John Corvino opted to buy a Detroit home despite knowing he would pay a premium in property taxes. The Wayne State University philosophy professor bought a $245,000 home in Sherwood Forest in 2002. His annual tax bill is about $8,200.Future of Detroit
Neighborhood rebirth stalls
High property taxes burden Detroit homeowners
Detroiter John Corvino tries to convince people to move into Detroit by pitching the diversity of the population and the one-of-a-kind homes.First in a series of occasional stories exploring issues facing Detroiters in a mayoral election year.
Property taxes homeowners would pay in selected Metro Detroit communities based on a recently purchased $200,000 home. The tax rate includes county, city, school and all other local taxes, such as bond millages.
Detroit (Detroit Public Schools): $6,730
Grosse Pointe (Grosse Pointe Public Schools): $4,307
Commerce Township (Huron Valley Schools): $2,605
Pleasant Ridge (Ferndale Public Schools): $4,181
Mount Clemens (Mount Clemens Community Schools): $4,622
Chesterfield Township (New Haven Community Schools): $2,992
Source: The Michigan Department of Treasury database of millages billed in 2003
Detroit property owners receive tax bills twice a year. Also, a person who owns residential property in Detroit but does not live in the property pays an extra school tax.
Here is a look at the different taxes a homeowner pays on a recently purchased property with a value of $200,000 based on the current tax rates. (In Michigan, taxes are computed on half of a property's taxable value. That value, however, can be capped and increases only the amount of inflation).
State education tax 6 mills
General city tax 19.962 mills
Garbage disposal 2.9943 mills
Debt service 7.4796 mills
Library tax 3.63310 mill
School bond debt 13 mills
Wayne County tax 7.822 mills
Huron-Clinton Metropolitan Authority .2154 mills
Wayne County Community College 2.4844 mills
Intermediate School District 3.4643 mills
Total : 67.0551 mills
Tax bill: $6,730
All three major candidates running for Detroit mayor say reducing the tax burden is important in order to attract new city residents and to keep people already living in the Motor City from moving away. Here are their plans:
Freman Hendrix
Hendrix wants to see the total property tax rate eventually drop to around 40 mils, in part by operating city services more efficiently and improving the collection rate of existing taxes.
"There are millions and millions that are uncollected," he said. He anticipates his plan will need five to seven years to reach the target millage rate. He would also overhaul the city's tax-abatement policy. He said too many developers and businesses are building in the city only after they have been offered tax abatements. The city can give other incentives, such as land and infrastructure improvements, without having to eliminate taxes "We want to use it more effectively," he said.
Hendrix and his wife own a home in the Rosedale Park section of the city with a "true cash value," according to city records, of $257,100. But due to Proposal A, the taxable value is $73,944. His 2004 taxes were $5,011.
Sharon McPhail
McPhail also said the city's overall property tax rates must drop. As special millages expire, such as the ones for the library or city lighting, she says, they should be carefully analyzed before being renewed. She said the city has to ensure that millages paid to Huron-Clinton Metropolitan Authority are either reduced or that city residents get more bang for their buck. She cites the expiring millage that was used in 1986 to purchase $440 million bonds that allowed the city's waste incinerator to be built. McPhail also pledges a moratorium on any property tax increases and wants a better system where property owners can appeal the value that is placed on their property by local government. She wants to reduce the tax burden on the city tax bill by about 20 mills. McPhail and her husband, David Snead, own a home in the Berry Farms subdivision with a "true cash value" of $216,000. Their annual tax bill for 2004 city taxes was $9,115.
Kwame Kilpatrick
As mayor, Kilpatrick has touted a plan being proposed in Lansing to create 22 special zones in the city where taxable value would not be increased when a home is sold. Under current law, the taxable value of a property cannot increase more than inflation even though the true value of the house may have increased much more dramatically. He said such reform is needed to encourage people to buy homes in those neighborhoods, which tend to be the most expensive properties in the city. He also said the tax rate has hurt the city, as it drives out residents and is a barrier for new residents. Still, he said, Detroit property appreciates in value well and is better constructed than much of new housing being built in the suburbs. Kilpatrick does not own any property in Detroit and therefore does not pay property taxes. He and his wife sold their home on the near west side after he was elected mayor, and they live in the city-owned Manoogian Mansion.
Council vs. mayor
Detroit City Council unanimously voted to cut more than $90 million from the police and fire department budgets and impose a 10 percent salary cut on workers. Police estimate 612 officers will be dismissed along with 120 fire personnel. Mayor Kwame Kilpatrick said the budget would badly compromise public safety and vowed to veto it. Council also scrapped the mayors plan for a prepared food tax and property transfer tax, and restored money for food inspections and the city airport. Whose budget plan do you prefer?
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From a purely financial standpoint, buying a home in Detroit is a no-brainer: Don't do it.
That's what Barry Burton discovered last year after he found what he thought was his dream house for sale on Lodge Drive, a few doors away from the Manoogian Mansion.
There was a view of the Detroit River, an updated furnace and the property was immaculately kept, all for $289,000. But then Burton, who returned to the city in the fall after working for the Chicago mayor's office, discovered his annual tax bill would be about $9,700.
"There was no way I could afford that," said Burton, who instead bought a two-flat home in Grosse Pointe with his sister for $500,000.
"With the property taxes, income taxes, higher insurance rates ... it didn't make sense."
Along with crime, blight and underperforming schools, high property taxes are one of the main problems standing in the way of a Detroit renaissance. While city officials actively tout the need to get people like Burton back as city residents, the odds are stacked against them.
New families would mean more tax dollars and would help stabilize neighborhoods.
But Realtors and homeowners say many people willing to live in the city, despite the downside of urban life like the dearth of major grocery stores and high insurance rates, are scared off by the city taxes.
"The people we are losing are in the middle class, and no great city can exist without them," said Michael Einheuser, a Palmer Woods resident and attorney who is part of a group looking at ways to reduce the city tax burden.
"Young professional couples can afford a $250,000 home, and they can choose to buy anywhere, but when they look at Detroit and run the math, it puts Detroit at a competitive disadvantage."
The property tax rate for Detroit property owners in 2005 is roughly 67 mills, one of the highest rates in the state, according to the state treasurer's office, and for many people their tax bill exceeds their mortgage payment.
A Detroiter with a newly purchased $200,000 home will pay about $6,700 in property taxes. By comparison, a $200,000 home in Rochester has a local tax bill of $3,367, or in Utica that homeowner would pay $3,933 a year.
Because of Proposal A, which caps the amount a piece of property can increase in value until it is sold, longtime property owners usually pay a fraction of taxes new buyers do. For example a person who sells a home for $200,000 that he or she owned for 20 years might have been paying half of the taxes the new buyer will pay.
That's what happened when state Rep. Bill McConico, D-Detroit, wanted to move his family from a house on Dequindre to a new one in Indian Village.
"The taxes would have been $20,000 a year," said McConico, who has since sponsored a state law that would keep property taxes in some neighborhoods from increasing when they are sold. "We need to change that so people will move to Detroit and stay in Detroit."
The dilemma for Detroit officials is that cutting property taxes would require substantial reductions in city services, public policy experts say, an area that city residents already complain needs improvement.
The City Council and Mayor Kwame Kilpatrick have proposed budgets this spring that don't reduce taxes but substantially cut city services.
And while city officials have fostered new housing construction throughout the city, much of that has been done by offering temporary tax abatements to those purchasers. Critics say that practice makes it harder for people trying to sell existing homes, and they question what will happen to the housing market once those tax breaks expire.
"There really is no easy fix," said Douglas Drake, a former associate director of Wayne State University's State Policy Center and now an associate for a Lansing-based public policy firm.
All three major candidates running for mayor -- Kilpatrick, Freman Hendrix and Councilwoman Sharon McPhail -- have made reducing the city's 67-mill tax burden an important part of their campaign message.
Kilpatrick touts a proposal to create 22 "neighborhood enterprise zones" where property taxes would be reduced. Hendrix suggests slowly whittling down the tax rate and being more prudent with which developers and businesses can offer properties for sale without tax breaks. McPhail, too, would roll back the millage rate, but she would push for fairer assessments and legislation that would not penalize property owners for improving their homes.
Detroit's millage rate includes more than just a tax payable to the city. There is a separate millage for garbage disposal, debt service on a number of city-issued bonds that finance items ranging from police department upgrades to public lighting improvements, a recently renewed and increased millage for the Detroit Public Library, a tax for a Detroit Public Schools bond program and a state education tax. There are also about a half-dozen other taxes that all Wayne County property owners pay.
Detroit's major problem is the city has an infrastructure built for 2 million people but now about 900,000 residents are paying for those services and maintenance, Drake said.
The suburban communities don't have to pay for aging sewer lines or an antiquated lighting system, he said, which lets those municipalities keep tax rates low.
Burton acknowledges living and paying taxes in Grosse Pointe gives him a host of quality municipal services he'd never find in Detroit.
He checks off a list that includes immaculate parks, outstanding public schools, a police department, he asserts, that will help you find a lost pet, and a city that plows every snow-covered street in the community.
Still, he is pained the house in Detroit he longed for carried too much tax liability.
"It hurts me that this didn't work out," said Burton, who before moving to Chicago had lived in East English Village. "I like the excitement of the city."
Wayne State University philosophy professor John Corvino, meanwhile, opted to buy a Detroit home despite knowing he would pay a premium in property taxes.
"You get a lot more for your dollar, said Corvino, a transplanted New Yorker who in 2002 bought a $245,000 home in Sherwood Forest. His annual tax bill is about $8,200, and that is after he successfully fought the assessor's office to have the value of his home reduced.
"City leaders need to realize that if you have money to live in some of the city's better neighborhoods -- Boston-Edison, East English Village, Sherwood Forest -- you have the money to live elsewhere," he said. "The city can't afford not to cut taxes."
Corvino said he tries to convince people to move into Detroit by pitching the diversity of the population and that the homes are charming, well-built, a good value and one-of-a-kind.
That's exactly the argument Kilpatrick uses to convince his friends to move to Detroit.
"You get so much more here than anywhere else," he said at a recent press conference.
Kilpatrick said he was able to sell two homes he owned on the west side of Detroit for triple what he paid for them.
"It's a good investment," said Kilpatrick, who no longer owns property in the city and now resides in the Manoogian Mansion. Houses in outlying areas aren't "built with brick the way they are in Detroit," he said. "Detroit houses are going to be around a lot longer than these new ones."
Drake said the city's tax rate must drop by a third to a half to be in line with that of outlying areas, which is nearly impossible.
The only way to do that would be to have city services drop proportionally, Drake said, a disastrous situation
"How is the city going to do that? Services already are at a level where it's an issue," Drake said.
Detroit Realtor Kenan Bakirci has seen first-hand the toll that Detroit's tax burden can take.
Bakirci specializes in upscale neighborhoods and homes that average around $400,000.
In the past four years, he said, the market has simply bottomed out, in large part, he believes, because of the tax structure.
He cites several sales he has lost because a person's tax bill would surpass the yearly amount they pay off on their mortgage.
The problem is so bad, he said, that when clients get approved for a mortgage, they often must be approved for twice the loan amount to account for the taxes as well as the higher property insurance rates.
"It's staggering, the impact of the taxes," he said.
Compounding the problem, Bakirci believes, is upscale, new housing being built in pockets of the city that carry tax abatements, some as long as a decade.
"That discourages people from spending money in existing neighborhoods," he said.
He also questions what will happen in communities built using tax abatements when those exemptions expire.
"They could be valueless," Bakirci said, unless the tax abatement is extended to entice a new buyer.
Einheuser, the lawyer who lives in Palmer Woods and whose dad was a Detroit firefighter, said despite the city's woes, it has no choice but to cut taxes if it wants to attract new residents and keep those it already has.
"Lots of folks are willing to look at Detroit as a place to live," Einheuser said. "If the city doesn't act affirmatively, market forces will force it to act as the middle class continues to leave. Let's recognize this now and do it now."
You can reach David Josar at (313) 222-2073 or djosar@detnews.com.
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