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There are winners and losers in any significant policy change in Detroit, and Mayor Mike Duggan bluntly concedes that would hold true under his Land Value Tax proposal.
Duggan’s property tax plan calls for cutting taxes on buildings and improvements in the city by 30% while tripling taxes on land. His professed aim is to incentivize development of vacant land and empty derelict buildings — things of which Detroit still has plenty — and provide modest tax relief for most homeowners and some businesses.
This type of arrangement plan is known as a split-rate tax system, and no major U.S. city currently uses it.
The mayor’s office forecasts that the plan would be revenue-neutral early on, meaning that the additional tax money brought in from higher land taxes would more or less offset the drop in taxes from structures.
However, when accounting for the various exemptions and credits to be handed out, there potentially could be a drop in revenue during that early period.
The longer-term fiscal impact is not yet clear, according to the city, although if the new tax system triggers land value increases and more development, that could generate more property tax revenue and also income tax and utility tax revenue.
When Duggan unveiled the plan this spring during the annual policy conference on Mackinac Island, he was up front that not everyone in the business community would love it.
“We’re talking about changing a tax structure that’s been in place for 50 years. And that means there’s going to be winners and losers,” he said.
He called out some of the biggest potential losers who could expect to pay more taxes if his plan goes through:
- Land speculators who own some 30,000 vacant lots across the city.
- Owners of empty and derelict buildings.
- The 452 scrapyards and auto salvage yards in the city.
- Parking lot owners.
“The downtown parking lot owners are going to get hit hard,” Duggan said at Mackinac. “I’m just telling you the truth. I don’t have anything against them, they kept us going.”
To be sure, speculators and parking lot profiteers are unlikely to garner much public sympathy as tax policy victims. But they wouldn’t be the only city stakeholders taking a hit.
Duggan also conceded that owners of smaller buildings in areas with higher-value land, such as downtown, would likely see “a significant increase” in taxes.
Other potential losers could be urban farms and privately owned green spaces that are maintained and completely open for public use.
As for winners, that would be the 97% of Detroit homeowners who Duggan’s office estimates would see a reduction in their property taxes — with the median homeowner saving 27%. The average $50,000 home would get a $450 tax cut and the owner of a $100,000 home would save $900.
There would also be wins for many small businesses, especially those outside higher-value areas like downtown, Midtown and Corktown. The mayor’s office estimates that 70% of all small businesses would see a reduction in property taxes, with the typical retail business seeing 5% savings.
Another winner would be real estate developers, who could find it easier to build new buildings under the new tax system and later refinance or sell the buildings.
Owners of apartment buildings are estimated to see a median tax savings of 20%. And some of that savings might be felt by individual renters as landlords, facing less cost pressure, could maybe ease up on rent increases.
Steps to go
There are still many steps for Duggan’s Land Value Tax to become law.
The first is approval of state legislation to allow Detroit — and any other interested cities — the option of enacting such a tax system, with voter approval. Detroit City Council would then need to put the tax question to Detroit voters. Duggan is aiming to have it on the Feb. 27 ballot for the Michigan presidential primary.
If approved, the split-rate tax would be phased in over three years, 2025-27, in one-third increments.
The mayor recently told the Free Press that the timeline for getting his tax plan approved is on pace.
“We are meeting every day with groups and I believe building a lot of support,” he said. “The reaction has been really good, and we intend to introduce it at the end of August and try to move it this fall.”
City officials have been getting feedback this summer from the various business and stakeholder groups who would be most affected.
“The homeowners all want a property tax cut — that’s easy,” Duggan said. “We are spending a lot of time with the urban farmers, with the retail groups, with the manufacturers. We spent some time this morning with a very large scrapyard recycling operator. We are just talking to everybody, explaining how it works, and doing our best to answer questions and build support.”
But is it legal?
Some legal observers, including Wayne State law professor John Mogk, have questioned whether the tax plan — if enacted — could be a violation of the “uniformity” clause in the Michigan Constitution, as it would essentially be splitting off the land underneath a building and taxing it differently.
“They have a potential uniformity clause violation problem with the split-rate tax proposal,” said Mogk, who wrote an opinion piece that contends the plan isn’t bold enough to rebuild Detroit. (Mogk advocates abolishing property tax for Detroit homeowners.)
In 1994, Michigan voters approved an amendment to the state constitution, known as Proposal A, that allowed for nonuniform taxation to support schools — with an exemption for homeowners’ principal residence. Prop A also capped annual growth on the taxable value of property at the inflation rate or 5%, whichever is lower. The cap remains in place until a property is sold, at which point the taxable value uncaps to the property’s assessment.
Duggan brushed off the question on constitutionality when asked about it last month.
“The lawyers will make sure whatever we introduce is constitutional,” he told the Free Press.
Earlier this summer, Detroit’s chief financial officer, Jay Rising, hinted at a legal breakthrough for how the split tax would work.
“Michigan’s Constitution made it very difficult to think through how this could be done,” Rising said. “So I think once we sort of cracked the code of how to do it, it became much more feasible. And frankly, I don’t think anyone cracked the code before.”
Reason for the plan
Duggan’s plan is a response to the fact Detroit has the highest tax rate for commercial buildings and apartments of any large U.S. city, and the fourth-highest rate for single-family homes, according to a 2022 study by the Lincoln Institute of Land Policy.
And, of those cities, Detroit has some of the lowest market values for properties of all types.
This unique situation of high taxes, low values arose as Detroit, over the decades, raised taxes to maintain revenue as the assessed values for properties across the city fell.
Detroit’s millage rate is now 86 mills. The city with the next highest millage rate in southeast Michigan is Warren at 73 mills. A mill equals $1 of tax per $1,000 of taxable value.
The Land Value Tax calls for cutting taxes on buildings and improvements to 60 mills and tripling taxes on land to 246 mills.
While a tripling on land can sound like a lot, the mayor emphasized at Mackinac that the average yearly tax bill of a vacant Detroit lot is only $30.
“Do you know what happens when we put this into place? The guy who is paying $30 per year is paying $85 a year,” he said.
Today, nearly all new building developments or sizable redevelopments in Detroit make use of some mix of tax abatements and subsidies to get off the ground. But those incentives generally expire, typically after 10 to 15 years.
Tax abatements “do a really good job of making the tax problem go away for a little while,” said David Di Rita, principal of the Detroit-based Roxbury Group development firm, who supports the tax plan.
“They probably produce an effective tax burden on those developments that is better than one could get through just a normal tax structure. But the price we pay for it is that tax structure is temporary,” he said. “And there is no one associated with financing development or executing development who doesn’t know it’s temporary, and that temporary nature gets baked into the value of the (building) from the get-go.”
Another Detroit developer, Roderick Hardamon, said the Land Value Tax wouldn’t eliminate the need for tax abatements to build in Detroit, but it would reduce the need. He said he supports the tax plan because it would help nearly all Detroit homeowners, not just developers like himself.
“This is an opportunity to provide tax relief to the residents who have been so committed and dedicated to the city for so long,” he said.
Likely losers
For Detroit’s largest landowners, the split-rate tax would likely mean bigger tax bills.
Duggan pointed to the holdings and current tax bill of a specific land speculator during his Mackinac presentation, although stopped short of naming the person.
“The system is so broken that one speculator in Detroit owns 261 parcels of vacant land totaling 22 acres across the entire city and only pays $6,542 in taxes,” he said, “while a single Detroit homeowner with a $200,000 house who puts time and energy into maintaining their property pays $6,800 in taxes.”
A Free Press analysis of assessor records found the following individuals and companies to be the six largest private owners of Detroit land based on acreage (The analysis excluded government and educational organizations, as well as the No. 1 owner of city land, the Detroit Land Bank Authority).
- Hantz Woodlands/Hantz Farms
- Marathon Petroleum
- New Far East Side Development
- The Moroun family’s Crown Enterprises
- Matthew Tatarian
- Bert Dearing/B&D Property Management
Four of the six either did not respond to Free Press inquiries for their opinion on Duggan’s plan or couldn’t be reached.
Hantz Woodlands operates an urban tree farm that, according to assessor records, owns more than 150 acres on the city’s east side, much of it formerly blighted land.
Hantz Farms President Mike Score said in an email that they don’t expect the tax plan “to affect our commitment to improving neighborhoods within Hantz Woodlands.” He didn’t say how much of a tax hit they expect from the plan.
Bert’s acreage
Bert Dearing, 79, is the founder of a namesake restaurant and music and entertainment venue on Russell Street near Eastern Market. He also is the owner of nearly 33 acres of land, according to assessor records, which Dearing says is scattered throughout Detroit, although mostly on the east side.
“Most of my stuff is vacant land,” Dearing said in an interview last month inside Bert’s Marketplace. “The few houses I got, people have been staying there and I haven’t really been collecting rent in two or three years. They got hardships. One of them’s arms is amputated. So everybody got a sad story. And I still pay the taxes.”
Dearing said he wasn’t familiar with the mayor’s tax plan or that it would likely raise his tax bill. He said he has been acquiring Detroit real estate for decades.
“People invest in the stock market. But land is always going to be somewhere — land is not going anywhere — so I invested into property,” he said. “My grandfather did when he was around, and I just took on what he did.”
Dearing, who is Black, said his holdings are in a trust and that he hopes to pass down the properties to his family.
“Generational wealth for my kids and grandkids — it’s all about generational wealth,” he said. “Every other nationality, they have generational wealth and they have a trust and all that, so I’m just following suit.”
Scrapyards would take hit
Scrapyards and auto salvage yards would also take a big hit. By the mayor’s estimate, owners of the 452 scrapyards in Detroit would see their taxes shoot up 50% to 100%.
Detroit once had even more scrapyards, Duggan said, but the city stepped up enforcement and about 100 that were operating illegally shut down.
“I actually don’t have great problems with the 452 left, they are in pretty good code compliance right now or they wouldn’t be there,” Duggan said at Mackinac. “I’m going to pitch them to try and support us because it’s the right thing for the city. And they all know if they were in the suburbs, they’d be paying three or four times that because the land value in the suburbs is so much higher.”
Perhaps unsurprisingly, some scrapyard owners aren’t excited about paying more taxes.
Some view the tax plan as just the latest salvo in a long-running War on Scrapyards by the Duggan administration that they think aims to shut them down.
In interviews this summer, several owners described how their businesses have been barely hanging on since a 2016 change to Detroit’s stormwater drainage charge that resulted in some scrapyards being hit with tens of thousands more in annual fees.
So the proposed tripling of taxes on land could be the final straw for some.
“The cost of doing business in the city is not worth it anymore,” said Bob Bogojevski, an owner of Ramsey’s Auto Recyclers in southwest Detroit, near the Ford Rouge Center. “It almost sounds like they are doing a land grab.”
Bogojevski wasn’t yet familiar with how the tax plan would affect his business and its 8-acre property when a reporter dropped in last month.
But he said his stormwater drainage bills soared from $150-$200 a month to about $6,000 a month after the stormwater charges took full effect. And despite paying that, the street in front of his business continues to flood after just a regular rain and doesn’t drain for two days, he said.
“They want your money for your taxes, but we don’t get the services,” he said.
The Free Press asked the mayor whether he is getting any pushback to the plan from groups such as scrapyard owners.
“Taxes are going to go up on some folks and come down on homeowners. But I had a couple people today where their taxes are going to go up, who pledged to support it because it’s going to improve the city,” Duggan said. “That won’t be everybody, but some people are doing that.”
Possible exemption for urban farms
Representatives of Detroit’s urban farming community have been meeting with the mayor’s staff to discuss a possible exemption to land tax hikes.
Tepfirah Rushdan, codirector of the nonprofit Keep Growing Detroit, said discussions are continuing about how exactly such an exemption would work.
“There is a lot of coordination that has to happen to make sure that just anyone who’s sitting on land and speculating doesn’t put a couple of raised beds on a piece of property and call it a farm and get the exemption,” she said. “But from what I’ve seen, the city has been pretty dedicated to figuring that out with the farming community.”
Ilitches onboard
The Free Press reached out to several parking lot owners for this article, but did not receive many responses.
One who did respond was the Ilitch family organization, which owns or controls numerous parking lots in downtown and around Little Caesars Arena. The organization’s Olympia Development of Michigan recently teamed up with New York mega-developer Stephen Ross’ The Related Cos. for a 10-building, $1.5 billion development in the city known as District Detroit.
“We applaud Mayor Duggan for placing an emphasis on Detroit property tax reform,” Keith Bradford, president of Olympia Development and The District Detroit, said in a statement earlier this summer. “The proposed Land Value Tax plan has the potential to provide relief for homeowners while also encouraging growth and reinvestment from developers. We support the activation of valuable land to benefit the community and look forward to hearing more details.”
Di Rita, one of the developers who likes the split-rate tax idea, said he has been hearing of more people coming around to support the concept.
“I’ve talked to people who you would think would be kind of the quintessential anti-Land Value Tax property owners, and they either see the handwriting on the wall on this thing or they just look at the math and they go, ‘You know what, I guess my parking lots are going to be taxed a bit more as a result of this.’ “
Contact JC Reindl: 313-222-6631 or jcreindl@freepress.com. Follow him on Twitter @jcreindl.
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