09.05.13

Reassessing Motor City Property Assessing. Detroit has one of the broadest tax bases of any city in the U.S. Municipal income taxes constitute the city’s largest single source, contributing about 21 percent of total revenue in 2012, or $323.5 million in 2002, the last year in which the Motor City realized a general fund surplus. The property tax accounted for 13.3 percent of Detroit’s revenues in 2012, even though the city has the highest property taxes among big cities in the U.S. Perhaps, more than any other city, Detroit’s property tax collections were assaulted by the recession, with assessed valuations declining nearly 46 percent from 2007 to 2012. But the Detroit property tax revenue problem is also adversely affected by state limitations[1] as well as a city property tax administration system described as “riddled with errors and waste, and overseen by a pair of double-dipping officials who work just two days a week,”[2] and a singular inability to address delinquencies. The Detroit News in February reported that 47 percent of property owners were delinquent on their property taxes and fees in 2012—with some delinquency “so pervasive that 77 blocks had only one owner who paid taxes last year.”[3] The Detroit News also found yet another property tax problem: high taxes and low values. In the 2011 50-state property tax comparison study, Detroit ranked first among the 50 largest cities in taxes – and last among property values. Detroit taxes on a $150,000 house were $4,885, twice the national average of $1,983. The city’s average house price, $16,800, was nearly 10 times lower than the next lowest, Mesa, Ariz.

Now state officials are moving to try to repair the troubled department that sets city property values, launching a citywide reassessment for the first time in decades that could both help the city realize more revenues, while at the same time dramatically lower tax bills for many owners. These steps could be important not just fiscally, but also in terms of trying to rebuild public trust: Alvin Horhn, who is overseeing the Assessments Division while the city recruits a new chief assessor, notes: “People don’t have faith in the numbers…We are taking every step we can possibly take so the public can trust the numbers.” It is uncertain how long Detroit has gone without a citywide reassessment, but Mr. Horhn said the last may have been done in the mid-1960s. The state move comes five months after the state launched an investigation in response to a series in The Detroit News that exposed widespread over-assessments, rampant tax delinquencies, and mismanagement in the Assessment Division; but the city’s reassessment could take three to five years. Michigan recommends municipalities review 20 percent of their properties every year. In Detroit, homes have gone 30 years on average without a visit by assessors, according to a 2012 city audit that sampled residential properties. For the new review, the city will use aerial photography, mapping programs and exterior inspections by staffers to gauge neighborhood conditions and better reflect property values. Mr. Horhn reports the Motor city has 11 assessors for nearly 386,000 parcels—the equivalent of 35,000 parcels per assessor, or nearly nine times the state recommendation of 4,000, leading him to note: “The reality is: Our division was so overwhelmed and it was impossible for us to keep up. We need to get our house in order.” The city’s move won’t affect the state’s investigation of assessments, said Doug Roberts, chairman of the Michigan State Tax Commission. That review is being conducted by Tax Management Associates, a North Carolina firm.

Metro Detroit. Michigan State Treasurer Andy Dillon yesterday launched a financial investigation into two more local governments in the metro Detroit region, with his office stating it would begin reviews next week of the books of Highland Park and Royal Oak Township, the first step toward a possible state takeover. Highland Park, which, like Detroit, is located in Wayne County, has been under state control before, has failed to deposit its minimum pension payments, ended its fiscal year with a deficit, and violated the terms of its deficit elimination plan, according to the state. The Highland Park School District is already under emergency management. Royal Oak Township, in neighboring Oakland County, also failed to make its minimum pension payment or file timely financial reports. It has also breached state laws, including the uniform budgeting act and the municipal finance act. Michigan has 30 days to complete the preliminary reviews. Highland Park will have five days to provide comment on the report before it is submitted to the Local Emergency Financial Assistance Loan Board. If the Board and Gov. Rick Snyder determine that a financial emergency exists, local officials have four options: a consent agreement with the state; acceptance of an emergency manager; a neutral evaluator; or Chapter 9 bankruptcy, with Governor Snyder’s approval. Michigan currently has eight local governments under emergency management, including three school districts. The Pontiac School District operates under a consent agreement with the state.


[1] Timothy Hodge et al, “Tax Base Erosion and Inequity from Michigan’s Assessment Growth Limit: The Cased of Detroit,” CES ifo Working Paper No. 4098, January 2013.

[2] Christine MacDonald, “Detroit’s Property Tax System Plagued by Mistakes, Waste,” The Detroit News, Feb. 22, 2013.

[3] Christine MacDonald, “Half of Detroit Property Owners Don’t Pay Taxes,” The Detroit News, Feb. 21, 2013.

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