Duggan: Stop punishing new construction in Detroit, raise taxes on vacant land

Mackinac Island — Detroit Mayor Mike Duggan proposed Wednesday hiking the city's property taxes for vacant land and buildings while lowering the rate for occupied homes and businesses in a split tax plan he contends will resolve many of Detroit's blight and high property tax woes.

The proposal, dubbed the Land Value Tax Plan, would increase taxes on land while reducing taxes on homes and structures by an expected 30%, or roughly $38 million total. This would apply to every neighborhood in Michigan's largest city, requires no application and never expires.

If approved by the Michigan Legislature, and later by Detroit voters, Duggan said, the plan would provide relief to homeowners who have been struggling under the burden of high taxes, encourage further neighborhood growth and hold land speculators accountable. Duggan laid out his plan Wednesday during an annual address at the Detroit Regional Chamber's Mackinac Policy Conference.

Currently, private owners own roughly 30,000 neglected lots that Duggan on Wednesday described as “cheap lottery tickets” that bet on an increase in land value with no actual investment in the property. The city is forced to cut grass in the lots and remove garbage to spare surrounding neighbors while the property owners pay about $25-30 a year in taxes.

“This is what is driving me nuts,” Duggan said. “… In Detroit, blight is rewarded and building is punished.”

Under Duggan's plan, the average homeowner will see a $250 annual tax reduction, according to the mayor's office.

Owners of active businesses and land that is in productive use will also see their tax bills go down, depending on the taxable value of their assets. Currently, vacant residential lots in the city are taxed at an average of $25 annually, according to the mayor's office.

The program, which would be phased in over three years starting in 2025, would on average increase the millage rate on vacant land from 86 to 124 mills and lower the millage rate on a home from 86 to 60 mills, Duggan told The Detroit News.

House Speaker Joe Tate, D-Detroit, is supportive of the concept and is expected to spearhead efforts in the state Legislature to get the tax change passed.

Tate said Wednesday he's encouraged by relief experienced in other municipalities that have adopted similar tax formulas. Draft bill language still is being refined, but Tate said initial plans would create an opt-in program for municipalities across the state to adopt a split-tax.

"Those who would like to move forward, they can have the opportunity, but it's not a mandate for a local unit of government," Tate said in an interview with The News at the Mackinac Island policy conference.

Duggan hopes the Legislature passes the tax changes in the fall. After that, Detroit would need to hold a citywide vote because the shift would require a voter-approved increase in taxes for unoccupied land.

Duggan acknowledged during his address Wednesday that the biggest hit would be to owners of vacant lots, vacant commercial buildings, scrap yards and parking lots. Homeowners and businesses occupying Detroit buildings would be among the biggest benefactors.

Duggan said the city might see a small decline in property tax revenue because of the shift, but he was hopeful the anticipated future development spurred by the program would increase the city's income tax revenue from new residents and suburban workers.

Detroit real estate developer Chris Jackson, a partner in the firm Queen Lillian, said he expects the land value tax will save developers from facing steep property tax increases as they complete projects. That will eliminate the need for property tax breaks, he said.

“You're just not having this heavy weight of a huge increase or spike in that property tax because you're now also making this investment,” Jackson said Wednesday. “That investment is actually going to create and add to the tax basis with wherever you're putting there, be it housing or commercial. I think that's the idea behind this. To sort of balance that out.”

Tax changes brewing

The effort comes as the Detroit has mobilized efforts to rectify property taxes after a class of Detroiters was over-assessed in their home property values from 2009-16, and some of them possibly lost their homes to property tax foreclosure. In 2020, a Detroit News investigation revealed the city of Detroit overtaxed homeowners by at least $600 million after it failed to accurately bring down property values in the years following the Great Recession.

Detroit Chief Financial Officer Jay Rising in April authorized the transfer of $4 million in general funds to a program that gives preferences to over-assessed homeowners seeking aid through certain initiatives. The Duggan administration and the council say the over-assessments, coupled with the expiration of resident property tax assessment appeal rights, have resulted in diminished resident household wealth in Detroit and are further exacerbated by the pandemic.

At the time, some Detroiters said the city government could do more to compensate overtaxed homeowners and criticized how much focus has been put on giving tax breaks to developers. The preferences program "just doesn't do it," and supplementing city programs "is like putting lipstick on a pig," said the Rev. Charles E. Williams II, pastor of the historic King Solomon Baptist Church.

Wayne County seized about 100,000 Detroit properties for unpaid property taxes from 2011 through 2015, about a quarter of all parcels, researchers have found. More than 28,000 families suffered foreclosures, while Detroit charged at least 96,000 homeowners double what it legally should have in property taxes.

Detroit residents, developers weigh in

Jeff Horner, an associate professor for Wayne State University’s Department of Urban Studies and Planning, said the land value tax system would result in higher property tax payments for vacant land owners and provide more of an incentive to develop empty land.

“I would be very surprised if in relatively short time, maybe within about five years, that if this land tax was operational, that would lead to putting a much higher tax bill on a lot of the empty lots that are right downtown,” he said. “Specifically the parking lots. All of the vacant land that is in the immediate downtown area because it is those are very lightly taxed enterprises. Mostly parking lots."

Horner doesn't think a property tax bill will make or break any parking deals, but that owners would be making less money while paying a higher tax bill.

"But what would really would bump out a lot of those parking lots would be the immediate demand for that land in the downtown area because now developing this site just got a whole lot cheaper," Horner said.

Real estate developer Cliff Brown, managing partner for Woodborn Partners, said the land value tax will benefit Detroit homeowners as well as developers active in the city.

“The hope and goal would be that it would be more equitable to people who actually own properties and are actually taking care of their properties,” Brown said.

Brown said the tax will motivate speculators to not let their properties sit undeveloped. It will also create more opportunity for developers, he said.

Woodborn Partners developed The Coe at West Village, a townhome and apartment complex, on a former vacant lot on Van Dyke. The firm has under development The Brooke, a mixed-income apartment complex, on a former vacant lot on Bagley.

“If we're not developing something it’s because we're trying to figure out how to get the deal to financially make sense,” Brown said. “And most of the deals in Detroit just don't make sense. The cost of development is higher than the value of the property."

Charity Dean, president and CEO of the Metro Detroit Black Business Alliance, voiced support for the plan, noting 70% of Detroit small businesses would likely see a reduction in taxes.

“When we prioritize small businesses, we create jobs, foster innovation and build a thriving economy that benefits everyone," Dean said. "Mayor Duggan’s Land Value Tax Plan recognizes this by providing relief to those businesses.”

eleblanc@detroitnews.com