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Re-Thinking Property Taxes

I really don't mean to sound like a proud parent or anything, but man, do we get some smart posters here on the Blog. (Makes up for the trolls, that's for sure.) Yesterday, I dropped a short think piece about shrinking the suburbs and hoped to get fodder for good conversation. I figured we'd toss around good ideas about consolidating parts of the region and public services in metro Detroit -- but I was pleasantly surprised when a reply from poster napper1 took it to the next level...

Rather than base the local property tax on something as merucial as "market value" it can and should be based on Land Use. Under such as system, each zoning classification would be assessed an amount per square foot of lot area, i.e., $1.00/ s.f. for single family residential, and another for retail, another for industrial, etc. rather than an amount based on some assessor's best estimate of what a property is woth on the open market if someone would sell it.

A Land Use based tax would also be constant, It would not fluctuate because of market conditions which is the case today and is why cities are having a hard time collecting enough revenue to pay for services.

As a land-use policy-wonk wanna-be, I was absolutely fascinated by this suggestion and, if the responses to his idea are any indication, so were plenty of our readers. I know that the Blog also has a few readers in some fairly important places in local government around here, so I'm going to urge everyone who cares to take a look at napper1's remark and offer a take on it here. (Sorry I'm still not WordPress savvy enough to take you directly to his comment, but it's the second reply in on the "Shrink the Suburbs, Too?" post.)

And before you, I don't know if this idea has been tried before elsewhere, don't know how it's worked if it has been attempted. But I do think it's well worth turning over in our collective heads, either to find its fatal flaws or to hold up as the sort of outside-the-box approach cities like ours need to give serious thought to.

So I'm rubbing my hands together eagerly and asking for your best takes: Can a land-use based property tax system serve Detroit and its surrounding municipalities? Is this the sort of idea that we need to be encouraging leaders like Detroit mayor Dave Bing and his suburban counterparts to at least put on the table? Or is there a big problem here that those of us who're so enamored of this idea have failed to take into account?

And thanks to napper1 and everyone else whose constructive critiques, observations and ideas further the conversation around these parts...

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  • 1

    My wife and a few friends have said that I'm wasting too much time on this TIME BLOG - that nothing will come of it. I have had some doubts myself but now perhaps I'm vindicated.

    In 2009, Detroiters voted for a 9 member commission to
    update Detroit's City Charter. I'm sure the issue of taxation is within the Charter's authority. If, thanks to Darrell's promotion, enough of us can come together and promote napper1's idea, we may finally have a positive influence on Detroit's future. And very possibly, this TIME BLOG will become a voice for action and not merely a vent for our frustrations.

  • 2

    Eric Lupher of the Citizens Research Council of Michigan has conducted extensive research on shared service agreements. There are several publications available at their website on how local governments can proceed in this area. Local officials would be wise to look at his work. Property taxes are a big problem in the City of Detroit. As of 2008, residential property was taxed at 65.6228 mills, considerably higher than the 42.7661 average for Wayne County communities. Homeowners in the City, many at or near the poverty level, struggle each and every year to pay their property taxes and many simply don't have the money to pay them. Thus, there is a growing number of homeowners who are living in tax delinquent properties and awaiting the inevitability of foreclosure. The high millage also reduces house values. Along with other high costs of living in the City (auto insurance, homeowner's insurance, income tax if you work there), the City is simply not competitive with surrounding communities, and residents vote with their feet and leave. Cutting the millage is the most direct solution, but the City is broke.

  • 3

    I am responding to your reply to napper1's tax proposal as it appeared in "Shrink the Suburbs Too?" I am using this site simply because this site is dedicated to the property tax issue alone.

    You gave an example of a small bldg on a large lot vs a large bldg on a small lot and the inequality of services required by each. Isn't that the type of issue that the Land Use Tax attempts to solve?

    As I understand it, a vacant lot, or a lot with a rotting, neglected structure would be required to pay the same property tax as a comparably sized lot with a luxurous, well maintained home, i.e. a flat rate regardless of the market value of the property. The only variable in tax assessment would be the size of the lot. The constants - police, fire, water, sewer and electrical are services the city is required to provide regardless of the property's market value. Water usage or example, is paid thru the water bill, not the tax bill.

    That is the beauty of the Land Use Tax. It penalizes the absentee landlord and the slum landlord and rewards the responsible landowner. In the case you sited above, the 65.6 mills Detroiters are required to pay is at that level because they must take up the slack caused by the negligent who shoulder very little of the burden. With everyone sharing the burden, the 65.6 millage rate could be reduced to a more competive level.

    I know this has been a review of what you already know but there is so much positive potential in this tax proposal that it must be kept alive. We can't allow local governments to, as you put it, "muddle through this crisis (e.g., hiring freezes, reduce capital expenditures, cut some services, impose new user fees, ...)".

    A nine member commission is due to update the Detroit City Charter. There must be someone out there, perhaps you jstrate or napper1 or Darrell, who has some influence with this commission. I don't think Detroit will ever have a better opportunity than now to save this city.

  • 4

    It might be interesting to take another smaller local community and attempt to quantify a Land use base tax plan using real zoning and real geographic data. A study like that could be undertaken as a special project by say, an Urban Planning class at Wayne State and could possibly yield some interesting results.

    I know that Robin Boyle at WSU has been front and center in the discussion about the future of Detroit and the "downsizing" effort so he may be interested. I don't know him but maybe someone from the Detroit Blog staff could send this discussion along to him and see if he has any interest.

    I had another thought about a Land Use tax that I also think is relevant. Often times when planning decisions are made, such as rezoning some property for a new use, there is little thought to how such a change may impact city services. I'm thinking of the cases where a city rezones property for a big new development like a mall or office park or something and then gets a shock to find out after it is built that they don't have enough cops or fire fighters and equipment, or snow removal crews to deal with it. Every developer claims that there will be no traffic impact on the local roads and proves it with a study, but more often than not cities end up financing roadway and sewer improvements to support the thing after the fact. If the impact was known before it was built by virtue of the formula for each land use category, then revenues could be assessed when it is rezoned and cities could get ahead of the problem.

  • 5

    I'm not an expert on taxation. The land use tax policy option needs further study. Virginia has a land use tax but it's designed primarily to protect agricultural, horticultural, and forest land. That presumably would not be the purpose of a land use tax in the City. If the cost of city services is about the same for all residential properties, regardless of the size of the lot, then it would not seem to make sense to charge for those services based on the size of the lot. A City could just charge a flat rate per residential household. A land use tax would reduce the taxes of those owning high SEV properties but increase the taxes of those owning low SEV properties. There would be distributional effects and presumably collateral consequences that would need to be studied.

  • 6

    Jstrate, the cost of delivering services is not about the same for all residential properties as you state. Isn't that what the debate about downsizing is all about? When cops, garbage trucks, roads, sewers,public lighting, etc. is spread over a larger area in relation to the number of people in that area, then the costs go up.Likewise, Conversly, it costs less to deliver services to a multi-family development that to a single house on a big lot since the number of people in that given area is higher. As an extreme example it obviously would be more costly to deliver services to a place with single family homes on one acre lots than it would to deliver those same services to a city made up of row houses, given the same number of people. Less roads, less lighting, less sewers, less cops needed to patrol the area, etc.

    The whole idea behind a land use base tax is that each parcel of land represents a portion of the city that someone "owns" and also what portion of the costs of services he or she should be responsible for.

    The idea behind "downsizing" is to concentrate people into area where services can be delivered most efficiently. A land use base tax system is merely a logical extension of that idea, it seems to me.

  • 7

    I hope that interest in this Land Use Tax proposal is not losing momentum. Napper1 suggested that Robin Boyle, Wayne State Professor of Urban Planning take a look at it, perhaps as a class project. Again, that sounds like a good idea. We need an expert opinion.

    Napper1, I apologize for even suggesting this as I am in no position to be handing out work assignments but it is your idea and you deserve the credit. Could you send Professor Boyle an outline of this tax proposal just as you presented it to us? The idea is too good to waste.

  • 8

    jeff, the idea is not mine and I take no credit for inventing the iea. As I said in a previous post, I first heard of it back in an Urban Studies class at U-D in the early 70's....Fr. Sheerin, if I recall.

    As for Robin Boyle's potential interest in the subject ,I only suggested him because he's been interviewed and quoted quite a bit in the local media on the issue of right-sizing the city and other urban policy issues. I suspect he's a reader of the Detroit Blog, too and certainly some of his students are also so he is probably way ahead of me on the matter anyway.

  • 9

    Thanks for your response napper1. I'm aware, as you have said several times, that you did not invent the idea. The only reason I suggested your further involvement, is that you are the most knowledgeable.

    While I enjoy The Detroit Blog and the input and ideas that people contribute, it's frustrating to realize that, in all probability, nothing will come of it.

  • 10

    I think a more fair way to tax with this proposal would be to do the $0.50 s/f for lot and then add $0.50 for s/f of house. I don't think that someone with 5,000 s/f house should be paying the same amount of taxes as someone with a 500 s/f house. Obviously, the numbers would have to be tweaked to find the best ratio but it's a start.

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