‘Easy politics': Why Duggan’s $420M plan to wipe out blight could fall short

October 13, 2019, 10:20 PM by  Violet Ikonomova

15444 Hazelridge Street, near where city officials formally unveiled a proposal to spend another $420 million on demolitions, appeared to have a family living in it before it was tax foreclosed in 2015. Less than $10,000 was owed on the property. It was demolished a year later for $15,000. (Photo: Google Maps)

Looking at pictures of the house on Linwood was too much for Stacie McKinney.

The images, before and after photos, showed the “labor of love” it was to restore the duplex — the only home the now-45-year-old has ever owned. Located on a tree-lined stretch near Detroit’s Martin Park, the house was gutted when McKinney bought it in 2010. But with help from a relative, she managed to restore the downstairs flat while living in the top, installing a new roof, electrical, plumbing, furnaces, hot water tanks and  even springing for luxuries like a wall-mounted fireplace.

For McKinney, homeownership represented “stability” and “a sense of pride.” Her plan was to rehab her unit with the income generated from renting out the downstairs.

But she never made it that far. In 2015, the home was foreclosed over delinquent taxes that, as a disabled veteran, McKinney should have been exempt from paying under state law. What she says happened was typical for Detroit at that time: The city said it never received the exemption form — which requires annual resubmission, and the county never noticed the house foreclosed, leaving her unaware of the outstanding bill.

McKinney says she lost the house for less than $3,000.

Three years later, with the property a boarded-up shell, the city of Detroit spent $20,400 in taxpayer money to demolish it — nearly seven times the amount for which it was foreclosed.

McKinney’s case is not unique. According to a Deadline Detroit analysis, from 2014 through August of this year, Detroit spent at least $23 million in federal and local funds to demolish 1,300 houses that were occupied and tax-foreclosed within that period — more than twice the back taxes owed on each property, on average. Another $5 million was spent demolishing 300 more houses that may have been occupied. To conduct its analysis, Deadline Detroit relied on data from the city of Detroit, Wayne County Treasurer, and Motor City Mapping property survey of 2014.

The delinquent taxes — an average of about $8,000 per house, based on the approximately 1,100 properties for which data was available — went largely unrecouped, as the majority of houses did not sell at the subsequent county treasurer’s auction. Instead, they entered government ownership to await demolition — a burden to be borne by taxpayers.

Separately, the city spent an estimated $34 million in public funds to demolish 2,200 homes bought and later abandoned by real estate speculators in the auction between 2005 and 2015, according to a new study from the Poverty Solutions initiative at the University of Michigan. 

Together, the findings underscore the extent to which tax foreclosure — and subsequent displacement and negligent ownership — has fueled Detroit’s blight crisis, raising questions as to whether the city can meet its goal of eradicating blight without more comprehensive reforms to address its root causes.

The vacant lot where McKinney's home once stood. (Photo: Violet Ikonomova)

Detroit Mayor Mike Duggan is proposing to spend $420 million in city funds to keep up the current pace of demolitions over the next five years to “wipe the blight out of this city once and for all.” The plan depends on voters approving a $250 million bond.

The program, in its sixth year, has taken down 19,000 houses with $330 million. Officials say 19,000 more remain.

Though the Duggan administration has taken some steps to shore up homeownership and curb speculation, and took another Wednesday in supporting a pared-down version of a plan to provide tax debt relief for some poor Detroiters, researchers and housing rights advocates insist more must be done. Their recommendations include overhauling the Wayne County treasurer’s auction, where speculators who often let houses deteriorate account for 90 percent of sales, and fundamentally changing the way the city taxes its largely low-income population.

Without such reforms, the city risks not wiping out blight “once and for all,” but continuing the cycle illustrated by McKinney’s experience, in which mistakes, mixed signals, and muddled policy put low-income but well-meaning homeowners out of houses that no one wants to buy, turning occupied structures into boarded-up wrecks awaiting demolition.

“We view helping people who are losing their homes as a bailout ... but what is ultimately happening when we demolish occupied houses is we're bailing out bad government,” said Michele Oberholtzer, director of the Tax Foreclosure Prevention Project at the United Community Housing Coalition. “We need to save these precious things rather than waiting for the convenience of vacancy to write a check to a contractor, which will not benefit anyone [but the contractor].”

Of course, tax foreclosure’s destabilizing effect on communities compounds the cost to the public. A neighborhood loses a resident who was part of its social fabric; a structure sits blighted for years, depressing property values; and, as in McKinney’s case, trauma is inflicted.

She canceled our planned meeting, saying revisiting memories of losing her home “brought back feelings of hurt, anger and depression” that took years to recover from.

“It’s just about money,” McKinney said in an initial phone conversation. “No one really cares about the blight. No one really cares about the fact that I was living in the house and that I was fixing the house. No one cares about the lives touched and changed and devastated by this whole situation. It’s all about money. Whatever company got the money.”

A new payment plan

Detroit’s tax foreclosure crisis hit its peak in 2015, as low-income residents struggling to rebound from the recession were hit by a perfect storm of high taxes, inflated property assessments, and limited options for relief. That year, more than 6,000 occupied houses were foreclosed. Today, thanks to increased outreach, the availability of a reduced-interest payment plan, and a city-run program that helps foreclosed renters buy their houses, the number is down to about 500.

But the metric — frequently cited by the Duggan administration — ignores the thousands of unoccupied properties that continue to cycle through the auction, where they’re often sold to negligent investors. And it belies the precarity that remains.

Though occupied tax foreclosures are down 94 percent from their peak, the number of tax delinquent homes has declined by only 13 percent. Approximately 35,000 Detroit properties are each year on the brink of foreclosure — meaning owners owe two or more years of back taxes. And as of last year, 30,000 households were on payment plans for back taxes, which advocates warn many homeowners won’t be able to pay off in their allotted five years.

“While there’s been progress, we could slide back incredibly easily,” UCHC Executive Director Ted Phillips told Michigan Radio in August.

Duggan unveils the "Pay As You Stay" proposal on Oct. 9. (Photo: Violet Ikonomova)

After questions from media, including Deadline Detroit, Duggan on Wednesday announced his support for a plan that would begin to chisel away at that tax delinquency by providing debt relief to eligible Detroit households earning less than $28,700 per year.

The so-called “Pay As You Stay” program would allow tax-delinquent residents who obtain a poverty tax exemption to enroll in a new payment plan that significantly reduces the back taxes they owe and eliminates interest and fees. The proposal requires passage in the state legislature.

“You'll never eliminate the blight if people keep moving out of their houses,” Duggan said, publicly acknowledging for the first time that tax foreclosure may stand in the way of his plan to “wipe out blight” by 2025. “And so what we have to do is make sure that we have a plan that people can stay.”

But the plan — a scaled-back version of a separate state House bill that would have simply erased the property tax debts of poor Detroiters — is unlikely to go as far as city officials claim and requires beneficiaries to jump through what advocates call unnecessary hoops.

Though the administration said the plan “would help more than 30,000 households,” fewer than 6,000 have applied for and received a poverty tax exemption in each of the past several years. The application requires annual submission and an appearance before a board.

Upon questioning, officials conceded that in order for the plan to have maximum impact, they would need to dramatically step up outreach efforts, which are largely dependent on philanthropies and non-profits.

Housing rights advocates, for the most part, hailed the plan as a key step in the right direction. But Edythe Ford, who spearheads tax-foreclosure prevention efforts in her east side neighborhood through a partnership with the Quicken Loans Community Fund, called it “bull crap,” noting that the three-year payment plan creates additional opportunities for error.

Edythe Ford leads a door-to-door foreclosure prevention campaign in her 48214 zip code, where more than a quarter of households are two to four years behind on their taxes. (Photo: Violet Ikonomova)

“They’re just giving us crumbs,” she said. “They need to just wipe that [debt] out. They’re never gonna collect on it anyway.”

Ford pointed to city government’s role in precipitating the crisis. Ten percent of tax foreclosures between 2011 and 2015 were the result of property assessments inflated by the city and 90 percent of homes valued at less than $18,500 are still overassessed, according to researchers in Chicago. The city was also accused of making the poverty exemption too difficult to obtain, and last year settled a lawsuit over the issue.

“They could have gotten people on these poverty tax exemptions before they got into debt,” said Ford. “And people [with years of delinquent taxes] are still paying on those over assessments.

“They don’t want to provide any real remedy for what they’re doing and that’s not fair.”

Fair and feasible?

Duggan vacillated between calling the payment plans a “fair way” to eliminate debts and claiming they would make the bill more palatable to lawmakers in Lansing, where both chambers are still dominated by Republicans. Asked what indication he had that outstate lawmakers preferred payment plans over straight debt elimination, he referred us to the Wayne County treasurer, who did not respond to a request for comment.

“The easiest thing in the world is for a politician to stand up here and say I’m in favor of everything for everyone when you know full well that when you actually get down to it, it’s not likely to get passed,” Duggan said.

Also scrapped for feasibility’s sake, a spokesman for Duggan confirmed, was a portion of the proposal that would have eliminated the need for residents to apply for a poverty exemption each year.

House Bill sponsor Wendell Byrd, a Detroit Democrat — who once proposed a bill that would have wiped all tax debts for the city’s poor — told Deadline Detroit last week that he prefers his original plan, but couldn’t push forward on legislative hearings without buy-in from Duggan and Sabree, who have both said such a plan would be unfair to residents who did pay their taxes.

Duggan pushed back on the notion that the new proposal doesn’t go far enough and, in an email, his spokesman, John Roach, said the administration has done more than any other to address blight’s root causes. Duggan lobbied the Legislature for a reduced-interest payment plan in 2014 and, since the ACLU settlement, the city has exercised its so-called right of refusal to take about 1,000 foreclosed houses off the auction track and turn the renters who lived in them into owners.

But truly stabilizing reforms require more significant policy changes at the state level, said Alexa Eisenberg, a University of Michigan doctoral student who’s conducted extensive research into Detroit’s poverty tax exemption program.

Approximately 17,000 occupied houses were auctioned in Wayne County from 2014-18. (File photo)

"So long as poor people have to fill out an application every year to get their taxes waived — and the local government has to foot the bill for waiving them — we are not likely to have a real solution,” she said. “More likely, some token fraction of eligible homeowners will gain access to the exemption, while in the meantime we will just bleed low-income homeowners until the city runs dry. "

Exempting owner-occupied residential properties from taxation entirely was one possible intervention presented this year by the national Center for Community Progress (CCP), in a document detailing  dozens of potential policy changes that could prevent foreclosure in Detroit. The CCP document, which did not endorse any specific changes, noted the city could make up the “small” difference in revenue by increasing the income tax, creating “an incentive for people to come back to the city and invest in neighborhoods.”

Detroit derives just 2 percent of its revenue from property taxes on owner-occupied homes.

Other ways the city could reduce the property tax burden on residents, the CCP wrote, include:

  • Using grants to buy down property millage rates, as Kalamazoo recently did.

  • Diversifying tax revenue streams through, for example, an entertainment tax.

  • Eliminating fraudulent principal residency and non-profit exemptions. Properties with tax-exempt status make up about 20 percent of Detroit’s land area.

According to the CCP's preliminary assessment, only one of those proposals requires a change in state policy. The city could implement the rest on its own.

Or there’s Oberholtzer’s more radical, straight-forward idea: A $250 million bond to pay off residents’ back taxes. Afterall, she noted, the federal dollars with which Detroit is demolishing houses were intended to help keep people in their homes in the wake of the mortgage crisis. It was only after the state made eligibility requirements too stringent that the money was repurposed for demolition.

'Complete disconnect'

Since around its 2014 inception, Duggan’s demo program has been steeped in controversy, amid a federal investigation and public health concerns.

But less attention has been paid to whether the program is smartly managed and paired with the right policy components to limit the spread of blight in the first place. Thus far, the program appears to be playing catch-up with newly forming blight, based on the ever-growing number of abandoned houses reported by the city. In mid-2017, Duggan projected that by the end of that year there would be up to 20,000 houses left to demolish. Today, he’s seeking funds to take down 19,000 houses starting in 2020. About 6,500 demolitions will have occured in between.

Duggan pitches a $250 million demolition bond from a vacant lot on Hazelridge Street. (Photo: Violet Ikonomova)

With Wednesday’s debt relief proposal, Duggan for the first time hinted that tax foreclosure may be causing that blight to spread, saying that “having thousands of residents secure in their homes” means “not having to pay for demolitions of new homes.” 

It was a reversal from his position three weeks prior, when he formally announced the $250 million demolition bond initiative. At that point, he did not yet support additional foreclosure interventions, and dismissed Deadline Detroit’s question of whether he would do so as a means to help curb blight.

Our question, he said, represented “the complete disconnect between what we hear and what people in the neighborhoods know.”

“Here’s what people in the neighborhoods know: 250,000 people moved out of the city between 2000-2015,” he said. “They didn’t move out because of tax foreclosure.”

Duggan spoke from a vacant east side lot where the home that once stood was foreclosed in 2016 after a series of sales between speculators, the last of whom scooped up the property from the Wayne County treasurer for just $500. Sixty-two of the 70 dilapidated or already demolished structures within a two-block radius have been tax foreclosed, according to data from Loveland Technologies.

“Demolition, unfortunately, is easy politics,” said Joshua Akers, an assistant professor of urban studies at the University of Michigan-Dearborn and co-author of the study that found speculative auction buying has resulted in an estimated $34 million in demolitions. “It's something tangible and visible in the neighborhood that the mayor can point to as having done something … without addressing the broader systemic issues [causing blight]. And those systemic issues are much harder to address because it's harder for people to see that you did something, and it only changes over the long term.”

Tackling speculation

For Akers, eliminating blight requires a multi-pronged approach that not only keeps current occupants in their homes, but discourages irresponsible investment.

While speculation’s role in a home’s decline can be hard to trace, Akers’ and Deadline Detroit’s data suggest it may be an even greater blight driver than occupied tax foreclosures on their own.

Ninety percent of buyers at the annual tax foreclosure auction are speculators who, at worst, suck the value out of properties by renting them out, failing to make repairs and evicting tenants. Eventually, they discard of them via tax foreclosure, putting them on the path to publicly funded demolition. According to the research by Akers and co-author Eric Seymour, an estimated one in nine Detroit demolitions over the past six years originated with a speculator’s tax-auction purchase between 2005-2015.

And the number will only grow, Akers said, as thousands of properties remain in the hands of these negligent owners.

In their study, Akers and Seymour suggest a number of reforms to address the issue.

They include:

  • A moratorium on the Wayne County Tax Foreclosure Auction “to allow for a comprehensive reassessment of the process to prevent bulk buyers and speculators from adding to their portfolios.”

  • Limiting evictions by requiring 36th District Court to recognize tenants' rights under a new rental ordinance, thereby forcing bulk buyers to care for their properties or giving tenants a shot at eventually purchasing them. (The city recently took a step toward this end by intervening in a case involving a tenant who’d withheld rent. The judge sided with the tenant.)

  • Strategically targeting bulk buyers and speculators through the Detroit Land Bank Authority’s nuisance abatement program. Right now the program also targets individual owners and does not pursue properties based on recent sales data or ownership information. It’s also only in effect in areas of higher occupancy.

Implementing some of the recommendations, Akers says, may be “beyond the city's control, but at the same time, these branches work together all the time. It just takes commitment and political leadership to make it happen.”

Asked Wednesday whether he planned to pursue additional foreclosure interventions beyond the new tax debt-relief program, Duggan said no, that the policy would “make a big dent” if passed. (On Sunday, Roach said in an email that “we are constantly evaluating the data to determine possible additional future approaches [to preventing blight], if needed.”)

Warren Hargo, III. (Photo: Violet Ikonomova)

A disabled veteran who was held up as a potential beneficiary of the proposal was more dubious.

Warren Hargo III, 44, explained at the news conference that he’d inherited his grandmother’s home — “a money pit” that came with a hefty tax bill and required countless repairs including a new roof, windows and electrical.

Hargo now owes $16,000 in back taxes from 2013. As a disabled vet, he qualifies for the same exemption Stacie McKinney did, but never obtained it.

“Sometimes your head be here, sometimes it don’t,” he said when we caught up with him on his way out of the event. “I was so caught up paying the back taxes and doing the upkeep that I forgot to even apply.”

We asked if he felt the city’s new plan — with its requirement that participants file for an exemption each year and make monthly payments — would help him.

“I think it’d be alright as long as you just remember to apply,” he said, adding that he was ultimately relying on the United Community Housing Coalition to remind him.

“I wonder how this gonna go,” he said. “It sounds good as usual, but who knows.”

Jack Thomas contributed information gathering. Data was cross-checked with deed records provided by Outlier Media, which did not otherwise contribute to this report.

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