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After Detroit bankruptcy, is there enough money?

Sep 15, 2014

Monument to Joe Louis in downtown Detroit.
Credit user memories_by_mike / Flickr

The pieces are falling into place for Detroit to eventually emerge from bankruptcy with a lot less of its budget-servicing debt. But the city of Detroit’s budget could still be a house of cards. Many of its revenue sources are not stable.

Bankruptcy does not mean Detroit escapes all of its money problems.

It’s heavily dependent on a city income tax. If another economic dip is around the corner, that source of revenue would shrink.

Casino taxes are stagnant.

Revenue sharing –part of the state’s sales tax shared with municipalities – has been cut to Detroit and other cities across the state.

And then there is the property tax. In Detroit it's a very high 3.3%, twice the median rate in the state.

Tom Goddeeris is the executive director of the Grandmont Rosedale Development Corporation. It’s a non-profit that buys, restores, and sells homes in the Detroit neighborhood.

Goddeeris says although it’s high, that property tax rate isn’t a deterrent to buyers right now.

“It’s somewhat offset by the fact that the value of the homes are lower than what you’d find in other places. Some would say that holds the values of the property down and there’s some truth to that I think,” Goddeeris said as he drove to a house the GRDC recently sold.

The house is a nice-looking brick and limestone home.

This foreclosure was fixed up for resale by the Grandmont Rosedale Development Corporation. Although property taxes in Detroit are high, the low prices of homes like this offset that concern.
Credit Lester Graham / Michigan Radio

“Tudor style, three bedrooms, bath and a half. The home was a foreclosure. GRDC bought it. It was in not terrible shape, but it had been neglected. We thoroughly renovated the home and put it on the market. We had a lot of interest in the home and ended up with four offers, including the offer we selected, which was more than we were asking,” Goddeeris explained as we looked through the house.

They were asking $130,000. Granite countertops, original refinished oak floors, formal dining room, sun room, mature trees lining the street and every house on the block just as nice or nicer. $130,000. Even with the higher property tax rate, right now it’s a deal.

Next-door neighbor Debra Gatson says she’s really happy the home was fixed up and sold. She says she knows Detroit’s property taxes can be a problem for buyers.

“I’m very fortunate. My husband and I have lived in this house for 20 years, so we’re grandfathered in under the old real estate tax percentage. But, it is a hindrance to people who want to own the nicer homes in the better neighborhoods,” Gatson said.

As house prices go up, those tax bills go up. Detroit Mayor Mike Duggan knows that could discourage buyers. He’s says in some areas, homes have been overassessed and has instructed the city to adjust assessments downward.

Lower assessments will mean less money for the city in the short term, but it might attract more home buyers.

And that could mean more people actually paying property taxes.

Almost half of the property owners are not paying real estate taxes in Detroit right now.

Tom Goddeeris with Grandmont Rosedale Economic Development in a home recently refurbished and sold by the non-profit.
Credit Lester Graham / Michigan Radio

Tom Goddeeris with GRDC says the city has to figure out how to fix that.

“And I think that we need to get some understanding of whether that’s because they can’t afford it or are choosing not to in some cases. And this isn’t just residences. This is businesses, this is big companies, and small individual homeowners. So, a big part of the problem in the city right now is the low tax collection rate,” Goddeeris explained.

The city is pressuring delinquent taxpayers and using creative ways to speed up the foreclosure process in some cases.

Collecting what it’s owed is a major problem for Detroit, whether it’s property taxes, income taxes, water bills, or even state money once promised by the state of Michigan.

Detroit is cutting expenditures and finding efficiencies and needs to do more of that. But it also needs to get paid so it can keep those essential services such as fire protection, police, and ambulances. Bankruptcy will likely give Detroit a little wiggle room, but it’s not going to solve the city’s chronic struggle of pulling in the tax money it’s owed and spending it wisely.

Support for the Detroit Journalism Cooperative on Michigan Radio comes from the John S. and James L. Knight Foundation, Renaissance Journalism's Michigan Reporting Initiative, and the Ford Foundation.