From the archives: Detroit tax appeals reveal stark imbalance
Detroit is over-assessing homes by an average of 65 percent, leading to higher tax bills, according to a Detroit News analysis of more than 4,000 appeal decisions over the past three years by a state board.
In the first public examination of its kind, The News reviewed Michigan Tax Tribunal cases of Wayne County property owners appealing tax bills. The analysis found the administrative court reduced Detroit property values at a far higher rate than neighboring communities and nearly 50 percent more than the county average.
The appeals process favors landlords and businesses: Only 15 percent of tribunal decisions from Detroit involved owner-occupied homes, The News found. While more than half of the city's residential properties are owner-occupied, critics and state experts said many are deterred from pursuing state appeals because the process is complicated and time-consuming.
More from the archives:
Detroit's property tax system plagued by mistakes, waste
Half of Detroit property owners don't pay taxes
The disparities are on display on Abington Avenue, a well-kept street in the city's Grandmont-Rosedale area. Some houses there are valued by the city at $100,000 and pay $4,000 per year in taxes. But one landlord with a similar home pays $900 because the state agreed in 2011 it is worth only about $13,300.
"It makes me feel like I am being betrayed," said James Moore, 42, a mechanic, when told by The News that his $2,500 a year tax bill is nearly three times that of the similarly sized rental. "I don't know why you have to squeeze every ounce out of people. Just be fair."
Detroit's tax rate of 67 mills for homes — the rate at which property taxes are levied — is among the highest in the state. And professionals who fight appeals said The News' analysis makes a strong case that city assessments — and taxes — are off by wide margins.
They argue the cost to the city has been great: In two years alone, 10 percent of all Detroit properties have been foreclosed because of unpaid taxes.
"People have literally been driven out of their houses," said Joshua Shillair, a former tribunal hearing referee who now represents Detroit owners. "It shouldn't be a system where in order to be fairly taxed you have to run through an appeals process."
The Michigan State Tax Commission, which oversees city assessors, has acknowledged a potential problem in Detroit. The commission launched an investigation in response to a February series by The News that exposed widespread over-assessments, rampant tax delinquencies and dysfunction in the city's Assessments Division.
A follow-up Detroit News investigation of tribunal decisions found:
■City officials are far more likely to lower assessments of businesses and landlords to avoid tribunal cases than homeowners, according to a recent report by city consultants Plante and Moran that reviewed the tax practices.
Homeowners instead are forced through a tribunal process that can last 14 months.
"Settlements are uncommon and appraisers indicated that they try to avoid settling (homestead cases)," the report reads.
■Fighting City Hall has paid off for some of Detroit's most well-known businesses. Companies tied to Ambassador Bridge owner Matty Moroun reduced tax bills by 57 percent and Ilitch family businesses saw a nearly 40 percent decrease on appeals from 2010 through this summer. Ilitch companies saved about $1.8 million a year, while Moroun saved $970,000 per year.
■The state keeps only paper records of most of its decisions, making it harder for homeowners to prepare appeals. The state also doesn't use tribunal decisions to monitor whether communities are overtaxing owners.
■Detroit could lose tens of millions of dollars in taxes from pending business tax appeals.
The city's new chief assessor, Gary Evanko, pegged the worst-case scenario at $45 million. The city doesn't track how much it could be liable for with homeowner appeals. Either would be a huge blow: The city collects only $217 million annually in property taxes.
Detroit officials agree reform is necessary, hired Evanko this year and ordered a citywide reassessment of properties this past summer. They estimate that could cost up to $46 million and take five years.
Even so, city officials argued that over-assessments aren't a widespread issue in Detroit.
"I am fairly confident that we have it mostly right, but I understand why people don't accept that," said city assessor Alvin Horhn. "We know that people don't trust the values out there."
Mayor-elect Mike Duggan said reassessing homes fairly "has got to be a priority."
Tale of two dwellings
Sick of his $2,570 tax bill and seeing little in city services, Gregory Henderson went downtown last winter to plead with the city assessor to lower the value of his East English Village home.
The city valued it at $68,000. After Henderson protested, it was lowered to $60,000, or an assessment of $30,000. Assessments are typically half the total market value.
His neighbor, a Farmington Hills landlord, had better luck.
Last year, the state agreed with Realco Holdings' appeal, lowering the value of its rental — similar in size to Henderson's 1,400-square-foot colonial — to $9,000, or an assessed value of $4,500. The company's yearly tax bill is now about $700.
Henderson pays more than three times as much in taxes. He said he didn't know there was a formal appeal process to the city and state.
"That's why people are moving out of the city," said Henderson, a retired Chrysler worker. "Why should I keep paying high taxes? My house is not worth it.
"Why should I be carrying the burden?"
For Detroit property owners who prevail in their appeals, results can be dramatic, The News found.
Residential properties on average have seen a 65 percent drop on assessments in successful appeals between 2011 and this October, according to city data. Those drops are so large some experts said they often also bring down taxable value and an owner's tax bills.
Taxable value can be different than a property's assessment, especially if an owner has lived in a home for many years. The value is used to calculate taxes and generally can increase annually for owners only by the rate of inflation or 5 percent, whatever is less.
The News also reviewed county data that tracked how the taxable value of residences and businesses was affected by appeals. On average, the state lowered taxable values in Detroit by 50 percent on 6,000 appeals between 2010 and 2012.
During that same period, the state ordered a 24 percent average drop in taxable values in Taylor, while Dearborn's values declined 20 percent. The average rate in Wayne County, excluding Detroit, was 34 percent.
The appeals process favors those with the time and money; many others "just give up and walk away," said Shillair. He was a tribunal hearing referee in 2010 and 2011 and said Detroit's assessments are so out of balance he was skeptical of nearly every assessment before him.
Armed with information
The burden of proof is on property owners and many don't know how to prove the market value of their home under the city and state rules, said Mark Avery, who professionally appeals assessments in Metro Detroit.
The appeals process is spelled out by state law and involves at least 12 steps. First, Detroit owners can appeal to the city Board of Assessors in February, then the city's Board of Review in March and finally they can file with the Michigan Tax Tribunal.
Avery said homeowners often lose because they don't provide enough information about sales of comparable homes and miss deadlines, such as the tribunal's requirement that owners serve the city with evidence 21 days before the hearing.
Detroit resident Jedonna Young said she never understood why her state appeal failed to lower the city's $72,000 overall value of her mother's home. Her 85-year-old mother has lived in a 1,200-square-foot brick bungalow in the Grandmont-Rosedale neighborhood for more than 40 years.
Young wrote the appeal letter herself. At the hearing, she cited several nearby abandoned homes and two recent sales in the neighborhood, one for $20,000 and the other for $16,000.
That wasn't enough evidence, according to the state hearing referee. Young followed up with more paperwork, including a letter from a real estate broker who valued the 62-year-old house at $15,000. Again, her argument was rejected, this time because she didn't submit the broker's opinion on time, according to documents.
The denials made her feel "demoralized," Young said.
"If I had the money to hire a lawyer, I would have the money to pay my taxes," said Young, whose mother was facing foreclosure recently over her $2,800 a year tax bill until she got help from a state fund to reduce foreclosures. "You are forcing people out of their homes with these property taxes. That is when the decay starts."
She is one of 476 Detroit cases in the past three years in which the tribunal ordered no changes in property values.
The News' analysis didn't include those cases in its review because the city's records of tribunal decisions fail to indicate whether the assessments were upheld on merit or if the cases were dismissed because of missed deadlines or lack of evidence.
Tribunal officials said the procedures are dictated by state law. They dispute arguments that the process is cumbersome and contend most homeowners represent themselves with evidence in the informal process. They say the majority of statewide appeals are from homeowners, but couldn't cite statistics because tribunal records are kept on paper.
"Such evidence consists of testimony and documentation and the documentation can take time and money to produce," Peter Kopke, the tribunal's chief clerk, wrote in an email to The News.
Questioning valuations
Detroit officials argued only a small percentage of homeowners are upset enough to appeal to the state, but acknowledge The News' findings could indicate a broader problem with assessments. "It clearly doesn't represent the whole city but it is a worrisome percentage," Horhn said. "We have not done a full reappraisal ... and valuations are in question in a large part of the city."
It's unclear how long Detroit has gone without a citywide reassessment, but Horhn has said the last may have been in the mid-1960s.
City officials have said staffing problems were exacerbated by the 2008 housing crash. Even so, they said they've done their best, lowering the city's overall assessed value by 46 percent between 2007 and 2012.
The city has 11 appraisers for nearly 386,000 parcels. That's about 35,000 parcels per appraiser, a workload nearly nine times the state recommendation of 4,000 parcels per appraiser. And some state appeals were lost by assessors who failed to attend tribunal hearings, according to consultants at Plante and Moran.
Detroit is now trying to settle more cases before they are appealed. Small claims appeals to the state on Detroit properties, mostly residential, have fallento 1,300 this year from about 3,000 last year.
Michigan State University economics professor Mark Skidmore has studied Detroit's assessments and said the city must dramatically reconsider its system of valuing property. In a study last year, he found that many Detroit homes were valued by the city at more than 10 times their sale price.
"Get assessments right, even if you take a hit on taxes initially," Skidmore said. "It's the right thing to do."
Detroit News Staff Writer Mike Wilkinson contributed.