‘A ticking bomb’: Duggan calls for overhauling Detroit’s property taxes

Detroit Mayor Mike Duggan called for changes to how the city’s property taxes are calculated, proposing a tax hike on land and a tax cut on structures.

During a Wednesday keynote address at the Mackinac Policy Conference, Duggan said the plan would provide relief to homeowners while penalizing land speculators. Those speculators, according to Duggan, currently own approximately 30,000 neglected lots that he described as “cheap lottery tickets” that the owners hold on to with no development in hopes that the land value will eventually increase.

Under the current tax structure, which taxes buildings at a higher rate than land, speculators pay approximately $30 a year in taxes, Duggan said.

“Our tax system assumes that you get taxes from two sources, the land and the buildings,” Duggan said. “…What happens if the value of the land collapses, and you have zero tax on the land, which is what has happened in the city. The property tax system never envisioned a city where the tax on the land went to zero.”

Duggan called the current property tax system “a ticking bomb threatening to undo an entire decade of progress.”

Detroit currently has the highest property taxes in Southeast Michigan, Duggan said, and most of the tax burden is placed on homeowners and businesses.

“In Detroit, blight is rewarded and building is punished,” Duggan said.

Because the city relies on property taxes to fund services like schools and police, the overall tax rate has increased significantly over the years to accommodate for the lost revenue from land value, meaning those hikes have primarily impacted taxes paid on structures.

“Let’s say I wanted to cut five mills. We lose 400 cops. But even if I cut five mills, we’re still at 81, which is still way higher than anyone else,” Duggan said. “It wouldn’t make a material difference. And for this reason, for 50 years, every mayor who sat in my seat who wanted to cut property taxes realized this isn’t going to work.”

The property tax rate in Michigan is referred to as a millage. A mill means for every $1,000 in taxable value, a property owner will pay $1 in property tax.

Rather than taxing both land and buildings at 86 mills – Detroit’s current rate for occupied residential and commercial properties – Duggan’s proposal would cut the rate on buildings to 60 mills while hiking the rate on land to 246 mills. That means owners would pay $60 on every $1,000 of assessed value on their homes instead of the current $86. 

“That sounds horrible, right? How can you triple the tax on my land?” Duggan said.

However, the average tax on a vacant lot would increase from $30 per year to $85 per year, Duggan said. When you blend the two revenue sources, the average tax on homes would fall to a total of 67 mills – a significant drop from the current 86 mills – which Duggan said would make Detroit competitive with other Southeast Michigan communities like Farmington, Ann Arbor and Ferndale.

An owner of a $50,000 home would see a tax cut of about $463 per year, Duggan said. For a $100,000 home, the tax cut would amount to about $925.

Detroit saw just eight new single-family homes built in 2022, Duggan said.

Duggan acknowledged “there’s going to be winners and losers” under his proposal and said it would be phased in over three years beginning in 2025 to give people time to plan.

The groups seeing the largest increases would be owners of vacant lots, vacant commercial buildings, scrap yards and parking lots, Duggan said.

Businesses with excess land are what the city hopes to target, Duggan said. If a grocery store has parking for their business, for example, he said they would be granted a discount on that land to the 60 mill rate for buildings.

“Businesses that have a lot of extra land, those taxes are going to go up,” Duggan said. “We’re going to give you three years. Maybe you expand your business, maybe you sell it to a developer.”

Duggan pointed out that the city currently has 452 scrap yards compared to 53 grocery stores, 16 hardware stores and two movie theaters.

There are also nearly 1,000 privately owned abandoned commercial buildings, Duggan said, because the existing tax system incentivizes the owners to let the building deteriorate until its value is reduced to zero. That way, they pay only the tax on the land – which is also nearly zero.

City officials are taking the next six weeks to make sure there are no unintended consequences, including studying the impact the proposal would have on farmers, Duggan said.

The plan would need to be approved by the Michigan Legislature and voters in the city.

Duggan said the building tax cut would not need to be approved by voters, but any tax hikes – such as the land tax – would need the support of voters.

He hopes to get the plan on the ballot in February, with the presidential primary, Duggan said.

Duggan said the Legislature could introduce a bill that is specific to Detroit or could allow other communities to opt in and hold local elections on the issue. He said such a system would only make sense in a few cities in the state where the land value is near zero, such as Flint.

Flint Mayor Sheldon Neeley called Duggan’s plan “unique and different” and said the city is “looking at every opportunity to be able to shift our system to make it more equitable.”

Neeley, who previously served in the Michigan House of Representatives, said the Legislature should “look at everything statewide, because the Legislature represents the full state.”

“You can’t have a level of carve outs for different communities,” Neeley said. “Legislators have a unique responsibility. There’s only 148, but the 148 are tasked with looking out for the full state of Michigan, not just certain districts or states or cities or municipalities within the district.”

House Speaker Joe Tate (D-Detroit) said he supports the concept and intends to spearhead efforts in the Legislature.

Tate said he is working to identify the right language for draft legislation.

“We know the property tax burden that Detroit has, along with other municipalities across the state,” Tate said. “This is a great opportunity to lessen that burden, to be able to get creative. And frankly, it’s a tool for welfare as well, for those communities across the city.”

Duggan said the plan may cause the city to lose up to 10% of its revenue in the short-term, but argued “it will be dwarfed by the growth in the city.”

“I’m not looking for the right answer for 2025. I’m looking for the right answer for five years, 10 years, 20 years from now,” Duggan said. “We put the city on the wrong track with a bad tax system. I’m looking to put the city on a future path with a good tax system.”