Exploring the criticisms of Detroit’s Land Value Tax Plan: Do they have merit?
Detroit’s Land Value Tax (LVT) plan has generated considerable discussion within the City and beyond. Many support the plan for its potential to transform Detroit’s tax system, promote development, and provide tax relief for homeowners. However, skeptics have expressed some recurring concerns, which must be taken seriously if the LVT plan is to be implemented with broad buy-in among Detroiters. In this blog post, we will explore the merits of the common objections which have been raised about this proposal to shift Detroit’s tax burden onto land and off of buildings. We will then conclude with a short journey through some of the individuals and organizations that have written in support of this potentially transformative tax policy.
“The LVT plan will slash the City’s operating budget.”
Some critics of Mayor Duggan’s plan have expressed concerns that it will cut the City’s operating budget, reducing the funds available for vital city services. They need not worry, however, as the LVT plan has been explicitly designed to be revenue-neutral: tax rates on buildings will be cut by 14 mills (from 67 to 53), but this is offset by a near-doubling of taxes on land (from 85 to 189 mills), leaving the overall City budget at the same level overall.
The confusion appears to be caused by materials introducing the LVT plan stating that the plan will cut the ‘Detroit Operating’ millages (see here for example), which certainly sounds like it implies that operating budgets will be reduced. However, the reason that this is the mill rate being adjusted is that it is the only one that the City is able to adjust on its own, so this was the only rate that could be reduced to generate the tax discount for buildings. Elsewhere in those same policy introductiones, it is clear that additional revenues will be generated by the higher tax rate on land, producing a revenue-neutral outcome. This shift in the tax burden ensures that homeowners pay less while land speculators contribute more, maintaining the city’s operating budget.
“This will gentrify the city by forcing out homeowners who cannot pay the tax.”
While property tax foreclosure has indeed caused problems for Detroit’s struggling homeowners in the past, skeptics of the LVT plan need not be concerned that this will be exacerbated by the plan. Quite the opposite is true: the LVT plan will reduce property taxes for 97% of homeowners, making homeownership more accessible and affordable. Indeed, detailed studies by the Lincoln Institute of Land Policy found that a shift towards a split-rate land value tax would actually reduce tax foreclosures, tax delinquency, and increase homeownership rates overall in Detroit.
Individual homeowners can use this Land Value Tax calculator to see for themselves what the impact will be for their property.
“The LVT plan is just a handout to developers.”
This is a frequent concern among critics of the LVT plan, who say that by reducing tax rates on buildings, it will merely boost the profits of developers. In some ways this is absolutely correct, the LVT plan does reward construction, and is forecast to boost both construction and business starts. It achieves this by shifting the tax burden onto land speculators, such as the landowner highlighted by Mayor Duggan who owns 22 acres of vacant land and pays just $30 in property taxes per lot. These critics will have to decide whether they believe developers or speculators are more harmful to today’s Detroit.
However, it is important to highlight that while the LVT plan does reward construction, it also offers substantial benefits to homeowners as well. It rewards both renovation and maintenance of one’s home, is forecast to increase property values overall, and provides tax relief to the vast majority of existing homeowners. By penalizing speculation and rewarding renovation and redevelopment, the LVT plan will help Detroit to move “from blight to beauty”.
“We don’t trust the City to assess land values fairly.”
Detroit has a troubled history with property taxes, after a 2020 audit found that property values had been systematically overassessed, leading to $600 million of overtaxation. It is therefore quite understandable for skeptics of the LVT plan to be concerned that the LVT plan may create new opportunities to repeat the mistakes of the past and inaccurately assess land values. This is entirely reasonable, and we are hopeful that the City will work towards rebuilding trust with a transparent and inclusive process whenever land values are being reassessed.
Signs are promising in this regard, with Assessor Alvin Horhn explaining at public discussion sessions about the LVT plan that he was appointed explicitly to address past inequities and overtaxation of low-income homeowners, and that he has been told very clearly by the Mayor “do not let that happen again”. He is confident that his department is well-equipped to assess land and building values fairly and accurately.
We also note yet again that the design of the LVT plan will result in tax cuts for 97% of homeowners, with the tax burden shifted onto the owners of vacant land and underutilized commercial and industrial land. By easing the tax burden on Detroit’s homeowners, the LVT plan will help to repair the harms of past overtaxation.
“There needs to be more time for public consultation.”
Several members of the Detroit City Council have opposed votes on the enabling legislation in Lansing primarily out of a belief that the LVT plan does not allow enough time for public consultation and debate before going onto the city ballots in February 2024. Thankfully, this concern has been heard and responded to, with a revised timeline presented at public outreach sessions in late October 2023 indicating that Detroiters will now be invited to vote on the plan concurrent with the presidential election in November 2024. This ensures that there will be ample time for discussion and input before, ensuring that all voices can be heard and considered before the public decides whether to proceed with the plan.
Support for the Plan
Not all public commentary on the LVT plan has been negative, however, with many residents and experts alike speaking out in support of the plan, in both local and international contexts. Some examples include:
- Flor Rivera-Hernandez, president of the Livernois Dragoon Block Club, praised the LVT plan for providing tax breaks to homeowners in her neighborhood, especially younger aspiring homeowners.
- Alex Alsup, a Detroiter and expert on property data & research, explained in the Detroit Free Press that the LVT plan is about speculators versus homeowners, emphasizing that Detroiters are currently paying speculators’ property taxes.
- James M. Hohman supports the plan for punishing land speculation and encouraging redevelopment, aligning with the plan’s core objectives.
- Rip Rapson and Wendy Lewis Jackson of the Kresge Foundation, as featured in Bridge Detroit, commend the plan for modernizing the tax structure, asserting that it is critical to progress and will provide long-overdue relief for overtaxed homeowners while making Detroit attractive for investment.
- A report by Detroit’s Legislative Policy Division, CFO, and Office of the Assessor indicates that the LVT plan could reduce taxes on homeowners while promoting development.
- Esmat Ishag-Osman from the Citizens Research Council of Michigan believes that the plan should spur downtown development and “overwhelmingly benefit residents.”
- Konrad Putzier at the Wall Street Journal highlights Detroit’s aim to spur new housing and boost property values with the tax change, signaling the plan’s potential for revitalization.
Detroit’s Land Value Tax has already garnered lively debate from all corners, producing a combination of strong endorsements peppered with a range of concerns from citizens seeking the best for the Motor City. However, as this article has explained, the majority of these concerns are either misguided or have already prompted tweaks to the plan. This should provide a strong foundation by which the enabling legislation can be approved by state representatives in Lansing, freeing Detroiters to move forward with public discussions of this transformative tax policy, working together to design the policy to promote a fairer, more equitable, and economically vibrant future. The LVT plan represents an opportunity to reshape Detroit’s tax landscape and build a stronger, more prosperous city for all its residents.