John Anderson, Baird Family Professor of Economics at the University of Nebraska–Lincoln, served as lead researcher for a study on reforming Detroit’s property tax system. Recently featured in the Wall Street Journal, the team of public finance experts found that taxing land at a higher rate than buildings, known as split-rate property tax, would help revive the local economy and reduce tax bills for nearly every homeowner in the city.
“Detroit has suffered serious decline over the past decades due to industry restructuring, social unrest and other factors that have resulted in a sort of fiscal death spiral. Abandoned homes, large swathes of vacant land and declining real estate values are the symptoms. No new development or redevelopment takes place without property tax incentives, such as reduced tax on building structures or improving existing structures. Something different needs to be done,” said Anderson, who often collaborates with public experts at the Lincoln Institute of Land Policy in Cambridge, Massachusetts, where the study originated.
Named a Lincoln Institute Distinguished Scholar, Anderson's expertise and ties to Michigan drew him to the project. Having earned his high school diploma and a bachelor's degree in Michigan, he formerly worked at Eastern Michigan University and served as a visiting professor at Michigan State University after earning his Ph.D. in He California at Claremont Graduate University. . He also authored numerous articles and book chapters on split-rate property taxes and land value taxes projects, often working with the Lincoln Institute to recommend creative approaches to land as a solution to economic, social and environmental challenges.
“Our work for the Lincoln Institute integrates theory and practice to inform public policy decisions worldwide. When asked to lead the Detroit study in January 2020, I worked with them to draw on a team of experts in public finance and urban economics,” said Anderson, who served as the State of Michigan’s Deputy State Treasurer for tax and economic policy in the 1980s and co-authored a book evaluating the effectiveness of the economic development incentives used in Detroit in 2000.
The study, "Split-Rate Property Taxation in Detroit: Findings and Recommendations," finds that taxing land at five times the rate for buildings and improvements would result in lower tax bills for 96% of homeowners, with an average savings of about 18%. Under a revenue-neutral reform, tax increases on vacant and underutilized properties would fully offset tax savings.
“By adopting a split-rate property tax, Detroit can make its tax system both more efficient and more equitable. Efficiency is enhanced by removing tax-related barriers to capital improvements and development. Equity is enhanced by a reduction in taxes for the vast majority of residential homeowners,” said Anderson.
Co-author Nick Allen formerly managed strategy and policy for the Detroit Economic Growth Corporation. Now a doctoral candidate at the Massachusetts Institute of Technology, he brought the project to the Lincoln Institute.
“Splitting the property tax provides long-time Detroiters with the tax relief that new businesses and residents already receive,” said Allen. “Our study shows that it is an effective, immediate way to permanently reduce burdens on overtaxed households and restore property wealth. It’s not enough, but it is a required step towards racially equitable recovery.”
The study team noted how a split-rate tax increases the cost of holding vacant land and reduces the cost of developing it or renovating deteriorated buildings. Reduced tax burdens and accelerated investment led to an average increase of 12% in the value of residential property and an increase of 20% for commercial property. In a supporting technical paper, the team also found that the proposed 18% reduction in residential taxes would reduce residential tax foreclosures by at least 9%.
“Implementation of a split-rate tax in Detroit offers an opportunity to strengthen the property tax system by increasing efficiency and reducing property tax inequities and tax foreclosure,” said Michigan State University economist Mark Skidmore, a co-author of the study.
Commissioned by Invest Detroit with support from The Kresge Foundation, the study analyzes data from municipalities in Pennsylvania that implemented split-rate taxes as well as real estate and property tax data from Detroit. Additional co-authors included Fernanda Alfaro of Michigan State University, Andrew Hanson of the University of Illinois at Chicago, Zackary Hawley of Texas Christian University, Dusan Paredes of Northern Catholic University in Chile, and Zhou Yang of Robert Morris University.
“If we are to continue the momentum of Detroit's positive, equitable growth, we must transform our property tax structure to alleviate the burden on majority Black homeowners and local developers,” said Dave Blaszkiewicz, president and CEO of Invest Detroit. “This report provides a solution that accomplishes that while also disincentivizing blighted and underutilized properties that hinder Detroit's growth.”
Three technical papers produced by the team to support the study were published in a special issue of the peer-reviewed journal, Public Finance Review (Volume 50, Issue 6, in 2022): “Assessment of Property Tax Reductions on Tax Delinquency, Tax Foreclosure, and Home Ownership,” “Split-Rate Taxation and Business Establishment Location Evidence from the Pennsylvania Experience,” and “Split-Rate Taxation: Impacts on Tax Base.”
“With this analysis, Invest Detroit has elevated an equitable approach to taxation that can bring much-needed relief to tax-burdened Detroiters while encouraging investment and growth. This is a timely idea that addresses an urgent concern. The highly regarded Lincoln Institute of Land Policy has now provided a solid framework for community discussions,” said Wendy Lewis Jackson, managing director of Kresge’s Detroit Program.
The full report is available for download on the Lincoln Institute’s website.
