Economists back study that found Detroit still inflating property taxes

Detroit — A coalition fighting for fairness in property tax assessments joined with economists, legal and finance scholars Thursday to call for state and city leaders to investigate the ongoing "inaccuracy" and "inequity" in property tax assessments in Detroit. 

The Coalition for Property Tax Justice contends multiple studies have found the lowest-valued homes in Detroit continue to be overassessed — even after a citywide reappraisal in 2017 that cost $8.4 million — and it's "putting thousands of Detroiters at risk of unjust foreclosure."

Tom Perriello, executive director of the Open Society Foundations, a human rights advocacy group, said it's "beyond disputable fact" that inflated property taxes is a national problem that is specifically well-documented in Detroit. 

"This is not just not a robbing of wealth, it's a robbing of dignity or a robbing of people's access to the American dream and the system that we tell them to believe in," he said during the Thursday news conference.

Perriello, a tax justice group and an economist came together Thursday to announce an independent peer review has validated findings from a study conducted last year by Christopher Berry of the Center for Municipal Finance at the University of Chicago. That study concluded the city's residential property tax methodology continues to harm Detroiters.

"Excessive property taxes can lead to financial distress, including mortgage default and foreclosure, and it is vital that they are assessed accurately and equitably," wrote economists Andrew Hayashi of the University of Virginia Law School, Juan Carlos Suarez Serrato of Duke University and Carlos Fernando Avenancio-Leon of Indiana University Kelley School of business in a peer review letter supporting the University of Chicago study.

"We have no stake in any dispute about the proper assessment of real property in Detroit that could create a conflict. We are concerned only with whether research about that assessment is done credibly and that the conclusions are justified."

The press conference follows a Tuesday report by Bloomberg on the nationwide impact of assessments on Black communities, including Detroit. The report examined instances nationally of local officials overvaluing the lowest-priced homes relative to the highest-priced homes. 

Detroit Mayor Mike Duggan and Detroit Assessor Alvin Horhn have pushed back on the study's findings, saying the gap between home prices and assessments was largely closed in 2014 when the mayor took office and reduced assessments. The administration has said it doesn't believe overassessments are still happening in Detroit but stressed that assessments vary by neighborhood. 

Horhn on Thursday said Berry's study was too narrow and he considers it "invalid" because it didn't follow the same rules and process that the city is required to use for valuing properties. 

Berry, he noted, examined Detroit's residential properties in 10 clusters and compared 900-square-foot bungalows that sold for $8,000 with 2,000-square-foot properties that sold for $200,000. There are 194 residential neighborhoods in the city, and the state, Horhn said, requires that similar properties be grouped together. 

Despite the claims, Horhn said "there is no systemic overassessment in the city of Detroit."

"Are we perfect? No," he said. "That's what the appeals processes are for." 

Last year, a Detroit News investigation found the city failed to accurately bring down property values in the years following the Great Recession. As a result, Detroit overtaxed homeowners by at least $600 million. 

Hayashi, a tax law expert, called Berry's study "rigorous" and "credible" and said "the conclusions are well-supported by the data."

"The size of the disparities that he identifies, you just can't ignore," he said. "What is less straightforward is what do about the inaccuracy in property assessments."

Detroit completed a state-ordered reappraisal of all residential property in 2017 to correct its overassessment problem but thousands of Detroiters still faced foreclosure over back taxes.

Of the more than 63,000 Detroit homes with delinquent debt in the fall of 2019, more than 90% were overtaxed by an average of at least $3,700 between 2010 and 2016, according to calculations by The News. The debt owed on about 40,000 of those homes is less than the properties were overtaxed over those seven years, the investigation revealed. 

Bernadette Atuahene, a law professor who has studied overassessments in Detroit and is a member of the tax justice coalition, said Duggan's administration must acknowledge that the problem exists and come up with solutions.

The grassroots coalition formed in 2017 with the aim of securing compensation for Detroiters who lost their homes to foreclosure due to the overassessments and to halt property tax foreclosures of owner-occupied homes until the issue is resolved.

"We have to get rid of the politics and look at the data and the data is clear," Atuahene said. "Until we accept the data, we can't accept that there's a problem."

LaVerne Campbell, a Detroit resident and single mother of nine children, spoke Thursday about her struggles and the implications of being overassessed. 

Campbell said she was homeless before purchasing a house on the east side in 2013. 

The former construction worker lost her job amid challenges she faced following a vehicle crash. She later found other work, but it didn't pay enough. She couldn't keep up with her property taxes, which she said were about $4,000 per year.

Wayne County land records show Campbell acquired the house in June 2013. A judgment of foreclosure was entered in September 2014. The house was later sold in the county's tax foreclosure auction, she said. 

Slides shown during the press conference noted Campbell's home was valued at $56,002 in 2014, but the actual market value was $15,000. 

She said she's not qualified for any assistance programs. A Detroit News database shows that the property she lived in at 3438 Balfour Road was overtaxed by $7,266 between 2010 and 2016. 

"Some people don't have a way to get through when things hit you hard," said Campbell, adding the house was bought by an investor. "...I've been away from that property for six, almost seven years and it's still empty and abandoned."

Horhn acknowledged he's "painfully familiar" with the assessment failures in Detroit's past and it took a lot of time and money to fix them. But the city has vowed not to let it happen again. 

Detroit can't investigate itself but it's "an open book" and welcomes any warranted examination by Wayne County equalization officials or the state's tax commission.

"We will do everything we can to assure people that the values are correct and assessment processes are following the law," he said. "We're not hiding."

Hohrn said the state is scheduled to audit his office and its practices this fall as part of a periodic review of assessing offices across the state.

In 2018, research from Berry and Atuahene, a law professor at the Chicago-Kent College of Law, found 1 in 10 Detroit tax foreclosures between 2011 and 2015 were caused by the city's inflated property assessments. 

Wayne County's treasurer foreclosed on about 100,000 Detroit properties for unpaid property taxes from 2011-15.

Detroit's City Council narrowly rejected a resolution last fall to give residents potentially overtaxed before 2014 priority in affordable housing, home-buying discounts and job opportunities because a majority of members said the proposal didn't go far enough. 

The plan sought to offset potential overtaxing from 2010-13 but opponents argued the time frame proposed fell short. 

Duggan, during a Wednesday interview on WJR-AM, reiterated the theme of his eighth state of the city speech delivered the night prior, saying Detroit needs to help residents "break the cycle of inner-generational poverty."

When asked about the issue of overassessments, which he did not discuss in his Tuesday night address, Duggan noted he campaigned against the assessments in 2013. During his first month in office in 2014, he cut assessments by 20% and further reduced them the next year. 

"We acted decisively then and City Council has been considering a number of measures. They haven't passed them yet, but I'm confident we'll figure something out that will basically be the ability to get access to some of these different programs if you owned a house in 2011 to 2014," he told radio host Paul W. Smith. "I'm waiting to work something out with City Council."

Detroit Council President Pro Tem Mary Sheffield, who has advocated for lower property tax assessments for years, said Thursday that the time for debate about the facts has passed and "the time for action is upon us."

"We stand unified in our efforts to bring about equity and fairness in the process for assessing properties for our most marginalized communities," she said. 

"As of today, there has not been any proposals or anything coming from the administration to put back on the table for council to deliberate on," she said.

John Roach, a spokesman for Duggan, said Thursday the administration is working with the council to try and develop a plan.

The coalition in February 2020 joined with lawmakers to announce the filing of a class-action lawsuit in U.S. District Court against Detroit, Wayne County and state officials arguing property owners were "illegally" prevented from appealing inflated tax assessments. The suit was filed by Chicago-based law firm Goldman Ismail Tomaselli Brennan & Baum LLP. 

U.S. Rep. Rashida Tlaib, D-Detroit, and local advocates in January urged Gov. Gretchen Whitmer to investigate overassessments in Detroit. 

Robert Leddy, a spokesman for Whitmer, said in an email Thursday that it's the office's practice not to comment on pending litigation. But he did note at the onset of the COVID-19 pandemic, Whitmer implemented an eviction moratorium and secured $50 million in rental assistance aid prior to lifting the moratorium. 

"Our administration sought to immediately help residents by signing into law the Pay as You Stay program and an automatic property tax exemption for lower-income residents, both of which help Michiganders stay in their homes even in tough times," he said.

cferretti@detroitnews.com