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February 27, 2013

Property tax dilemma in Detroit

     If property taxes are a social compact -- pay the bills, get government services in return -- it's broken in Detroit, where decline, crime, and population loss have left severely deteriorating conditions in neighborhoods all across the city. That was the assessment of political leaders in a comprehensive report published by The Detroit News last week. The newspaper found that many residents are fleeing Detroit rather than pay property taxes, and that half of the residents who remain don't bother to pay.
     Exasperated residents are surrounded by broken streetlights and overgrown parks, and don't feel government will be for them if they call. So many simply ignore property tax bills, further diluting city services."It's a vicious cycle exacerbated by the fact that Detroiters don't believe they are getting a good return on their investment in city services," said state Senator Bert Johnson.
     Citing the Lincoln Institute's comprehensive property tax report posted at the subcenter Significant Features of the Property Tax, The Detroit News found yet another unvirtuous circle: high taxes and low values.  In the 2011 50-state property tax comparison study, Detroit ranked first among the 50 largest cities in taxes -- and last among property values. Detroit taxes on a $150,000 house were $4,885, twice the national average of $1,983. The city's average house price, $16,800, was nearly 10 times lower than the next lowest, Mesa, Ariz.
     Yet collecting some portion of the estimated $246 million in unpaid property taxes -- just from last year -- may be critical to any fiscal workout. Cate Long, writing at the Reuters blog MuniLand, saw no other way out from the city's deepening deficits and debt service costs. "Detroit needs to begin its restoration process by collecting unpaid property taxes. The city is desperate for cash, and if it does enter Chapter 9 bankruptcy, a move to collect unpaid property taxes will show the bankruptcy judge that the city made all efforts to right itself financially."

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