A new independent audit of Detroit’s troubled residential property tax assessments found the assessor’s office struggled over a decade with chronic staffing shortages, failed to maintain accurate records and left $12 million of its budget unspent.
Stout Risius Ross, LLC was hired in 2020 by the city to perform a forensic analysis of residential property assessments and internal operations in the Office of the Assessor between 2010 and the end of 2020. The report, presented Wednesday to the Detroit City Council’s Budget, Finance and Audit Committee, found Detroit can’t prove the accuracy of assessments that determined Detroiters’ tax bills from 2010-16.
Detroit Auditor General Mark Lockridge said the city council requested the audit after it was discovered that Detroiters were overtaxed by an estimated $600 million from 2010 to 2016. Stout was asked to expand the scope of its audit to determine whether changes made after a 2017 citywide reassessment resolved these issues. The Office of the Inspector General is also planning a follow-up audit on Detroit assessments.
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Raymond Roth, a Royal Oak-based CPA for Stout who authored the audit report, said the city has shown “undoubtedly marked improvement from the dark ages of prior to 2017,” but there remains “critical areas where improvement is needed.” He also expressed concern that Detroit Assessor/Deputy CFO Alvin Horhn didn’t seem to take some of his recommendations to heart.
“While I may not agree with all the conclusions they’ve come to, I certainly understand the need for a constructive, and at times critical, eye of operations that (the City Council) has,” Horhn said Wednesday. “I do believe there are challenges as far as staffing, as far as budget, as far as our way of implementing new technology that we are in desperate need of. I will also say that the Office of the CFO has taken every effort to provide the assessor’s office with the resources they need to perform the job as required.”
Horhn described problems with the assessor’s office as a symptom of the city’s 2013 bankruptcy. Horhn said there’s since been a “sea change” of improvements but he also acknowledged there’s still work to be done.
“There’s no systemic problem with the assessment rolls in the city, and I will say that to my last day – I will bet my pension and retirement on it,” Horhn said. “Are there issues? Yes, I would be lying to you if I said there weren’t, but they are manageable issues.”
“This office is well-equipped to do the job that’s needed,” Horhn added.
District 6 Council Member Gabriela Santiago-Romero said the audit findings are difficult to hear, since thousands of Detroiters have lost their homes due to tax foreclosure. From 2005 to 2015, nearly half of all residential properties in the city experienced mortgage or tax foreclosure, and research from 2019 asserted 10% of all foreclosures since 2009 were due to “illegally inflated tax assessments.”
Roth’s data suggests assessed values exceeded true cash values from 2010 to 2016. State law requires property assessments to stay below 50% of the property’s estimated selling price. BridgeDetroit called Roth on Friday to ask whether his investigation found evidence to suggest illegal overassessments, but Roth said it was outside the audit’s scope.
Detroiters and housing stability advocates have shown up in force at council meetings throughout the summer to demand some form of restitution for their overpayments. Council Member Fred Durhal III, who represents District 7, said the council has received numerous inquiries about incorrect property tax assessments.
“We want to ensure that we are doing everything in our power to provide the resources that are needed to ensure our residents are assessed properly,” Durhal said Wednesday.
Detroit’s prior council in late 2020 narrowly rejected a plan from Duggan’s administration that would have provided certain preferences including home-buying discounts and job opportunities to residents who were overtaxed between 2010 and 2013. But some council members argued the proposal didn’t go far enough.
Council members this spring adopted a budget plan that appropriated $2 million toward a program meant to support residents overtaxed in the years following the Great Recession, with a request to bolster the program with $4 million more in federal dollars.
Organizations like The Coalition for Property Tax Justice have continued to argue that the lowest-valued homes in Detroit are over assessed, despite a citywide property reappraisal completed in 2017.
A 2011 performance audit by Detroit’s Office of the Auditor General found problems with assessing activities, data management, internal controls, safeguarding public property, complying with record retention policies, improper accounting and other issues. Three years later, the State Tax Commission notified the city it needed to address the problems and a corrective action plan was created in March 2014.
Roth said Detroit “is unable to support any conclusion on value it made for a single residential property” from 2010 to 2016.
“There are simply not any records of what was done or how it was done, or even what the final value was on a per parcel basis,” Roth said Wednesday.
The city, with oversight of the state, completed a citywide reappraisal in 2017, the first of its kind in 60 years. The reappraisal resulted in a slight reduction of property tax assessments for 53% of property owners and a slight increase in property tax assessments for 41% of property owners. It also contributed to a lower rate of tax delinquency.
Stout’s audit determined the city’s assessments division made “noticeable improvements” with technology and staffing since 2017, but also found the city did not maintain documentation to support its property assessments and failed to meet some of the criteria outlined by the state for an effective assessment system.
The Stout audit is divided into two periods, pre-reappraisal from 2010 to 2016 and post-reappraisal from 2017 to 2020.
Stout found Detroit is unable to support any property valuations between 2010 and 2016 because the city didn’t maintain certain documents. Data provided to Stout did not match data certified by the State Tax Commission during that time period, according to the audit, and the city did not provide records to verify a reason for the differences.
The Stout report found many documents before 2016 were unavailable, but it’s unclear whether documentation never existed or was lost due to poor records-keeping practices. In one example, Stout was not provided per parcel data for the entire year of 2014. The city also couldn’t provide some requested documents after 2017, and Roth found discrepancies with assessments reported by the city from 2017 to 2020.
The audit also found the assessments division didn’t spend an average of 20% of its budget between 2010 and 2016, for a total of $8.8 million. A third of the budget wasn’t spent in 2016. More of the office’s budget was used from 2017 to 2020, but Stout found a total of $3.3 million was left on the table over that period.
‘Constantly in crisis mode’
Unused funds could have supported the hiring of 10 additional staff from 2010-16 and six staff from 2017-20, according to the audit. Stout found the assessments division was understaffed by at least 50%. Detroit assessors are responsible for 7,000 to 9,000 parcels per employee, well below the state recommendation of 1,500 to 3,500 parcels per employee.
Understaffing was a major problem reported by employees Roth interviewed for the audit. The assessments division increased its headcount by 25% from 2016 to 2020 and nearly doubled the number of appraisers. However, employees still reported concerns with insufficient staffing, and Roth recommended improvements to recruitment and retention.
Assessors told Stout they are overworked – one employee said assessors often need to put in 80 hours per week to complete their assignments. Employees reported an “all hands on deck” environment where employees are reassigned to help meet state mandated deadlines, putting them behind on progress towards their own deadlines.
“The understaffing concern is important, as without adequate staffing, corners need to be cut, errors are made, judgment calls are needed,” Roth said. “You get into this mentality where you are constantly in crisis mode, and it’s just simply not a sustainable position.”
Roth said Horhn does not see an issue with understaffing, which Roth called “problematic for a variety of reasons.”
Horhn told the City Council on Wednesday that hiring an “army of appraisers” wouldn’t make the assessment division more efficient. He said there are 63 full-time staff in the assessor’s office.
“I believe that is a solid number,” Horhn said. “It allows us to do what we need to do. But it also means that we have to be very strategic in our operations.”
The Stout report described a circular pattern threatening the assessment division’s ability to effectively function: A large staff is needed to keep pace with the city’s large property base but understaffing adds stress to the work environment and new staff can’t be quickly trained to relieve that stress, leading employees to burn out and find a job elsewhere.
City employees interviewed for the audit also said staff are reassigned to “special projects” from the Mayor’s Office and City Council, which adds to their workload.
“I’m trying to tread very, very carefully here, but I think this is hard for anyone to bring up and if not an independent consultant, then I don’t know who else to address this,” Roth told council members. “I do think that these requests can sometimes put the deputy CFO and assessor in a difficult position. It’s my opinion that (Horhn’s) political survival is dependent on being amenable to these types of requests … I’m hearing from the top ‘we’re strategic and we’re getting all the important stuff done.’ But from the people in the trenches, I hear ‘we are drowning.’”
‘Difficult to calculate’
The Stout audit notes “significant changes” were made to property records and internal operations after the citywide reappraisal was completed in 2017.
The city contracted with an aerial imaging company that allows appraisers to review three times as many properties from their computer as opposed to visiting each location. While this saves time, the audit states aerial reviews increase the chance of overassessment in the lowest value properties. Horhn said the technology is vital to help assessors review the condition of properties, but in-person visits are used to evaluate older homes.
The report acknowledges Michigan’s largest city faces challenges due to the size and the age of its housing stock; the average year a home was built in Detroit was 1939, compared to between 1972 and 1991 in the surrounding region.
“The average age for home in the city of Detroit is over 80; it makes it difficult to calculate the condition of the property,” Horhn said. “Many of the houses in this home in the city are not very well maintained. It makes it even more difficult to calculate those things.”
Stout also recommended a new land study of vacant land to confirm those parcels remain vacant. More than 45,000 parcels were identified as vacant land after the 2017 reappraisal, a 60% increase. Roth said he’s started to analyze a sample of parcels, and his preliminary work suggests “significant errors” with the data.