Mayor DUGGAN'S Detroit Land Value Tax Plan - A Critique

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Summary 

• The Land Value Tax Plan (LVTP) as described by the City and explained by the Mayor, violates two elements of the Michigan Constitution's Article IX, Sec. 3.
• The tax increase for the purpose of growth on vacant land is contrary to market-based development stimulation.
• The tax increase for the purpose of fighting blight is more likely to lead to property abandonment and foreclosures than investment in development.
• Creating a tax to target "scrap yards" is unethical, as it is based on the nature of their business. They are also burdened by another huge de-facto tax by the City, referred to as a "drainage fee," which the Legislature may not be aware of.
• Residential property taxes need a reduction. There are more proper ways to relieve the various types of overtaxation being practiced in Detroit without this problematic legislation, all of which could be done immediately by the Mayor without even a City Council vote.
• The LVTP does nothing for renters, so now that Detroit is a majority-renter city, most Detroiters have little reason to vote for it.  The suburban-based landlords who rent out many houses in Detroit will undoubtedly pocket any savings.

Detroiters deserve a tax cut, and we deserve to be rid of the land speculators who hold our neighborhoods hostage. However, this LVTP will not meaningfully address either of those needs, so with the weight of these questions concerning the constitutionality and the lack of sound purpose, the Legislature must vote NO on the LVTP to honor their sworn oath to uphold the Constitution.

Elaboration

The Michigan Constitution, Article IX, Sec. 3 says that properties will be assessed at "true cash value" and that property "shall be uniformly assessed" and requires "a system of equalized assessments." It sets a 50% cap on the proportion of true cash value that can be taxed for property tax purposes. Since true cash value is market value, the Legislature cannot authorize or legitimize any proposal that doubles land value taxes, since these increases are not based on true cash value. Nor can it legitimize non-uniform, arbitrary escalations of taxes on some property owners, including legitimate businesses, simply because a local official does not approve of their land use or the nature of their business. 

Vacant property taxes cannot be doubled, per the constitutional language cited above. Since LVTP seeks to overtax vacant land owners to push the development of their property, it must be noted that through the Detroit Land Bank Authority the City owns over 92,000 land parcels in the City, which includes much of the City's vacant land. Many of these parcels are contiguous, even full blocks, so they could become development sites. But the City is not doing this, leaving these sites vacant. Yet they want to financially punish others for doing exactly what they do: leaving the land idle. 

Additionally, thousands of Detroiters bought City vacant lots for next to their homes for $100-$200 due to poor City mowing and plowing maintenance. LVTP will penalize them further for taking a maintenance burden away from City. It should be said that the assessed value of these lots is inflated already, as there is no party that can develop on them, because the Detroit market values would not cover the cost of construction. So vacant lot owners are currently taxed for land without market value, without any prospect that the land will appreciate in value. This is not defensible, and doubling the tax on them is doubly indefensible.

Blighted property, like vacant property, is a huge part of the City inventory. In fact, the City is by far the largest owner of blight within its borders. The City owns 24% of the 381,263 parcels that comprise its territory. Yet they do not practice aggressive blight removal. Bond money funds some rehabilitation and demolition, but many unsafe structures have stood for years. The City also refuses to sell deficient homes to those who live in the neighborhood that have the ability to rehab them and put them back on the tax rolls. 

Yet the City wants to more than double taxes on land owners that have what is determined to be blight. Just as the City cannot get market-driven development on their blighted locations, they cannot command owners to redevelop their properties in the current climate. Code enforcement is proper. Overtaxation isn't.

When the City encourages development downtown, they offer long-term tax abatements. They publicly justify it as a development incentive. If they double the property taxes, by that logic it is a development disincentive.  Owners of vacant and blighted property are often in for short-term gain, at least in Detroit. If you increase their costs, they will quit paying any taxes and let it sit for years until it goes into foreclosure, and the neighborhood and the City lose again. The LVTP can make that situation worse.

Scrapyards pay people to recycle unwanted metal. Detroiters work at them, they pay property and income taxes to the City, and they lower the costs of large structural demolition by paying for the steel from demolition contractors. In Detroit, however, these yards pay huge amounts for a rainfall tax on their properties, also known as a "drainage fee." Some pay as much as $100,000 a year, even though very little of their rainwater goes into a sewer. The City is expected to collect $188 million from businesses, churches, and residents from this mandatory charge on water bills that was added without hearings or notice in September 2016. Many yards are very challenged by this questionable cost. Continuous-flow sanitary sewer charges are only 58% of the charges for relatively clean rainfall. So with this high burden added to the tax load of these businesses, why is the Mayor singling them out and explicitly calling for a tax increase on them? 

Let it be said that Detroit yards recycle tens of thousands of tons of iron and steel yearly. To mine iron ore is more expensive and creates 80% more CO2 emissions compared to recycling. And remember, many folks in pickup trucks drive around and pick up scrap metal, old appliances, etc., and earn money while doing some neighborhood clean-up. The yards that also sell used auto parts charge a tiny fraction of what dealerships charge for new parts. So their presence has benefits.

The Mayor has said repeatedly over the years (and as recently as September 18, 2023) that he wants more large parcels of land, lately specifying those of 25-50 acres in size. Except for factories and hospital campuses, scrapyards may be the only businesses that have the size that he wants. Whatever his motive, the state constitution does not allow any Mayor to pick legal businesses to overtax. 

Reducing the costs of residency in Detroit

Tax reductions are necessary when looked at in terms of the pay rates for Detroit-based jobs, where there is a huge gap between the wages being paid to Detroit residents and nonresidents, the latter being the beneficiary. Rising rent, utility costs, and general inflation versus low, stagnant wages create real crises, even for those working two jobs to make ends meet. 

However lowering property taxes alone does not address the larger population that are renting their domiciles. Hence we propose two steps that should be taken:

• Reduce Detroit property taxes now to the mandated actual market value of the property, thus lowering property taxes.
• Cut the rain tax /drainage fee now by two-thirds, which will return more money to all Detroit ratepayers than the LVTP tax cut. This would still be almost twice the earliest rate for this tax.

These can be done by the Mayor without any action in Lansing or even without the City Council. With that, there is no need for the unconstitutional LVTP legislation. 

See also:

Our blog posts on the Land Value Tax