Aside from shutting off water to Detroit residents, no public policy draws so much criticism as the annual Wayne County auction of tax-foreclosed properties.
For good reason, too. In recent years, thousands of owner-occupied Detroit homes have been seized by the Wayne County Treasurer's office for non-payment of property taxes.
When the county puts these houses out to auction, it threatens to boot residents out of their homes. Often the houses wind up in the hands of absentee landlords, and the displaced residents wind up in shabbier housing elsewhere.
Everyone knows that's bad public policy. But what to do about this? The auction is baked into state law, so reforming the practice would take the cooperation of state officials.
But it could be done. Here are a couple of ideas to nudge the debate forward:
The most dramatic idea comes from John Mogk, the long-time law professor at Wayne State University who is an expert on urban affairs. Mogk recommends abolishing the property tax on owner-occupied housing in the city.
"Tax foreclosures on homeowners are reaping family hardship and destabilizing the city's neighborhoods," Mogk said. "The city should take steps to abolish the residential real property tax on homeowners for the good of Detroit residents, its neighborhoods and the city's future."
Mogk cites several reasons to abolish the property levy on owner-occupied houses.
First, the city's property tax on owner-occupied single-family houses represents a relatively small portion of the city's municipal revenue. Property taxes as a whole, including commercial property, contribute no more than 10% to 15% of the city's revenue. The city's income tax, casino tax, and property tax on commercial properties would still be there.
So ending the property tax on owner-occupied houses could happen without major loss of cash to the city provided an alternative replaces it.
Second, many Detroit homeowners remain just too poor to pay it, even with various assistance programs out there today. With poverty in the city near 40%, paying a couple of thousand dollars in property tax just isn't possible for many Detroit families when food, transportation, child care and other daily needs come first.
Third, the displacement of families is driving a transition from owner-occupied housing to a majority rental market in Detroit. That's a worrisome trend, given that some landlords (by no means all or even a majority) are more interested in collecting rent than in providing decent housing.
And speculators who snatch up many properties in the county's annual auction are often interested only in flipping the properties as soon as they can, continuing the cycle of abandonment and foreclosure.
How to replace the property tax on owner-occupied houses? Mogk suggests some possible alternatives.
One is to maintain the property tax only on landlords and commercial property but add a local sales tax to replace the revenue derived from taxing owner-occupied homes. Raising the tax on commercial properties is another possibility.
Another idea, admittedly controversial, is to impose a small tax on nonprofit institutions in the city such as hospitals, universities and churches.
None of those would be easy to do. But at least Mogk is offering ideas to start the conversation.
Another idea: Let the City of Detroit, which can take title to the foreclosed properties through right of first refusal, become a landlord to the residents of owner-occupied houses.
Keep the residents in their houses, charge them a modest monthly rent, use some of the revenue for administrative costs and upkeep of the properties, and eventually let the residents apply the rent to repurchase their house. Probably the Detroit Land Bank Authority would run such a program.
This idea would take some doing to set up and administer. But as an alternative to throwing families out of their houses, it has merit.
Here's the rub: Even as the foreclosure crisis continues, the difficulty of changing state law means we shouldn't count on getting innovative reform.
Perhaps the best we can hope is for more of what we see now — tinkering that helps only at the margins of the problem. Things like mortgage assistance programs, installment payment programs, financial counseling, lowering assessed values to lower tax bills, and the like.
Those aren't enough, though. As Mogk says, "That lessens the pain but it doesn't cure the problem."
The annual tax-foreclosure auction is bad for families caught up in it and it's bad for the city. Something more dramatic must be done.
