DETROIT - Only in Detroit, with its 70,000 vacant buildings and a generation's long mangled management, could the laws of simple economics go this far awry.
In most places, when there is a lot of worthless property sitting on the tax rolls, the taxes usually go down. How can you tax a rotting hulk at the same high rate as lakefront property? The city of Detroit does! How can you tax a nicely kept home sitting next to that rotting hulk like Lakeshore Drive in Grosse Pointe? The city of Detroit does.
When you tax residences this way, do you get the tax income necessary to keep a bloated city workforce? The answer is decidedly no! This is how municipal bankruptcies are born. In fact, what you really end up with are a lot of angry residents who simply opt out of paying property taxes at all. Thousands of foreclosures over the past five years have come in the midst of this upsidedown housing and tax scenario.
Well, the bankruptcy is rolling along now. Emergency Manager Kevyn Orr is in place and new Mayor Mike Duggan told us he heard the plaintive cries of Detroiters regarding their property taxes on the campaign trail. He is now stepping in to do something about it.
Now, Duggan was quite clear that this effort is something he supports and yet was NOT his project. It started before he got to City Hall. Last summer, when I appeared on CNBC to discuss Detroit's bankruptcy, I mentioned the fact that the city did not even have a qualified tax assessor and was having trouble finding one. Well, in the months since, Detroit looked up Michigan Avenue to Dearborn where it found former Wayne County Assessor Gary Evanko. He has a level four tax assessor's license and has taken over Detroit's job. He went back over the non-foreclosure property sales dating back several years in Detroit and took a stab at finding a good average number for home values across the city. Duggan applauded Evanko's efforts because he was able to announce Monday most Detroiters can expect to get a 5-20 percent property tax assessment decrease in 2014, worth on average just less than $400. Now, $400 is not life-changing coin but it is certainly a good step in the right direction after decades of the alternative.
The new assessments are coming in snail mail in the next two weeks. In there, the property owner will see how much, if any, their tax bills will be reduced -- not every home gets a decrease. Contrary to the day's hot headlines, there are some Detroit neighborhoods that have been rebounding at least a little. Palmer Woods, where new Mayor Duggan lived throughout the campaign, is one such place. Palmer Woods and other neighborhoods either near or east of Woodward Avenue are only likely to see 5 percent declines in property taxes. In places such as neighborhoods west of Livernois, there they can expect big reductions; like up to 20 percent or more.
When you do the simple math on this, yes it means the city will be taking in less revenue while in bankruptcy and yes at a time when it's needed most. But this is really a post-bankruptcy play. If you cut taxes and give people an incentive to at least think about staying it changes the game. Not everyone will stay. But it gives people a reason to look around and rethink what is possible in Detroit city.
Perhaps with lower taxes the thousands upon thousands who simply don't pay their property taxes will write a check. Perhaps with lower taxes a few people might just take on the Herculean task of re-building some of Detroit's decaying 1940s vintage housing stock. This is called growth, by the way, and Mike Duggan was not even coy in saying "shrewd investors may want to pay close attention to these changes."
Ultimately, if you are thinking long term, lower taxes, especially in this case, can mean an environment where change for the better is possible. This is what Duggan and Orr are counting on, especially when you consider Orr had to budget in $10-15 million dollars a year in lost tax revenue immediately in the hopes that down the road they money will start rolling in.
Now, the game that gets played each year at this time is the pitched battle between those who feel they are overtaxed and those who referee the dispute with the assessor's office. Detroit will be doing its tax tribunals the first and second weeks of February. If you still feel your assessment is not correct, however reduced it may be, you can appeal for an even lower assessment in a hearing at the Coleman A. Young Municipal Center. You will need a previously arranged appointment to do so and you will need to bring some kind of evidence your lower assessment is in fact the right one.
Duggan was also up front in saying Monday he's still asking for Detroiters to give him six months grace to at least listen to what he is planning to do to improve the city that might give them reason to stick around. He admits this is a first small step and won't solve the issues of sky-high property tax assessments for another three to five years. But he knows what Detroiters are angry about and how to at least get their attention. The thought they might have a lesser tax burden and a few hundred bucks to keep in their pockets gets him started after less than a month in office.
More than anything though, there appears to be a different tone and attitude in the mayor's press room. Over the years we have heard a lot of promises, seen the lovely drawings of a lot of projects that never came to light and a lot of ideas for improving the city that in the end were mere noise for whatever reason. This is new. This is what righting the ship looks like. Cutting taxes and revamping egregiously poorly managed city departments with new and qualified managers are a different animal altogether.
It's welcome, but also needs to be accompanied by many, many more similar efforts that succeed to feel entirely real.
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