Policy Research

Property Tax Delinquency Social Contract in Crisis: The Case of Detroit

James Alm, Timothy R. Hodge, Gary Sands, Mark Skidmore

Summary

The article examines the property tax delinquency rates in Detroit, and attempts to create a model to help explain them. The study notes that property tax delinquency in Detroit is 48 percent which is among the highest in the nation. Additionally, Detroit faces one of the highest average property tax rates. The study estimates that Detroit’s high tax delinquency is due to a wide range of systematic factors such as property values being over-assessed thus decreasing tax morale, and a real estate market that is economically struggling. The article also brings up the fact that Detroit has such a high delinquency rate that many homes are getting repossessed by the government at an increasing rate. Because of this, state workers are over-burdened and focus on high value houses leaving property with lower tax values to be ignored. This in turn leads to more people choosing to not pay property tax at the potential to escape punishment. Other factors linked to delinquency were low response rates of police, non-homestead property, and low levels of city services.

Read Now

Policy Implications

This article brings up the fact that Detroit’s astronomically high property tax delinquency is a multi-faceted problem. One that the study estimates makes up for a loss of roughly 20 percent of potential revenue. The article suggests that the delinquency boils down in part to a break in the social contract that causes people to obey taxes. People feel they’re properties are over assessed and under serviced. A policy that fixes this imbalance then is likely to increase compliance. Lowering overall property tax rates is another proposed solution to increase morale. Further, the article suggests the State using some of the foreclosed property to create public goods such as parks. This would increase morale, and also shrink the size of the unstable real-estate market potentially leading to increased housing prices.