"The problem with Duggan’s Land Value Tax plan for Detroit"

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In Mayor Mike Duggan’s campaign for legislation that he says will cut residential property taxes in Detroit and stimulate economic growth, he is stalled. His legislation, called the Land Value Tax plan (LVT), proposes to split property taxes into two rates, one for land and one for structures on the land. While he touts its benefits as a development tool, others see it as a land grab that will not fulfill its promises.

Duggan’s bill would allow him to double taxes on all land for all residential and commercial owners. Then he promises an average 17% tax cut by reducing the tax on structures that sit on that land. That is how he proposes to net a tax cut to homeowners — and that is how he hopes to get their vote, if the matter is placed on the ballot.

Because this proposal creates a new Detroit tax policy, the Headlee Amendment to the Michigan Constitution requires a vote, so the Mayor is on a persuasion campaign in meetings across the city. But first the Michigan Legislature has to approve the bill package, HB 4966-70, and that is not going well.

Detroiters For Tax Justice (DFTJ) was formed in April to expose and end the Mayor’s capture of big chunks of property taxes meant for schools, library and park systems, and city and school debt payment, as well as county supplemental millage for the education of special needs children. These secretive transfers go to investors in the Mayor’s downtown projects; according to Freedom of Information Act responses from the Detroit Economic Growth Corporation, in ten years the mayor has taken over half a billion dollars to benefactors the City does not identify.

But when LVT came along in September, DFTJ added this new tax issue to its agenda, as it became a legislative issue in Lansing. The group sent a letter to all 110 members of the House that raised issues of Constitutional violations, erroneous assumptions of positive economic development, and harm to small independent businesses that have been in the Mayor’s sights for years. It would give the Mayor the power to lower taxes for some and raise it on others. Those others would be vacant lot owners, parking lots, blighted property owners, used car sales lots, and “scrap yards.”

Duggan called these increases “punitive” taxes. If he does not approve of an owner’s land uses, he will hike their taxes, even if it is a legitimate business. This is supposed to get vacant lot owners and owners with blight on their property to start development or get punished. One of the critiques of this, besides its subjectivity, is that the City itself owns over 91,000 parcels of land, which, at 24% of all parcels, makes it by far the biggest owner of vacant and blighted property within the city borders.

But the private owners that are developers are not motivated by threats and bullying. As analyst Theo Pride of Detroit People’s Platform says, these targeted owners of vacant or blighted land see little likelihood of investing in projects where property values are so low that they cannot get a return, until those values rise. “It would take over $100,000 to build a house on any of the thousands of vacant lots in residential areas, and they likely couldn’t sell it for more than $70,000,” Pride says. “So they will sit vacant until the market values take a leap. If overtaxed, they could abandon the property, leaving more cost and less revenue to the City.”

Even the promised 17% tax cut promise is iffy. Residents who have put their address into a calculator that predicts their cut are seeing savings well below 17%. And if it goes to the ballot in 2024 and if voters approve it, the City could change its assessments. Then tax cuts could disappear. The Mayor has a contractor already working on new assessments for 2026.

Many homeowners are frustrated that under the LVT, the 20,000 vacant lots sold to them will see taxes more than double. These homeowners took a huge maintenance cost off the City when they bought them. In return, LVT would double their taxes.

Finally, the Michigan Constitution’s Article 9, Section 3 has a clause that requires uniformity of property tax policy. Currently, no property tax can be raised or lowered based on anyone’s personal opinion of the land use, such as what Duggan is proposing. It is only supposed to be based on market value. The same Constitutional section only allows property to be taxed at 50% of assessed value. Doubling the land tax would violate that clause.

So far, the Mayor has campaigned in public meetings to get support by making statements at variance with the facts and by attacking his LVT critics with false allegations.

He has shown regional maps that correctly show that Detroiters have more mills in their property taxes than suburbanites. The Mayor then asserts that Detroiters pay more in taxes than suburbanites, which is not true.

The amount that property tax payers are billed is determined not only by the number of mills, but by the charge per mill. And with higher suburban property values, the cost per mill is higher, often much higher. An MLive study done in 2020 of property tax mills and tax bills for Detroit and 21 nearby suburbs found in 19 of the suburban districts residents paid higher taxes, many much higher, than Detroit. And the study did not include four of the Pointes cities, all of whom are much higher as well. So the Mayor’s comparisons are, to be charitable, not accurate.

I confirmed that with regional real estate specialists and with my own experiment, comparing my house in Detroit to suburban houses on sale. I matched square footage, the number of bedrooms and baths, etc. I found that in Warren, Southfield, Livonia, Lincoln Park, Redford, and Ecorse, twelve houses total, that every house had a property tax bill 1.5 to 5 times what I was paying.

I know that there are other factors in setting these taxes external to the property. But some of my externals, like a nearby school, library, and close major arteries, were also positive factors with my neighborhood property. My house has a basement that most suburban houses in the sample do not have. So the Mayor has no basis in saying that Detroiters pay higher taxes than the suburbs.

In his stressing of getting rid of scrap yards (“they should all go to the suburbs”) he said there were 400 in Detroit, a reduction from the 900 the City claimed on its website in May. But in response to a Freedom of Information Act request, the City list only had 96 addresses and a number of them were used auto parts dealers that do not scrap metal. Others were storing vehicles, with no structure on them. In a PowerPoint presentation on Dec. 13, Duggan characterized parking lots downtown and used car sales lots as scrap yards that need his punitive tax.

In this whole LVT campaign, the Mayor has been more focused on driving out “scrap yards,” however he defined them. He said in a Sept. 18 public meeting that he needed more large parcels of land “of 25-50 acres.” He did not say why he wanted the land or to whom it would be given. But his high level of exaggeration of their unwelcome presence and the emphasis he puts on this subject does suggest that these yards, which are not in residential zones, are his target.

One other tax that the Mayor has imposed on all properties that is hitting commercial properties hard is a tax on rainfall. The Mayor has put these charges on monthly water bills since 2016. The City said that this would improve rainfall and storm-water management for processing the rainfall on properties that migrates to sewers.

But commercial properties that have acres of dirt and no sewers are being billed as if rain on every square foot was going into a sewer. This is being done to churches as well. Both churchmen and businessmen claimed in 2017, as they filed a lawsuit, that the purpose of the rain tax was to seize land. That was when the rate started at $125 per impervious acre per month. It is now at $695 per impervious acre per month, a 450% increase in seven years that is hitting large yards for $100,000 a year. The lawsuit has been tied up in the courts for six years. Doing a big jack-up on their property taxes may be the final straw that pushes them off their land. Then the Mayor could get the land that he said he wanted back in September.

Significantly, the Mayor calls the rainfall tax a “drainage fee” rather than a tax so that he can impose the mandatory charge on churches and so that he can impose it on all Detroiters without voter approval, in violation of the afore-mentioned Headlee Amendment. But the Michigan Supreme Court ruled in a similar case in 1998 that if a charge is mandatory, it is a tax. Duggan could unilaterally remove most of the rainfall tax from water bills and save homeowners more than anything the LVT offers — with no legislation needed.

After stumbling in Lansing, the Mayor’s latest tactic to get support for the LVT bill is to attack his main critic, DFTJ. He has claimed, with no evidence, that scrap yards fund DFTJ. The group has stated clearly that they have few expenses and their members pay those willingly and there are no outside donors of any sort.

Duggan has also said that DFTJ was trying to block voter rights even though the group supported an amendment to place the required LVT referendum (if it passes in Lansing) on the November ballot. The Mayor wanted this voted on during the presidential primary election in February, in an election that is shaping up to offer few choices. Who would come out on a deep winter day for that? DFTJ wanted more citizens to weigh in during the biggest voter turnout of the year.

During public comment when citizens raised questions that challenged Duggan’s tax policies, he ignored the queries and went to the next person in line to speak.

Due to the unease that the State House of Representatives has with this bill, it has been stalled. This is despite the great pressure that Duggan and House Speaker Joe Tate put on Legislators to pass it. The bill went up for a vote on Oct. 11 and failed. The House was adjourned so that the bill would not be ruled a failure. This tactic kept the bill alive, but support did not grow and the House recessed in mid-November with the LVT still stalled. Duggan will try to revive it when they reconvene in 2024.