The Challenge of Inequality to Municipal Fiscal Recovery

November 18, 2014

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The Challenge of Inequality. Even though the federal bankruptcy court has approved Detroit’s plan to exit municipal bankruptcy, the challenge it confronts is daunting. Nowhere is the challenge more apparent than in the disparity in assessed property values between the Motor City and its surrounding suburbs. Even though year-over-year sales in the Detroit metropolitan region declined 6.3%, median sale prices for homes in Wayne, Oakland, Macomb, and Livingston counties rose by 14.2% to $145,000, according to a new report from Farmington Hills-based Realcomp Ltd. II. Inside the city, however, the average price of a residential property declined from $57,000 in 2006 to an average price of $7,000 in 2009—with the Lincoln Institute of Land Policy reporting that the “current excess would likely suppress house price recovery in the coming years even if the population were to stabilize.” Nearly a quarter of the city’s housing stock of 380,000 parcels is abandoned—making one of the city’s most urgent recovery challenges to deal with some 80,000 blighted properties, over-assessments, property tax delinquency, and foreclosures.  Some 15 percent of parcels are now empty—and nearly 25% of the city’s land area is not subject to property taxes. Indeed, according to the city’s audit reports, general fund property tax revenue—in 1960 at $800 million, and by far the overwhelmingly largest source of municipal revenue—had by 2012 dropped more than 75% to a level below $200 million annually. City tax foreclosures are exceeding the pace of home purchases to an extent where in some neighborhoods the delinquency rates are in excess of 75%. The Realcomp data is further evidence of what Federal Reserve Chair Janet Yellen last Friday spoke (“Perspectives on Inequality and Opportunity from the Survey of Consumer Finances.”) about in outlining the inherent problems of growing income inequality: “The extent of and continuing increase in inequality in the United States greatly concern me…The past several decades have seen the most sustained rise in inequality since the 19th century after more than 40 years of narrowing inequality following the Great Depression…I think it is appropriate to ask whether this trend is compatible with values rooted in our nation’s history, among them the high value Americans have traditionally placed on equality of opportunity.” As continued evidence has shown, income inequality rates have soared over the last few decades, with the average income of the one percent rising more than 175 percent since 1980, while the bottom 90 percent hardly moved.

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