Documents
Resources
Learning Center
Upload
Plans & pricing Sign in
Sign Out
Your Federal Quarterly Tax Payments are due April 15th Get Help Now >>

CITY OF DETROIT

VIEWS: 24 PAGES: 14

									                            CITY OF DETROIT

             CITY TAXES, THE CHARTER, AND
       NEIGHBORHOOD AND ECONOMIC DEVELOPMENT

Taxes produce the money that the city government uses to pay for public
services including police, fire, courts, and other public protection; public
works; public health; parks and recreation; administration and management
functions.

Today, we’re going to talk about local taxes generally, about Detroit taxes
specifically, about the tax burden in Detroit, and about how taxes relate to
neighborhood economic development.

State Law and City Taxes
Cities do not have an inherent power to tax. Cities can impose only those
taxes that are authorized by state law. In addition, the state constitution
limits some taxes.

For each tax, state law defines a tax base and a tax rate.
      The base is defined in state law, and can be modified only as allowed
      in state law (for example, by removing a parcel from the general tax
      roll and placing it on a special tax roll-we’re going to talk more about
      exemptions later).
      State law may fix the only tax rate, or the maximum rate.

If state law sets a maximum rate (not an absolute rate), a local charter may
limit that tax rate to less than the state allowed maximum rate (many city
charters limit the maximum property tax rate for operations to less than the
legal maximum of 20 mills). If the charter did contain a tax rate limitation,
the charter would have to be amended by a vote of the people in order to
allow a higher rate, but in no case could the rate exceed the statutory limit.

In order to be effective, any new tax or higher rate of an existing tax
contained in the proposed city charter would first have to be allowed by the
state constitution and authorized in a state statute (approved by the state
legislature and signed by the governor) and approved by a vote of the people
of Detroit. This could be done at the same election as that for approval of
the charter, or at a different election.
For example, a local sales tax is used in some states, but language in the
Michigan Constitution has been interpreted to prohibit local sales taxes in
this state. A local sales tax or graduated income tax would require amending
the state constitution.

There are many operational reasons not to limit city taxes beyond what is
required in the law: these taxes provide crucial funds to pay for essential city
services; it is unlikely that a voluntary reduction in city-source revenues
would be replaced by state or federal funds; and many believe that city
services are already insufficient.

Detroit Taxes
Detroit has a more diversified tax structure than any other Michigan city.
The City of Detroit imposes four main taxes, at the highest rates allowed by
the state (there was a Headlee rollback of 48/1000 of a mill a few years ago):

                                  2011 budget
Property tax (19.9520 mills)      $176,126,271 (general city operations levy)
             (8.9157 mills)         80,928,559 (unlimited tax debt service
levy)
Income tax (2.5/1/1.25)            215,000,000
Utility users’ excise tax (5%)      50,000,000 (police)
Casino wagering tax (10.9%)        149,550,000

The total operating revenue from all city taxes is budgeted at $591 million =
45% of the general fund
State revenue sharing payments to the general fund are $233 million = 18%
of the general fund
Other revenues are from various fees, charges, fines, sales, and earnings on
investments (general fund total = $1.3 billion)
The total budget includes state and federal grants, and enterprise fund
revenues (total budget = $2.9 billion)
Property Tax
Historically, revenues from the property tax revenues have been stable and
predictable, but recent reductions in real estate values has diminished the
revenues from the property tax.

All Michigan cities, villages, townships, counties, school districts, the state,
and many special authorities levy a property tax. The Home Rule City Act
(PA 279 of 1909) requires that a city charter provide for a property tax.

The only tax referenced in the Detroit City Charter is in Sec 8-401:

      The city is authorized to levy property taxes at the rate of two percent
      (2%) of assessed value of all real and personal property in the city or
      to such other maximum limit as may be permitted by law.

      Included is the power to levy property taxes for public transportation
      and transit services to the maximum rate permitted by law.

      The subjects of taxation for municipal purposes shall be in accordance
      with state law.

Property Tax Base
The base of the Property Tax is real property (land and buildings) and
personal property (business equipment, furniture, and fixtures) that has not
been exempted. The total value of Detroit’s tax base for general operating
purposes is $8.8 billion in 2010-11. The property tax base for paying debt
service includes the value of Renaissance Zones, $284 million.

The value of real and personal property in the property tax base is
determined by the city assessor.

There are numerous exemptions:
Churches; nonprofit cultural institutions; government owned property
(schools, parks, public office buildings, fire houses, police precincts, public
universities, etc); and other nonprofit property is not on the tax roll.
Property subject to specific state taxes: railroad and telephone property,
intangibles (bonds, notes, leases, copyrights), motor vehicles
Property subject to specific local taxes in lieu of property tax (industrial
facilities tax, commercial housing facilities tax, neighborhood enterprise
zone tax, enterprise zone facilities tax, technology park facilities tax ,
commercial facilities tax, obsolete property rehabilitation act tax,
renaissance zone, mobile homes—these parcels are removed from the
general tax roll and placed on the appropriate special tax roll. They are taxed
at special rates (for example, 1/2 the statewide average) or on a historical
base (such as the value of the parcel in the year prior to designation).
Inventory property; special manufacturing tools
Other

Property in the various Renaissance Zones are exempt form most taxes, but
are taxed for debt service.

State equalized value is defined in the state constitution as not to exceed
50% of market value.
In Detroit, lack of demand has resulted in very low market values for
property. (There were over 102,000 vacant housing units in Detroit; 24.4%
of all housing units were vacant, in 2009) In 2011, Detroit’s SEV is $11.1
billion. This is down from 2008, when SEV was $14.1 billion.

Proposal A of 1994 limits the annual growth in taxable value on a per
parcel basis to the lesser of 5% or inflation, which results in taxable value
that is less than state equalized value. Property is reassessed to 50 percent
of market value when it is sold.

Detroit’s taxable value for operations is $8.8 billion
      Renaissance zones debt service only   .3
                                          $9.1 billion taxable
In 2009, taxable value was $10.0 billion

Rate
The property tax rate is measured in mills: one mill is one tenth of one cent.
State law allows a maximum of 20 mills for city operations, if the city’s
charter allows that rate. Some city charters only allow a rate less than 20
mills. (There are other limits for other forms of local government, for
example, a charter county may levy up to 10 mills.)

Revenue from the 20 mill levy can be used for general operations, and an
additional special debt service levy is used for paying the principal and
interest on voter approved bonds that were sold by the city.

Detroit property tax rate
      General city operations: 19.9520 mills        $176 million
      Debt service              8.9157                81 million
            Total              28.8677

      Library                   4.6307                41 million
            Total              33.4984 mills        $298 million

The solid waste disposal tax of 3% was eliminated in 2006-07, and replaced
with a residential fee of $240 (senior rate is $120).

In addition to the levy that supports the City of Detroit, there are other
property taxes levied on property in Detroit by other governmental entities:

 6 mill state education tax on all property
13 mill debt service for Detroit Public Schools
18 mill non homestead school tax
14.0778 mills for the county incl Huron Clinton Metropolitan Authority,
Wayne Regional Educational Services Agency, Wayne County Community
College, Wayne County Parks, Public Safety, Detroit Zoo

The total Detroit tax rate of 65 mills on homestead, and 83 mills on non
homestead is the highest in the state.
The average statewide homestead rate is 31 mills, non homestead rate is 48
mills.

Headlee Amendment requires the rate to be rolled back if the existing base
increases faster than the rate of inflation. That’s why the general operating
rate for Detroit is 48/1000 less than 20 mills.

Levy
The tax levy is the tax base multiplied by the tax rate. The total tax levy on
city property is $752 million (city is $297.9 million in 2011, Detroit Board
of Ed was $254.6 million in 2010, state education tax $53.0 million in 2011,
county was $132.9 million in 2010)

Largest property taxpayers (2009)
      Chrysler
      Detroit Edison
      MGM Grand Detroit
      Riverfront Holdings Inc.
      General Motors Corp.

Debt service levy for all full faith and credit obligations-bonds approved by
voters

Special assessments on taxable value of real property to pay for public
improvements are levied on those parcels that benefit from the improvement.
(Article 8, Section 6 deals with special assessments)

Charter Section 8-403 defines a process for collection of delinquent city
property taxes, based on sale of the delinquent tax roll to the city finance
director. This was superseded by PA 246 of 2003, which requires that the
delinquent tax roll be sold to the county treasurer. This is one of the issues
that are sure to be addressed by the Charter Commission.

So, the delinquent city tax roll is sold to Wayne County for full value, the
county tries to collect for two years, and bills the city for what is not
collected. In FY 2009, the city collected 86.8% of that year’s taxes.

Non-payment of property tax allows for the forfeiture of the property to the
county and sale of the tax lien.

The theory of tax capitalization says that the cost of taxes is in reflected in
the value of property, so high taxes would depress the market value of
property.
Uniform City Income Tax is levied on residents, non-residents who work
in the city, and corporations. It was adopted in 1964.

22 Michigan cities have a municipal income tax: rate is generally 1% on
residents and corporations, ½ % on nonresidents (Highland Park, Saginaw,
and Grand Rapids may charge 2% on residents and corporations, 1% on
nonresidents)

Detroit’s rate is the highest in the state: 2.5% on residents, 1.25% on non-
residents, 1% on corporations

The Detroit income tax rate used to be 3% on residents, 2% on corporations,
and 1.5% on nonresidents who work in the city. A reduction in the rate
Detroit imposes was required by PA 500 of 1998, but reductions were
suspended in 2003. PA 209 of 2007 further delayed rate reductions until
2014 or later.

Revenue from the city income tax can be used for general operations.
$215 million in income tax revenues are included in the 2011 budget (This
is down from $245 million in the 2010 budget)
Revenues peaked at $378 in 1999-2000 (when the rate was 3%; 1.5%; 2%)

Reductions in the amount collected are due to the loss of jobs, bankruptcy of
some major employers, high unemployment rate, loss of population

Enforcement is by court action.

The state and federal governments also tax income.
The Utility Users’ Excise Tax is levied on the privilege of consuming
utility service (telephone, electric, steam, gas)

It was authorized by PA 198 of 1970, which expired June 30, 1988
Amazingly, PA 100 of 1990 was retroactive to 1988
The rate of this tax is 5%
It is budgeted to produce $50 million this year
Revenues must be used to hire and retain police officers

Utility users’ tax revenues are affected by the loss of businesses and
households, and by energy efficiency efforts

This tax can only be imposed in a city of 750,000 or more; Only Detroit may
levy a utility users’ excise tax.

The tax is included on utility bills; it is collected and remitted to the city
government by utility companies. Non payment of utility bills may result in
utility shut off.
Wagering Tax on Casinos
An Initiated law in 1996 allowed 3 casinos in Detroit; it was amended by PA
306 of 2004

Only Detroit and the state may levy a wagering tax. The state rate is 8.1%

PA 306 increased the local tax rate annually, but the rate was to be rolled
back to 10.9% of adjusted gross revenues when the casino became fully
operational

The wagering tax is budgeted to produce $149,550,000 this year (It was
budgeted at $176.6 million in 2010)

The city also receives other payments from the casinos: A municipal service
fee is the greater of 1.25% or $4 million, and it will produce $16,780,000
this year
The casino percentage payment is budgeted at $23,810,000

Collected from casinos: MGM Grand, Motor City, Greektown
“Tax Burden” looks at taxes from the payer’s perspective

Businesses and some individuals look for a low tax environment. Detroit is
a very high tax environment.

The City of Detroit imposes a much larger tax burden on individuals and
businesses than other communities in the state do, though varying
proportions of each tax are exported to non residents

Since all Michigan general purpose local governments levy property taxes,
equivalent millage rates may be used for comparison. Equivalent millage
rates can be determined by dividing expected revenues from other taxes by
the property tax base.


City of Detroit Taxes:                                    Cumulative
                                              Mills         Mills
City operating      $176,126,271              19.9520
City debt             80,928,559               8.9157       28.8677
Income tax           215,000,000              24.355        53.2227
Utility tax          50,000,000                5.664        58.8867
Wagering tax        149,550,000               16.941        75.8277

But, of course, other governmental units also impose property taxes on
property located in Detroit. If you add all of the Detroit taxes except the
wagering tax, and all of the other property taxes together, you arrive at a tax
rate equivalent to 97 mills for homestead property and 115 mills for non-
homestead property.

Tax Burden on Residents:
                                                                     Non-
                        Levy             Mills     Homestead       Homestead
City operating      $176,126,271        19.9520
City debt             80,928,559         8.9157
Library               40,877,502         4.6307
DPS debt             118,454,455        13.0000
State education       52,964,997         6.0000
Wayne County*        124,271,773        14.0778      66.5762
Non homestead        158,894,992        18.0000                     84.5762
 Subtotal           $752,518,549
Income tax          215,000,000       24.355       90.9312      108.9312
Utility tax          50,000,000       5.664        96.5952      114.5952
 Subtotal         $1,071,518,549

Wagering tax        149,550,000       16.941      113.5362      131.5362
 Total           $1,167,068,549

Compare this to the 2010 state average of 31.33 mills for homestead
property and 48.37 mills for non-homestead property.


Effect on Economic and Neighborhood Development:
So, you know that it is more expensive to live in Detroit, especially for
higher income individuals and families. The Washington DC city
government each year calculates the city and state tax burden on residents in
the largest city in each state and on DC residents. The most recent analysis
indicates that for families at the $50,000 income level and above, Detroit is
the third or fourth highest tax city of the 51 cities.

State and City Tax Burden, Family of 3, 2008         DC Government
report

      Household income              Rank of 51
           $25,000                    17
           $50,000                     4
           $75,000                     3
           $100,000                    3
           $150,000                    4

It’s also more expensive to do business in Detroit.
There is more pressure to get property tax exemptions, and even if a resident
or business gets a property tax exemption, except in a Renaissance Zone,
they still must pay income and utility taxes that they would not pay
elsewhere

Detroit has designated 16 Renaissance Zones where resident businesses and
individuals pay no Michigan Business Tax, operating property tax, state or
local income tax, or utility users’ excise tax. Residents do pay property tax
for voter approved debt service and special assessments.
Neighborhood Stabilization Issues
Declining population has resulted in empty housing units (over 102,000
housing units vacant according to the American Community Survey).
Declining retail, commercial, and manufacturing activity has resulted in
unused retail, commercial, and manufacturing buildings.

Many of these properties are abandoned, then foreclosed for non payment of
property taxes. A 1999 state law change allowed a faster reversion process
(2 years instead of up to 7 under the old law). This was government’s way
of responding to the serious deterioration of property that occurred during
the longer process.

There are tax foreclosure prevention (not bank foreclosure) programs-
hardship exemptions and foreclosure postponement, but property tax
foreclosures have resulted in tens of thousands of properties being taken by
the city and county, many of which are now in the inventories of the city,
county, and state. Tax foreclosure sales conducted by the city (in the past)
and now by the county have resulted in many properties being sold to
potential residents and to investors. (The Genesee County land bank will
only sell a property to a non-county resident with an enforceable plan to
place the property into immediate use.) Bank foreclosures have exacerbated
the problem of vacant and abandoned houses.

A Possible Strategic Approach
The Genesee County treasurer, Dan Kildee, pioneered the use of a land bank
to actively manage tax foreclosed properties. PA 123 of 1999 and PA 258 of
2003 created a streamlined system of tax foreclosure that allows clear title.
The land bank acquires property through purchase, through the foreclosure
process, or by donation. By bundling tax foreclosed properties for auction,
thereby dissuading potential purchasers, the county is able to avoid the
misuse that sometimes comes from selling land at auction. By selling
properties, the land bank is able to generate funds for the demolition of
dangerous structures, renovation of salvageable structures, and banking of
parcels for which there is no market.
                            THE CITY OF DETROIT

                                  CITY TAXES


Cities may only impose taxes that are authorized by state law.

The City of Detroit imposes four major taxes:

      Property Taxes, including special taxes such as industrial facilities
      tax, commercial facilities tax, and neighborhood enterprise zone tax.
      All Michigan local governments impose a property tax. Non-payment
      of property tax can result in foreclosure and loss of property.

                   $176 million budgeted for general city operations
                   $ 81 million budgeted for debt payments (not part of the
                   General Fund)

      Municipal Income Tax. Only 22 Michigan cities impose a municipal
      income tax.
                  $215 million budgeted for general operations

      Utility Users’ Excise Tax. No other Michigan local government
      imposes a utility tax.

                    $50 million budgeted for police officers’ salaries

      Casino Wagering Tax. No other Michigan local government imposes
      a casino tax.

                   $150 million budgeted for general operations

In this fiscal year, the City’s General Fund budget includes total revenues of
$591 million (45 percent of the $1.3 billion General Fund) from these taxes.

Revenues from all City taxes have decreased, forcing the city government to
reduce expenditures for public services.

								
To top