Setback for land value tax reflects distrust, confusion with Detroit plan

Mayor Mike Duggan’s plan to reshape Detroit’s property tax system has hit a roadblock in the Michigan House of Representatives as Democrats work through concerns about the plan and internal disagreements.

House Speaker Joe Tate, D-Detroit, tabled legislation earlier this month after failing three times to collect enough votes to clear the first of many steps needed for Detroit to establish a land value tax. It’s unclear when another vote will be held on the bills. Tate’s office has declined to comment on a potential timeline but Democrats who spoke with BridgeDetroit expect another vote before the Legislature breaks for Thanksgiving in November.

The legislation must be passed by the House and Senate and signed into law by Gov. Gretchen Whitmer before Detroiters vote to approve a land value tax system. City officials are aiming for a ballot question in November 2024. Some Democrats are concerned the land value tax is taking attention away from other legislative priorities.

State Rep. Donavan McKinney, D-Detroit, abstained from voting this month when the main bill was on the House floor. McKinney, who represents the northeast corner of the city and Macomb County communities, told BridgeDetroit that he’s still undecided and that it’s unclear to him whether the plan is revenue neutral for Detroit’s budget as intended.

“I live in the city and I have some questions,” McKinney said. “I’m not as gung-ho about it.”

Duggan plans to set separate tax rates for the value of land and the value of structures on a property. The mayor said this would create a 17 percent tax cut for homeowners.

“Over the years there’s been many times the city of Detroit has been up to this Legislature asking for help because they were in financial trouble; we’re in a very different situation today,” Duggan told lawmakers at a September meeting of the House Tax Policy Committee. “We’ve had 10 straight balanced budgets, the city is growing and we’re not here asking for you to give us anything. We’re asking for the tools to fix something ourselves. The high property tax rates are choking this city.” 

The plan, which was already revised once, would reduce the city’s operating tax by 14 mills while creating a 118 mill tax on the value of land. The average homeowner would automatically see roughly $184 shaved off their tax bill, according to the city.

Duggan says the land value tax would fix Detroit’s high property tax rates and reduce the prevalence of vacant and abandoned properties. Policy experts believe that the tax would encourage development of properties by making it more expensive for speculators to sit on vacant land. 

During a September community meeting, Duggan noted the city isn’t raising enough revenue from property taxes on vacant land – roughly 30,000 neglected, privately-owned lots each generate an average of $30 in taxes.

“Is it fair for these folks to be paying lower taxes or should we increase the taxes on land and decrease the taxes on your homes,” Duggan asked a crowd at Westminster Church of Detroit.

The mayor is shielding side lots, urban farms and public spaces like community parks owned by neighborhood block clubs from paying higher tax rates. The protections were added based on concerns from residents and urban agriculture advocates.

The plan also would phase out tax breaks uniquely offered to select Neighborhood Enterprise Zones.

Looking for the votes in Lansing

Nothing takes effect until a package of bills led by Stephanie Young, D-Detroit, moves through the Legislature.

Ten Democrats opposed the main bill during the last attempt on Oct. 11 and eight did not vote, deadlocking the decision at 50-50. The outcome is a setback for Duggan, considered one of the most powerful Democrats in Michigan, and Tate, who leads a narrow Democratic majority in the House.

Duggan’s office referred comment on the bills to Tate. A spokesperson for Tate said there is not a set timeline for when the House will take up the legislation.

Marshall Bullock, a former state senator who now leads Detroit’s lobbyists to Lansing, addressed questions about the proposal at a recent meeting on Detroit’s northeast side. Bullock said lawmakers who oppose the bill are guilty of “voter suppression” because Detroit voters would decide whether to implement the land value tax. 

“It’s risk-free for anybody that’s not from Detroit,” Bullock said. 

BridgeDetroit reached out to every Democrat who opposed or abstained from voting on the bill. Most did not respond, but several lawmakers told BridgeDetroit they’re taking time to dig into the details and consider unintended consequences.

State Rep. Kimberly Edwards, D-Eastpointe, voted against the bill. In an email, Edwards said she needs more time to understand the consequences of a land value tax. 

“I do not feel comfortable committing residents to vote for an unproven tax policy,” Edwards said in a statement. “It’s essential to gather data, consider expert opinions, and assess the potential benefits and drawbacks of any policy before taking a stance or casting a vote. This approach can help ensure that decisions are made in the best interests of our constituents and our community.”

State Rep. Jason Morgan, D-Ann Arbor, abstained from voting on the bill but later said he will support its passage. Morgan said he held his support so Democrats could have more conversations on legislative priorities.

Some lawmakers felt their bills had been overlooked in favor of Detroit’s tax plan, Morgan said. Tate named passing the legislation as one of his top goals for this year. 

“It’s more of an issue of not just any individual bill, but a number of things that folks feel are not moving through the House as quickly as they want,” Morgan said in an interview. “My hope is a clearer sense of what else we’re able to move forward on between now and Thanksgiving break.” 

State Rep. Carrie Rheingans, D-Ann Arbor, voted against the bill and cited frustrations among Democrats who feel progress is stalled on other important issues.

“There’s some folks that I heard about that are just really wondering about the urgency of this compared to some other policies that are in the hopper that really will improve life for Michiganders,” she said. 

Rheingans said her vote could change, but she opposed it because Ann Arbor officials also wanted the chance to implement a land value tax. An amendment to the legislation prevents cities with under 500,000 residents from establishing the tax system, which only allows Detroit to take it up. 

“I want to be a yes on this,” she said. 

Rheingans said Ann Arbor, like Detroit, is trying to build more affordable housing. She said a land value tax would help spur development of vacant lots into residential units. 

“More than half of the residents in both cities are renters,” Rheingans said of Ann Arbor and Detroit. “Property owners that own rental buildings are going to have a property tax cut. Of course they’re not going to pass it on to their tenants. Is there a way to protect tenants from skyrocketing rents when landlords are not having as much expense?” 

Morgan, who also represents part of Ann Arbor, said the tax plan will have benefits for Detroit.

“We have a significant over reliance on property taxes here in Michigan,” Morgan said. “In every urban part of our state you see property taxes becoming an increasing burden on rents and homeownership for folks who can afford to buy their house just barely and then struggling to afford the property taxes associated with it.”

Eleven Republicans voted with Democrats to support the bill. Rescue Michigan Coalition, a conservative political activist group, told supporters to lobby their representatives against the bills, calling it a “corporate welfare scheme.” 

Mixed reactions in Detroit 

Back in Detroit, residents raised concerns at informational meetings held by the Duggan’s administration and City Council members. Critics say alternative tax reforms should be considered, while also voicing skepticism that Detroit’s historically-troubled assessment office can accurately calculate tax changes.

“Detroiters do not want this,” Theo Pride, an organizer with the Detroit People’s Platform, told lawmakers last month. “We don’t trust the city government to properly and fairly and equitably assess the land.”

In a floor speech ahead of the Oct. 11 vote, state Rep. Dylan Wegela, D-Garden City, justified his opposition by saying the land value tax could create “a huge tax break for billionaire property developers, owners of stadiums and skyscrapers.” 

Some residents have echoed those concerns, particularly groups like Detroiters for Tax Justice. The community advocacy organization handed out information at recent city meetings suggesting that the bills are unconstitutional and unfairly target scrapyard owners. The handout also asserts that Detroit could reduce the cost to live in the city by cutting property taxes and drainage fees. 

Nick Allen, a doctoral candidate at Massachusetts Institute of Technology who researched land value tax policies for the city, said residents are more likely than downtown property owners to receive a 17% tax break. 

“There are some very well-used downtown buildings that would get a tax cut, and because they are very valuable properties, that tax cut is going to be more on a dollar basis but less on a percentage basis,” Allen said. “The best-used properties in downtown are looking at tax cuts in the range of 10 to 12%.”

McKinney said some Detroiters don’t trust the city to accurately assess their property values. Homeowners were collectively overtaxed by $600 million in the years following the Great Recession. McKinney said it remains fresh in the memory of his constituents and his own grandmother died of COVID-19 while trying to get her house back after being overtaxed. 

“People don’t believe in the same city assessor’s office that already overtaxed them,” McKinney said.

Deputy Chief Financial Officer and Assessor Alvin Horhn said he’s asking Duggan for a budget amendment to help implement the land value tax, but Horhn did not provide a dollar amount to BridgeDetroit. Horhn said additional funding would allow the office to hire staff and improve the technology needed to transition to the new system.

Without more funding, Horhn said the plan is “dead in the water.” 

In an email, the Office of the Chief Financial Officer said a budget amendment will be requested  “if and when we determine that current appropriations are insufficient to support the costs that will be incurred this fiscal year.” 

The main costs will come from software redesigns to create assessment notices and tax bills that work with the land value tax, according to the statement. 

Business organizations like the Detroit Regional Chamber and Metro Detroit Black Business Alliance (MDBBA) are backing the proposal. Roughly 73 percent of retail businesses in Detroit will see a tax cut, according to the city. 

“I’m going to support anything that helps reduce people’s property taxes,” said Charity Dean, president and CEO of MDBBA. “I live in Grandmont. My coffee shop is in Rosedale. One of the things I talk about all the time is the need for more neighborhood economic development.”

Dean said city officials will have to navigate broad disillusionment residents feel toward their government due to years of policy mistakes and slow progress toward community priorities. 

James Tatum, director for the Detroit Bureau of the Citizens Research Council, said it’s unclear whether the tax increase is costly enough to incentivize development because wealthier land owners have a better chance of absorbing the cost. 

“If all I have to do is wait for some major developer who wants to build on where I happen to hold a tract of land, I still have incentive to hold on,” Tatum said. 

McKinney said he needs to see more proof that abandoned sites will be redeveloped.

“Does this really spur economic development?” McKinney said.

City Council slow to take positions 

City Council members are also getting familiar with the proposal. They are responsible for approving a ballot question that voters will weigh in on in 2024.

A spokesperson for Council President Mary Sheffield said she is still researching the plan and doesn’t have a position yet. District 6 Council Member Gabriela Santiago-Romero said she’s open to the proposal but wants to see proven examples of how taxes will drop for residents. 

District 4 Council Member Latisha Johnson questioned during a recent council meeting whether the tax changes will prevent land speculation, which is rampant in the east side communities she represents. Johnson also worries that eliminating Neighborhood Enterprise Zone tax breaks would discourage people from moving into neighborhoods that use them. 

“I live in a neighborhood that has had an NEZ for the last 17 years,” Johnson said. “The problem I have with this entire proposal is the fact that we decided to eliminate the residential tax abatement but no other tax abatement. When we talk about equity, I think we’re using the wrong term.” 

District 7 Council Member Fred Durhal III and At-Large Council Member Coleman Young II have expressed general support for the plan. 

Other members of the council have been more openly critical. Council Member Mary Waters said she will not vote to approve a ballot question for voters to decide. She told residents not to trust Horhn during a September presentation, casting doubt on whether homeowners will save money on their taxes. 

Waters suggested a handful of changes to the plan, including a requirement for voters to renew the plan after three years, a provision allowing the City Council to pause the land value tax and an automatic refund for homeowners who are overassessed or aren’t granted an exemption that they qualify for. It’s unclear whether these changes would need to be added to the legislation to take effect. 

Waters is also seeking a fiscal impact analysis to be completed 180 days before Detroit voters decide whether to authorize the land value tax. Waters wants the analysis to study the ability of the assessor’s office to implement the tax. 

Conversations on alternative policies

Council Member Angela Whitfield-Calloway is pushing for an amusement tax to offset the cost of major entertainment venues on the city’s resources. That would also require a change in state law. Whitfield-Calloway is directing the Legislative Policy Division to draft a resolution asking lawmakers to approve a statewide amusement tax. 

“These venues not only generate significant revenue but also place considerable demands on public services,” she said in a memo. 

McKinney said he’s supportive of creating an entertainment tax for downtown events.

An entertainment tax won’t raise as much revenue as the land value tax plan, but the extra funds could pay for blight cleanup and economic development proposals, he said.

He also noted Detroit diverts significant resources to keep downtown safe from Thursday through Saturday, which pulls police and emergency services from neighborhoods.

“I’m in the northeast side of Detroit, I have (among) the highest homicide rates in the nation,” McKinney said. “No wonder people are leaving this city. We’re doing it wrong.”