. Same old posts, same old song.

Tue, 04/09/2019 - 2:05pm

And Back at you. Marxism has been going strong(?) since the late 1800's and never ceases.

Wed, 04/10/2019 - 9:50am

Matt, this is a shit in the dark, but are you the world's most advanced libertarian-response algorithm? You say the same, predictable tripe overy and over and make meaningless comments like this.

Tue, 04/09/2019 - 9:01am

Abolish the tax is areas outside of the 8 square mile Center zone and you will soon see people leaving the center zone to disperse themselves in either other neighborhoods in Detroit or outside the city. Let’s face it, there is more need for money than there is money available to meet that need. Time to do some serious study of what the real needs are. And wastes like the Q-Line in times of great need just dont cut it.

Tue, 04/09/2019 - 10:35am

1. Professor Mogk does not go far enough. We need to rethink the funding of municipal governments in general. When communities like Bloomfield Township are contemplating service cuts because they do not raise enough revenue to support the necessary public services it should be providing, you know you have a problem. Also see Ned Stabler's editorial in this space last week.
2. Professor Mogk is not correct when he says that Tax Increment Funds from the Downtown Development Authority (not the Tax Increment Finance Authority ) can be diverted to general municipal funding, those dollars are committed to paying off bonds which were issued to support the developments in the Downtown area which were the catalyst for the growth we are currently experiencing. They would provide no immediate boost to City revenues.

John Q. Public
Tue, 04/09/2019 - 4:05pm

Re: #2.
You're correct, but missing his point. That money WOULD flow to the general fund if tax increment authorities weren't extended in perpetuity. The DDA, for example, has existed since 1978 and doesn't expire until nearly 2050. It was supposed to quit taking DPS money on 2010, but the Ilitch family used its political muscle to change the law and keep taking millions per year in school tax to build a hockey rink.

It was conceptualized such that the tax revenue created by a project would help fund it and then cease, but now instead of ceasing and the revenue flowing back to the general funds, it is used to build other projects. It's morphed into a perpetual development subsidy. As originally conceived, TIF is a worthwhile tool; as currently practiced, it's a scourge on the state, particularly education.

Tue, 04/09/2019 - 10:57am

If property taxes were lowered, what's to stop an increase in investors scooping up more properties?

Tue, 04/09/2019 - 12:28pm

I thought the same thing. Perhaps it was understood the benefit would only be for home ownership/homestead ... not rental properties.

Tue, 04/09/2019 - 1:31pm

The proposal is to eliminate the real property tax for homeowners, not all

Tue, 04/09/2019 - 2:09pm

They only planned on eliminating property tax on residential owners, (the people who can actually vote). Otherwise you are the main course!

Tue, 04/09/2019 - 1:57pm

Do you have any suggestions for how you'd not decrease K-12 funding (funding which is SORELY NEEDED) in Detroit? Your suggestions of alternative methods of funding are as regressive (or more) than the property taxes themselves.

Steve Manor
Wed, 04/10/2019 - 10:30am

It's a good thing this Professor only teaches law and not economics!

Robert Burgess
Wed, 04/10/2019 - 12:20pm

Seems to me that eliminating the property tax in Detroit would have substantial negative impact on the city's ability to deliver services to constituents. From 2000 to 2010, revenue sharing from the state to local governments was cut by 36%. It has since rebounded somewhat, but is still 15% lower than it was 19 years ago, not even taking inflation into consideration. School taxes are already being used to pay off past school district debts.

An alternate suggestion might be to beef up the homestead tax credit in communities (zip codes?) with unemployment rates X times greater than the state average.

Alternately, in 2011 Snyder administration and legislature eliminated the credit for city income taxes in Michigan on the Michigan 1040 income tax. However, they retained the credit for taxes paid to another state. Michiganders who work in Ohio or Indiana don't usually have to pay state taxes in those states because we have "reciprocal" agreements with these states. But those same Michiganders working across the border do have to pay local county or municipal income taxes in Ohio or Indiana.

Thus, Michiganders in Detroit, Grand Rapids, or Benton Harbor cannot get a credit for their city income tax. BUT, residents of Berrien, Cass, or Monroe counties who work in Indiana or Ohio and pay Indiana county taxes or Ohio city taxes do get a credit (line 18 of the Michigan 1040) for their taxes paid to another state's local unit of government. In effect, Michigan is indirectly paying local taxes to other states AND fixing THEIR roads, not ours. Shouldn't it be the opposite? Maybe Michiganders ought to help pay for roads in Detroit, Grand Rapids, and Benton Harbor and NOT pay for roads in Indiana or Ohio.

But...What me worry?

Sun, 04/14/2019 - 8:22pm

Property taxes, if properly and equitably applied, are a vital part of creating community. We all share the costs of services, each according to the taxable value of our homes.

Tue, 04/16/2019 - 2:47pm

Cutting the tax base in never a good long term solution for economic growth and infrastructure maintenance.