Detroit’s Housing Debacle

The foreclosure of homes in Detroit for unpaid mortgages and taxes during the “Great Recession” (2007–2009) was a disaster for the City. The subprime mortgages of the early 2000s allowed people to easily acquire homes but pushed up home values greater than they were actually worth. When the economy crashed and people lost their overtime and jobs, or their adjustable mortgages were reset and increased the monthly payment many of them were unable to pay their mortgage and property taxes. As a result, over a hundred thousand homes were lost to foreclosure. The abandonment of the homes and blight that followed was a major contributing factor to the loss of population and tax base for the City and subsequent bankruptcy.

Governor Rick Snyder said Detroit’s finances were “a problem 60 years in the making”. In six decades, Detroit lost more than 1 million residents and its total property value shrank from $37 billion to $9.4 billion in 2012 dollars. Over that time the City’s median wages went from among the best in the nation to among the worst.

Many of Detroit’s neighborhoods had grown around factories. Pictures of the factories in the 1940s show them surrounded by single family homes. The City was the “Arsenal of Democracy” in World War II. The automotive factories were converted for war production to build the tanks, planes, trucks, artillery and other armaments. Many factories were huge typified by the Packard Plant on East Grand Boulevard, which employed more than 30,000 workers during World War II. Some 350,000 people moved to the City seeking work during the war.

After the war, the auto industry deemed multi-story plants inefficient. Manufacturers favored sprawling, single-story facilities that extended assembly lines and covered hundreds if not thousands of acres. From 1945 to 1960, car companies built 33 plants in Metro Detroit. None were in Detroit. The City stopped annexing additional land in 1926. Manufacturers had to build their new factories outside of Detroit.

Government policies encouraged suburban growth. The City’s congestion, deteriorating housing and new highways made it easier for residents to leave. Most Blacks had nowhere to go. They were confined to pockets of the City, hemmed in by Federal housing policies and activist groups that enforced segregation.

By the end of the 1950s, the suburbs were the popular place to live. Northland Center in Southfield, then the world’s largest shopping center had opened in 1954. The Detroit Water and Sewer Department began expanding water and sewer infrastructure to farm fields. By decades end, 1 of 4 White residents would leave the City.[1]

The GI bill provided low cost loans for the war veterans to purchase homes. In 1949, Congress passed the American Housing Act. For the first time, homeownership required only 3 percent down for a low interest rate mortgage. The Federal Housing Administration (FHA) guidelines favored mortgages in the new suburban developments that were popping up to meet postwar demand and actively discouraged their use in older, inner City neighborhoods.[2]

Armed with the new FHA product and veterans loans, White workers moved with their companies to the suburbs, trading in their houses in what had become a racially mixed City for a home in the virtually all White suburbs. Rather than congregate with others on the way to work in a streetcar, they drove past sprawling suburbs on the new highways lobbied for by the auto companies and built at taxpayer expense.

For Black Detroit, the story was quite different. Nearly two hundred thousand African Americans had moved to Detroit since 1930, and by 1950 Blacks accounted for 16.8 percent of the City’s population. While they might have wanted to follow the jobs that moved to the suburbs, they could not. With equal housing laws still in the future, they were excluded from buying in the suburban housing developments by developers and real estate agents. Nor could they get FHA loans to buy or improve homes in the City neighborhoods where they could live because the government considered such loans too risky.[3]

Thomas Sugrue, the well-known historian, wrote extensively about the racial conflict in Detroit and I have summarized portions of it below.

In the 1930s, the federal government, through the FHA and the Home-Owners Loan Corporation, discriminated against Blacks by granting low-interest loans and mortgages to White homeowners only. The Federal government encouraged the use of racially restrictive covenants and, in one case, refused to make loans to a developer for a housing development project unless he built a six-foot high wall to separate his property from property owned by Blacks.[4]

Throughout Detroit’s history, White homeowners frequently greeted Blacks who attempted to move into White neighborhoods with violence that forced them to leave. For example, when a Black physician named Ossian Sweet and his family moved into an all-White neighborhood in 1925, a mob of several hundred White neighbors attacked their home.[5] He and associates used a firearm for self-defense, resulting in the death of one of the mob members. They were charged with murder. Dr. Sweet, his family and friends were acquitted by an all-White jury at their trial.

In 1942, a mob of over 1,000 Whites many of them armed members of the Ku Klux Klan vowed to prevent Blacks from entering into a segregated, Black housing development because it was too close to a White neighborhood. Thousands of police officers and National Guardsmen were called in to prevent a major riot. [6]

By the 1940s, 80% of property in Detroit outside of the inner City was subject to racial covenants, which White residents established neighborhood associations to enforce. In 1945, after a middle-class Black couple, Orsel and Minnie McGhee, purchased a home in an all-White Detroit neighborhood, White neighbors sued to enforce the racial covenant. The Wayne County Circuit and Michigan Supreme Courts ruled that the covenant forbade the McGhees from owning property in that neighborhood. In 1948 the United States Supreme Court heard the case and a related case — Shelley v. Kraemer and held that racially restrictive covenants violated the Equal Protection Clause of the 14th Amendment of the U.S. Constitution.

Despite the 1948 Supreme Court ruling outlawing racially restrictive covenants, real estate agents, developers, banks, and neighborhood associations acted in ways that continued to enforce racial segregation. Twenty-five Detroit homeowner associations filed an amicus brief in support of the White homeowners seeking to uphold the restrictive covenants. Real estate agents refused to show Blacks homes in all-White neighborhoods, and banks refused to award Blacks conventional mortgages. Contractors found it impossible to get financial backing to construct homes for Blacks in White neighborhoods. A citywide association of homeowner groups called the Federated Property Homeowners of Detroit created a network to monitor the selling of homes to Blacks and harassed real estate brokers who sold homes to Blacks.

Throughout the 1950s and 1960s, many landlords openly refused to rent to Blacks, and those who would rent to them often charged 20–40% more than they charged Whites. The government in Detroit enforced racially segregated public housing, and Mayor Albert Cobo used his veto power to stunt integration and public housing sites in White areas of the City.

Between the mid-1950s and mid-1960s, there were over 200 recorded acts of White neighbors harassing or committing violence against Blacks attempting to integrate White neighborhoods, including the staging of mass protests, breaking windows with bricks and other items, throwing paint on houses, burning effigies and crosses, and physically attacking Black homeowners.[7]

Beginning in the 1950s, the City began demolishing culturally rich neighborhoods such as Black Bottom and Paradise Valley on the east side. Eventually the land became Interstate 75 and the Lafayette Park high-rise complex. It was called Urban Renewal. It was known as “Negro removal” and thousands were forced from their homes. They displaced hundreds of thousands of Blacks and did it overnight. It was disastrous.[8]

Black neighborhoods, became even more isolated. Making things worse, as Federal dollars were transferred to road building, public transit dollars dried up, and in 1956, with the active lobbying of the auto companies, the City’s streetcar system disappeared, leaving no reliable public transportation.[9]

A Brookings Institution study revealed that Detroit holds the distinction of having the greatest “job sprawl,” with 77 percent of available jobs more than 10 miles beyond the City’s core.[10] As a result, Black Detroiters without automobiles had a more difficult time finding employment.

In the 1960s, at a time of full employment in the nation, White unemployment in Detroit stood at 7 percent and Black unemployment at 13.8 percent. By 1970, the Black male unemployment rate stood at 18 percent.

As people left the City for the suburbs, the tax base and City revenues declined. Mayor Jerome Cavanaugh pushed through the City’s first income tax on residents and commuters in 1963. His predecessor Louis Miriani had passed a massive property tax increase. So began a series of cash infusions that would bridge the gap for about a decade until the next crisis. It continued for decades until Detroit had the highest tax rate of any big City in America. People kept leaving, but the City’s government workforce was not equitably downsized. Once jobs were created, they were hard to get rid of.[11]

Black’s frustration over police tactics, housing, unemployment and the pace of the Civil Rights movement led to riots/rebellions in Buffalo, Cincinnati, Newark and Detroit in the summer of 1967. Many more Whites left the City after the 1967 riot/rebellion. As Whites moved out Blacks moved in.[12]

Even after the White flight, Black residents of Detroit had tremendous difficulty obtaining mortgages due to “redlining”. Additionally, real-estate agents continued to steer prospective Black home-buyers away from predominantly White neighborhoods into lower-priced, predominantly Black areas of the City.[13]

The City’s influence in Lansing had fallen with its declining population and economic clout. In 1970 Detroit was home to 60 percent of the region’s jobs and 20 percent of those in the State. By 2000, one-third of the region’s jobs were in Detroit and only 6 percent of the State jobs. In the late 1990s Governor Engler signed a series of laws that would have been unthinkable when Detroit was Michigan’s economic engine. In 1999, State Republicans eliminated residency rules for municipal workers in Detroit and other cities and removed the DPS’s Board of Education amid accusations of mismanagement. A year earlier, the State agreed to a deal that gradually lowered Detroit’s income tax in exchange for more revenue sharing. Within a few years, the State would break its agreement for revenue sharing.[14]

In the 1990s and early 2000s, certain banks and mortgage companies that had previously engaged in redlining in Detroit started a practice called “reverse redlining.” Motivated by the billions of dollars being made on Wall Street in the mortgage-backed securities market, lenders began targeting Black communities in Detroit where credit was traditionally unavailable and pushing the sale of high-interest, high-risk, subprime mortgages. In contrast to mortgages offered to White homeowners in the suburbs, unsavory sellers pushed Detroiters into non-traditional mortgages knowing full well that the buyer would not be able to afford the higher adjusted payments when they became due.

When the bubble in the real estate market burst in 2008, tens of thousands of Detroit homeowners were forced into mortgage foreclosure. Reverse redlining had a disparate impact on Blacks and devastated previously stable neighborhoods in Detroit.[15]

Around 2001 Coach brought Bill to our “Detroit Downtown Runners and Walkers” group. Bill was an old high school friend of Coach. Bill was making tons of money originating loans. Bill seemed sad. He drank too much and he just seemed unhappy. Coach worked as a landscaper and doing odd jobs just barely getting by. Bill gave Coach a job originating mortgages. He was making good money. Both of them talked about how much money was to be made and how many loans they were originating. My sister who worked for Citibank was busy and working overtime copying mortgage files that had to do with the mortgage boom in the early 2000s. At the time, little did we know that this was the beginning of the foreclosure crisis for Detroit. Mortgage regulations had been eased under President Clinton’s Administration. People who should never been approved for mortgages were getting them.

When I worked for the HUD Inspector General we would look for banks that had a large number of foreclosed FHA/HUD insured mortgages. The rule of thumb was that the mortgage not be more than two and a half times the annual salary of the buyers. We looked for mortgages that the borrowers made no or few payments on them. These borrowers had no intention of making the payments or living in the house. They were known as straw buyers. The mortgage company would falsify their application, inflate their income and do everything to make them eligible. We would find that the bank or their employees were obtaining borrowers to enlarge the number of mortgages they could originate. They could sell these mortgages to the Government National Mortgage Association (GNMA) or other markets along with the risk of default. They profited from the sale and had no risk if the buyer defaulted on the mortgage.

The City of Detroit suffered from predatory lending practices triggered by subprime lenders. Subprime lending involved loans made at relatively high rates of interest to borrowers with high credit risk who did not qualify for conventional loans. Over the course of several years, financial institutions routinely made money available to unqualified borrowers who had no realistic means of keeping up with their loan payments over the long term. A large number of defaults inevitably followed, and the ensuing foreclosures left houses abandoned, transforming them into eyesores, fire hazards, and targets for both looters and criminals.[16]

Subprime market mortgage loan brokers and originators were paid out of the closing costs and the proceeds of selling loans to secondary market participants. Loans were packaged into financial instruments called mortgage-backed securities (MBS) and sold to investors. The more loans originated the more money the broker or originator made. Similarly, other things being equal, the larger the loan, the higher the commissions, closing costs, and sale proceeds that a broker or originator earned. This created a strong incentive for brokers and originators to cut corners in the mortgage process. It also created an incentive for brokers and originators to encourage consumers to borrow more money than they could afford. Moreover, brokers and originators had an incentive to put tremendous pressure on appraisers to appraise home values higher and higher in order to facilitate the ill-advised loans.

In this skewed process, “securitizers,” in the secondary market typically paid themselves high fees in putting together new offerings of MBS. They allowed loans to borrowers either on financially irrational terms or without any information to corroborate the borrowers’ ability to pay to keep new mortgages coming for the creation of still more MBS.

In the early 2000s homes in our neighborhood were selling for $150,000. They were super inflated, but it was easy to get a mortgage and people purchased the homes. Others refinanced their homes to have money for whatever they needed. When the City’s residency requirements were lifted around that time most of the White neighbors moved out and were replaced by many new homeowners who obtained subprime mortgages. The mortgage originators like Countrywide didn’t care if the mortgages were repaid because they packaged them and sold them as MBS. What we saw at HUD with the straw buyer scams while mortgages were relatively better regulated in the early 1980s occurred on a grand scale with the subprime mortgages originated in the late 1990s and early 2000s.

The popularity of the subprime mortgage financing grew steadily during the 1990s, than exploded at the turn of the century. Between 2000 and 2006, the number of subprime mortgages in the United States jumped by more than 250 percent, from 911,369 to 3,219,749. In 2005 alone, the aggregate amount of subprime mortgages made in the United States exceeded $660 billion.

Approximately two-thirds of all mortgage debt in the United States had undergone “securitization”. A substantial portion of this total comes from government-sponsored entities like the Federal Home Loan Mortgage Corporation (“Freddie Mac”), Government National Mortgage Association (Ginnie Mae), and the Federal National Mortgage Association (“Fannie Mae”). As a general rule, Freddie Mac and Fannie Mae deal in “conforming mortgages” that meet certain restricted “borrower quality characteristics and loan-to-value ratios.”

In contrast, Wall Street relied upon subprime mortgages to fund their MBS offerings. These securities offered investors higher rates of return than those backed by “conforming mortgages,” since they involved higher rates of interest. They also involved higher degrees of risk, since subprime borrowers with their relatively poor credit defaulted with greater frequency than recipients of loans at the prime rate.[17]

MBS funded lavish pay days by even Wall Street standards for the firms engaged in this business. Investment bankers displayed no shyness about the fees they charged in connection with MBS offerings. Those charges translated into huge bonuses for individual executives responsible for particular clients and deals. Many millionaires and even some billionaires were made.

In 2003, a fundamental shift took place in how Wall Street constructed the MBS. By that time, the demand for this type of investment had grown so significantly that the offerings essentially involved “money seeking borrowers.” Lenders devised various new products to bring in the necessary volume of business such as: Hybrid Adjustable Rate Mortgages, known as “ARMS,” that carried low fixed teaser rates that jump to much higher adjustable rates after two or three years; and “Interest-Only Loans”, which obligated borrowers to pay interest only for a specified period, when the principal became due. Each of these arrangements significantly increased the intrinsically high risk of subprime mortgages.[18]

From 2004 to 2006, 38,000 new mortgages were sold to Detroit homeowners representing 11% of total mortgages in the City.[19] About 27,500 or 73% of the new mortgages were high cost loans defined as loans with interest rates at least 3% above Treasury securities. Refinances accounted for 15% of the new mortgage loans. In 2006, about 29,000 adjustable rate mortgages or 9% of the existing mortgages reset, triggering higher payments for loan recipients.[20]

Property values in the United States were generally on the rise during the early 2000s. As a result, the collateral securing new loans was generally appreciating in value and default and foreclosure would not necessarily result in a loss. Lenders and brokers originated loans that made no economic sense, to borrowers with poor credit and for amounts borrowed that far exceeded the value of the home.

The MBS would prove good investments for the holder, so long as the housing market held, since the value of the collateral would eventually appreciate well beyond the face value of the loan.

Lenders and securitizers were setting the stage for financial catastrophe by: making credit available to borrowers with below-average credit; doing so in a City where economic conditions provided little opportunity or mobility for borrowers; and doing so where the housing market effectively froze the value of homes and offered relatively little demand from new buyers.

These conditions made subprime lending inappropriate for Detroit. If anything, however, the lenders focused more intensely upon the City. Detroit’s demographic profile largely was the model subprime clientele, given its relatively high concentration of lower-income families with below-average credit. Beginning at least in the late 1990s, the subprime industry began targeting Detroit as a principal consumer of its high interest loans.[21]

The result of the exorbitant numbers of high interest loans in Detroit was disturbing. From 2005 to 2007, Detroit experienced 67,000 foreclosures, more than 20% of all household mortgages in the City. There were 4,600 tax foreclosures in the first six months of 2008 with over $25 million in taxes due on these properties. Most of the tax or mortgage foreclosed homes were vacated causing tremendous problems for Detroit on many levels.[22] The home-foreclosure crisis affected almost all parts of the City.

The stock market crashed in September 2008 dragged down by the MBS.[23] Detroit had the highest home foreclosure rate among the nation’s 100 largest metropolitan areas, making it one of the cities hardest hit by the national foreclosure and subprime lending crisis. The foreclosures devalued not only the houses directly affected but surrounding homes as well, severely depleting Detroit’s tax base. The City was also strained to cover the more immediate, costs imposed upon it by the crisis, including increased fire and police expenditures associated with abandoned houses, demolition costs, and the like. [24]

The mortgage holders such as banks did not foreclose on many homes because they would have been liable for the taxes and maintenance/upkeep and the house was not worth it to them. As a result, they left the house to the City, which assumed the costs including the demolition costs and loss of tax revenues.

A 2010 federal Government Accountability Office (GAO) report found Detroit had some of the highest numbers in the nation of “bank walkaways,” or mortgage holders who start foreclosure proceedings but opt to abandon the home and, often, their tax bills.[25] The County foreclosed on homes when property taxes were not paid. The unpaid tax foreclosure process took three years, usually at which time the house was blighted.[26]

Mortgage holders left houses to rot for a simple reason ‑ there was no financial or legal obligation to do otherwise. The market value of the house was significantly less than the mortgage. Washing their hands of a house was cheaper than repairing it, bringing it up to code, maintaining it and putting it back on the market.

If a bank forecloses on a home with a $100,000 mortgage, but the house only has a market value of $25,000 and requires $50,000 worth of repairs on top of tax payments and monthly maintenance costs, then there’s little financial incentive for the bank to restore it, especially when the IRS allows the loss to be written off for the institutions that walk away from the homes.

The total bill for maintaining each abandoned house was estimated at between $3,000 and $20,000, depending on the state of decay and banks’ resistance to acting. Costs included boarding up and securing houses, mowing lawns, and removing debris. Demolishing structures was another significant expense that communities incurred to eliminate the impact of blighted abandoned homes.

As part of the TARP bailout in 2008, American taxpayers handed over $700 billion to assist the banks that caused the financial crisis through predatory lending and other questionable practices. Taxpayers again subsidized the banks when they paid for the maintenance and demolition of abandoned houses

A January 2013 report by the HUD and the U.S. Department of the Treasury noted that there were 70,000 foreclosed homes in the City of Detroit, 65% of which remained vacant.

Home values in the City of Detroit dropped sharply after the 2008 financial crisis. The median home in Detroit was worth $40,600 less than it was in 2007, and less than half what it was worth in the 1990s.[27]

A research study found that the average home that sold in the City for under $8,000 was assessed at 7.5 times its actual sale price.[28] The City did not modify assessments to accurately reflect plummeting market values. Due to the downsizing of Finance and the Assessor’s office in the early 2000s the City was ill prepared for the foreclosure crisis. Detroit residences were over-assessed leading the City to levy inflated property taxes on homeowners.

The City of Detroit, for years, failed to conduct proper annual assessments of property values, in direct violation of Michigan law. Instead of conducting annual assessments or properly updating prior years’ assessments with data on recent property sales, Detroit compiled assessment rolls with estimated values bearing no relationship to the actual true cash value of properties within the City.[29]

Detroit officials acknowledged the over-assessment of Detroit homes. For example, in 2015, Detroit Mayor Mike Duggan told the press, “For years homes across the city have been over-assessed.”[30] The City of Detroit had not conducted a City-wide reassessment for fifty years. Homeowners were charged property taxes based on inaccurate assessments and were then foreclosed upon if they didn’t pay.

For Detroit homeowners, the difficulty of paying property taxes was exacerbated by other hardships. According to data collected by the United Way of Southeastern Michigan, more than 80% of Detroit homeowners facing tax foreclosure in 2015 had faced a hardship in the prior year — including medical problems, divorce, job loss, or a family death — and 36% met federal poverty levels.[31]

Bernadette Atuahene, a Senior Research Scholar at the University of Michigan wrote about Detroit’s problems with over assessments and foreclosures and I’ve summarized her findings in this chapter.

During the “Great Recession” (2007–2009) Detroit experienced historic levels of property tax foreclosure. Detroit was in a home foreclosure crisis of a magnitude not experienced by any other City in American history. It was shocking. From 2011–2015, the Wayne County Treasurer foreclosed on approximately 100,000 Detroit properties for unpaid property taxes. Since there were about 385,000 properties in the City, it meant that 1 in 4 Detroit properties went through the property tax foreclosure process during this five year period. In 2015 alone, the County Treasurer foreclosed on roughly 25,000 Detroit properties, equating to approximately 3,500 property tax foreclosures per 100,000 people, which was drastically higher than other cities (New York City: 52; San Francisco: 48; LA county: 4; Erie County, NY (Buffalo): 62; St. Louis County, MO: 197). Blacks were most acutely impacted since they accounted for 80 percent of Detroit’s population.[32]

Excessive property tax assessments played a significant role in the foreclosures. For many Detroit residents, inflated property tax bills and the inability to pay them, resulted in the loss of their homes through tax-foreclosure sales. In the 2014 Wayne County tax foreclosure auction, 6,000 occupied homes were sold.[33] The number of occupied homes sold in the 2015 auction totaled 8,000.[34] After the auction ended those residents were usually evicted. Speculators bought many of them.[35]

In 2016, the Wayne County Treasurer sent out 38,000 foreclosure notices for back taxes from 2013. Half of these, around 20,000, were for tax bills that were less than $3,000; about 5,500 homeowners owed less than $2,000; and 650 owed less than $500.[36]

Many people living in poverty were over assessed for their homes and could not pay their taxes. The County foreclosed on their property and took the home.[37] Given the high poverty rates in Detroit, many homeowners qualified for the City’s poverty tax exemption, which eliminated property taxes for those living under the established federal poverty level. But because of a lack of outreach and a confusing application process, many homeowners did not know about the exemption. The Wayne County Treasurer took over thousands of homes for nonpayment of inflated property taxes that many homeowners were not supposed to be paying in the first place.[38]

Bernadette Atuahene told the story of Mr. Jones who was a Detroit resident and homeowner and was a victim of racism, overassessments, and the loss of his home.

Mr. Jones remembered one of the main injustices that gave birth to the Detroit uprising: housing segregation. “I was a delivery boy at a fish and poultry market on Kercheval,” he recalled. “I did a whole lot of bike riding back then and I knew that black folk were not supposed to cross St. Jean Street. One day, I was delivering a duck order across St. Jean and a group of white folks in a red car chased me back to St. Jean Street, all the while throwing glass pop bottles at me and yelling, ‘Nigger, get out of our neighborhood.’ I was 8 years old.”

In 2012, Mr. Jones saved enough money to purchase his first home for $2,500. It was on the side of St. Jean Street that was once off limits to him. That year, the assessed value of his new home was $24,912. This meant that the city estimated its market value at $49,824, although the place had been stripped of everything of value and was only a shell with no windows nor furnace. Mr. Jones was a 63 year old retiree who relied on a disability check, and he qualified for the poverty tax exemption. But he never applied because, like many Detroiters, he did not know about it.

When Mr. Jones was unable to pay his inflated property tax bill, the Wayne County treasurer foreclosed on his home and sold it at auction for $2,900.[39]

“The very population that most needs the city to get the assessments right, the poorest of the poor, are being most detrimentally affected by the city getting it wrong,” said Atuahene. “There is a narrative of blaming the poor that focuses on individual responsibility instead of structural injustice. We are trying to change the focus to this structural injustice.”[40]

Detroit is a tale of two cities. In downtown and surrounding areas, developers received tax breaks, incentives and subsidies to renovate the portion of the City inhabited by newcomers. Meanwhile, in the neighborhoods long-time residents were subject to overassessments and higher taxes.[41] It was infuriating to hear of a young man receiving property tax breaks and paying less than $500 for property taxes on his $300,000 downtown condo when I had been paying nearly $3,000 for my home in Northeast Detroit that I eventually sold for $72,000 in 2017.[42]

According to estimates from Zillow, the average home in Detroit was worth approximately $80,000 in 2008. By 2010, that number had fallen to roughly $25,000. The sharp decline in housing prices was caused by the home-foreclosure crisis. With the high number of foreclosures and housing prices falling, many banks stopped originating loans in Detroit. Traditionally, banks do not provide mortgages for homes worth less than $50,000. According to Zillow, the average home value in Detroit was below $50,000 every year since 2009. Moreover, according to an analysis of sales data from the City of Detroit’s Open Data Portal, 71 percent of home sales since 2009 were for a purchase price less than $50,000.[43]

In 2001, banks issued 6,599 mortgages within the City of Detroit, but by 2012 there were only 203 originations in the City.

Detroit’s Assessment Division was charged with determining the assessed, taxable, and capped values for all residential, commercial, personal, and industrial properties in the City. This required the Division to maintain property and sales records as well as conduct site visits and sales studies.

The Auditor General’s report on the Assessment Division stated that “assessing activities and data management activities are inefficient and are not effective, and they lack sufficient internal controls.” The report also found that the Assessment Division “failed to retain sufficient documentation to support revenues and collections of taxes.” If assessments were inaccurate, the resulting property tax bills were also inaccurate.[44] Taxpayers were over assessed or not assessed; tax collections decreased; and other taxing jurisdiction such as the DPS and Library were overpaid. The City lost millions in tax revenues.

The Detroit News in February 2013 noted the problems with the City’s Assessing Division. They wrote:

“The city’s property tax system is riddled with errors and waste.” Budget cuts reduced the Assessor’s staff to 36 from 90 in the late 1990s.

The city couldn’t find an Assessor to lead the Division. They had to bring back the retired Assessor on a contract. There was no one else with the state-required advanced certification — Level 4 — to supervise the rolls of a city as large as Detroit. The city sent recruitment letters to all the state’s Level 4 assessors, but no one responded.

The auditor general found that tax bills were frequently sent to the wrong address, and homeowner exemptions that dramatically lower bills were granted without proof of eligibility. Approximately $310,000 in cash was missing from the Assessment Division and the DPD investigated but could not find who took it.

The City in December 2012 contracted with Plante & Moran to overhaul its property tax assessment system.[45]

There was just one accountant in the Treasury Division responsible for the hundreds of millions in property taxes that flowed through the City. There was another accountant who was retired that the City contracted with for the year end property tax reconciliations. These accountants were overwhelmed. The Treasury Division of Finance was a mess in the 2000s. The City was totally irresponsible in handling assessments and property taxes, at that time.

The City lost many cases in the Michigan Tax Tribunal for over-assessments. An AT&T Mobility property assessment went from $43.1 million to $5.5 million a decrease of 791%. Chrysler had a property assessed at $38.1 million which was reduced to $22.7 million in 2012. The City had over $1 billion of assessed value in litigation with the Michigan Tax Tribunal in 2012.

Property tax revenues were the lifeblood for most cities, but they dwindled in Detroit as property values fell and many people stopped paying their taxes. Property taxes comprised 12 percent of Detroit’s General Fund revenues in FY 2018. Other cities property tax revenues were much higher, with many over 50% of the General Fund revenue.[46]

The Detroit Finance Department — Treasury Division collected and recorded all taxes and monies received by the City of Detroit, and property taxes received on behalf of Wayne County, Detroit Public Schools (DPS), State, Library and other governmental units. The City also billed solid waste charges (i.e., trash disposal) and delinquent water bills with the property taxes. Property tax payments were due in full on August 31st or could be made in installment payments. If the property owners choose installments the first payment was due on August 15th while the second payment was due on January 15th of the subsequent year.

If City of Detroit tax payments were not received by February 28th, the bill was considered to be delinquent and was transferred to Wayne County on March 1st for collection. In 2011 the City’s General Fund assessed $182.6 million in property taxes and collected $128.1 million or 70.2%.

When talk was going around in 2015 that Wayne County would be the next government to go into bankruptcy, the County tapped $150 million from its Delinquent Tax Revolving Fund (DTRF) to eliminate its deficit. I asked myself, how could the County accumulate $150 million from foreclosures and delinquent tax payments?

The answer was that the Detroit property owners who lost their homes due to unfair assessments and underwater mortgages contributed the majority of the $150 million. Due to quirks in the law and not foreseeing the mortgage crisis and the excessive number of foreclosures in the City and people walking away from their homes including a City Councilmember, the County was able to accumulate large sums from people still paying their delinquent taxes and from the proceeds of the sales of the foreclosed properties at auctions to accumulate the $150 million. This enabled them to bail out Wayne County at the expense of Detroiters losing their homes.

A similar situation was in Oakland County with the City of Pontiac the delinquent tax property owners paying into their DTRF. Oakland County benefitted from the delinquent taxes and foreclosures in Pontiac with excess revenue flowing into their revolving fund. I assume Genesee County had the same experienced with revenue from Flint.

The DTRF was established by the State of Michigan Legislature for counties to pay local taxing units (LTU) such as the City of Detroit and Detroit Public Schools for their delinquent property taxes. The DTRF can advance cash or issue debt to fund the payments. The County becomes responsible for collecting delinquent taxes. If the County was unable to collect the delinquent property taxes it charged back the uncollectable amounts against future payments to the LTUs. The County was allowed to charge property owners interest and penalties in addition to the delinquent taxes. The County could foreclose within two years if the taxes were not paid and auction the property.

Every March, all LTUs turn over the collection of delinquent taxes to their home counties, rather than try to collect it themselves. Counties buy the debts and forward LTUs money they are owed, making them “whole.” For Wayne County, that approached $400 million in a year. In order to pay that money to its local governments, the county issued General Obligation Tax Notes, which banks and other investors bought at low interest rates. Debt service on the notes was funded by the County Treasurer’s collections on delinquent taxes, plus interest and collection fees thereon, and by investment earnings. Wayne County charged the delinquent property owner an administrative fee of 4 percent on top of all unpaid taxes and between 12 and 18 percent a year in interest. The interest rate later dropped to 6 percent for many homeowners after pressure was put on the County Treasurer by the media and City political leaders.[47] The County Treasurer’s DTRF surplus came from borrowing at 5 percent or less and getting up to a 22-percent return on delinquent taxes. The DTRF State legislation allowed counties to charge usurious interest rates (18% annually) and other charges (4% administration fee) on the delinquent taxes.

Real property taxes not collected within two years after the sale of the notes were charged back to the appropriate LTUs including the County’s General Fund reducing their payment for the year. The County foreclosed on properties for unpaid taxes as allowed by the law and auctioned them retaining the proceeds in the DTRF. The County had no risk for loss. Not even the City’s bankruptcy stayed their charge back collections.

Wayne County Treasurer Raymond J. Wojtowicz, lobbied for the State law that created the program. Wojtowicz, retired in late 2015 after nearly 40 years as the Wayne County Treasurer.[48] Per the State law County Treasurers were entitled to a fee for administering the DTRF up to 20% of their annual salary.[49]

The Wayne County Treasurer from 2003–2014 had $420.8 million of income from the DTRF and transferred $280.7 million to the Wayne County General Fund. In 2015, the Wayne County Treasurer used $82.5 million of the DTRF surplus funds to transfer to Wayne County’s General Fund to reduce the deficit. While the City of Detroit property tax revenues were plummeting, Wayne County’s DTRF was generating greater revenues and surpluses.[50]

The Oakland County DTRF transferred $246.9 million to the Oakland County General Fund from 2003–2014. The Oakland County DTRF had a Change in Net Position of $11.5 million for the years 2003–2014.

The easy mortgages of the subprime mortgage era of the 1990s and 2000s caused inflated home values and inflated assessed taxable values and property taxes. The “Great Recession” of 2009 made it difficult for homeowners in the City to pay their mortgages and taxes. Many people found that their mortgage exceeded the market value of their home. The high interest and penalties charged on the delinquent property taxes by the County made it more difficult for homeowners to save their homes. This caused many homeowners to default on their mortgages and property taxes and abandon their homes. As a result, the City had a great number of abandoned and blighted properties that it needed to demolish. While Wayne County received a windfall from the DTRF from 2003 to 2014 from interest and penalties and tax foreclosure auction sales, the City of Detroit, DPS and Library saw its property tax revenues decline. In addition, the City of Detroit had the costs of the blight such as reduced property values, crime, and added costs to demolish the blighted structures.

The City’s annual General Fund property tax collections were $183.8 million in 2007 and declined to $129.4 million in 2014. During that same period the Wayne County DTRF earned $341.3 million or an average of $42.7 million per year before transfers to the Wayne County General Fund. Oakland County earned $173.1 million during that eight year period or an average of $21.6 million per year. Michigan’s counties benefitted from the distress to their LTUs during the subprime mortgage crisis and recession. The DTRF legislation was another error by the State that cost the City of Detroit and other impoverished cities greatly.

Due to the lack of staffing and poor internal controls, the City did not do a good job of monitoring and administering its delinquent property tax collections. If the City did not receive its fair share of delinquent tax collections, auction receipts, or was overcharged for chargebacks by the County it would not have been able to determine that. The City was completely reliant on the County Treasurer and its staff to accurately and properly determine what it received for delinquent property taxes.

The Wayne County Auditor General audited the DTRF and noted in one finding that “Without establishing formalized written policies and procedures for the day-to-day operations of the County’s DTRF program, there could be inconsistencies in administering this vital and important County program if there was a turnover in key management positions at the WCTO. Further, by not having written policies and procedures, uniformity and consistency, transparency, and independent verification over the assumptions, methodology, and logic used may not be apparent which could lead to inaccuracies when administering the program.”

The Wayne County Auditor General noted in their report that the average annual chargeback totals for the fiscal years 2009–2011 was $157.0 million. The average total charged back to Detroit, DPS and the Library for 2009–2011 was $135.7 million or 86.4% of the total. The City of Detroit chargeback alone averaged $87.0 million or 55.4% of the total. As the City was the biggest LTU, it was likely the biggest contributor to the DTRF surplus.

The City turned over $1.2 billion of delinquent property taxes to the DTRF from 2005–2015. The DTRF charged back $663.1 million or 53.4% to the City. The City received net payments totaling $565.2 million or 45.5% of the amount turned over as delinquent.[51]

The Counties were clearly benefitting from their DTRF programs. It seemed that the wealth could have been more equitably distributed, especially to the distressed communities that likely were contributing the majority of the revenues to the DTRF. It wasn’t the intent of the State to subsidize counties from their distressed communities (LTUs). However, no one could have foreseen the subprime mortgage crisis and recession and impact on the City’s property tax revenues when the law was created. Any such delinquent tax program should fairly distribute earnings/surpluses to the distressed communities to make up for the tax shortfalls and to clean-up blight and demolish the uninhabitable homes.

The county’s reliance on late tax payments to balance its budget created an incentive to foreclose on homes, rather than helping the local governments it was supposed to serve.[52]

A Bridge Magazine article in June 2017 wrote:

“That’s because misery is monetized by counties across Michigan, and no government relies on money from tax foreclosures as much as Wayne County.” An investigation by Bridge Magazine and Detroit public radio station WDET revealed that tax foreclosures paid off for Wayne County and were crucial to its financial turnaround. Essentially the County foreclosed on homes mainly in Detroit to balance its budget. Wayne County foreclosed on more than 160,000 properties from 2002 to 2016.

In addition the Bridge Magazine article stated:

“Wojtowicz noted the county’s tax foreclosure crisis began roughly three years after the mortgage meltdown — indicating that a good percentage of county foreclosures were from banks that took possession of property and failed to pay taxes.”

Genesee County Treasurer Deb Cherry said she transferred about $5 million a year in surplus from the delinquent tax revolving fund to the county General Fund. But she said she’s also made sure another $1 million went toward demolishing blighted properties in the county, mainly in Flint.[53] The Wayne County Treasurer was not so generous.

On August 6, 2015, the County Commission adopted a resolution selecting the consent agreement option under section 8 of Act 436 to address the County’s financial emergency. Wayne County exited its consent agreement with the State after 14 months. Thanks to the excess funding in the DTRF and the transfer made to the Wayne County General Fund to eliminate the deficit, they were able to avoid the appointment of an Emergency Manager and even bankruptcy.[54]

The City had a policy for years that if a property owner overpaid their property taxes and did not request a refund than the City made no attempt to refund the overpayment. As a result, the City’s liability for property tax overpayments grew substantially. On June 30, 2007 the balance was $60.9 million. As with other accounting issues the City had, we knew that the liability was overstated because of errors. Still their was a significant liability owing the taxpayers.[55]

In 1995 the Detroit News and Free Press reported that the “City of Detroit has been keeping the overpayment of property taxes rather than notifying taxpayers they were due refunds or applying the money to future tax bills. Finance Department officials acknowledged the practice… and said the City owes more than $10 million to thousands of taxpayers.” The former Treasurer said “There was a financial crunch” in explaining why the City decided to keep the overpayments. The former Finance Director said the law requires the City to give the money to the state [escheat] if the taxpayer doesn’t ask for it.”

The overpayments were not credited to the taxpayers’ accounts. A taxpayer was notified of the refund process only if they called or came in to inquire about the tax overpayment.

The Downtown Development Authority Tax Increment District (TID) was created by the State of Michigan in order to attract new business to the downtown area and for businesses in the downtown area to improve or add on to their current business. The City has given away hundreds of millions for property tax abatements to developers and businesses that agree to build in the City. The DDA was created on May 20, 1976. The purpose of the DDA is to create, promote, and develop economic growth in the City’s downtown business district. The DDA finances its general and administrative operations with the proceeds of a 0.9887 mill levy on the assessed value within the Downtown Development District. Tax bases were established for TIDs. Any incremental tax value over the base for the TID is captured to pay debt service for development in the TID.

The City was paying the DDA approximately $25 million per year (2003–2010) in property taxes that would have went to schools (approximately $12 million), Library (approximately $1.5 million) and General Fund (approximately $8 million) with the remainder to debt service and the County. This was a cost of the tax abatements.

Matty Moroun, a wealthy businessman, used foreclosure auctions to purchase property strategically to protect the land around his Ambassador Bridge from other development.[56] The tax foreclosures fueled a boom in property speculation across Detroit.

Speculators and unscrupulous slumlords out to make large profits bought up a lot of the City’s housing stock. Many didn’t live in Detroit. They significantly contributed to Detroit’s property decline and blighted neighborhoods. They rented out substandard housing and failed to make repairs and improvements to maintain their properties. They didn’t pay the taxes, insurance, and water and sewer bills. They basically let the properties rot and collected what they could from them disregarding any consideration for the people who lived in them. They later abandoned the properties when they no longer provided them with any value and let the City pay for the demolition. A former BSED Deputy Director said 75% of the abandoned buildings in Detroit were owned by non-Detroiters.[57]

Companies tied to an owner, who lived in Bloomfield Township, had unpaid blight tickets for unmowed lawns, trash in the yard or other violations on houses owned in Detroit.[58] His companies had $1.1 million in unpaid blight judgments — more than double the $496,000 owed by the City’s next highest blight judgment debtor, Deutsche Bank National Trust Co., a subsidiary of Deutsche Bank Holdings Inc. Banks made up most of the top ten blight violators. His companies also had $1.5 million of unpaid property taxes owed to Detroit.

He received rent payments directly from the State for the welfare recipients living in some of his homes. He had 294 such properties.

More than 30 business entities had ties to him. His companies were active in the City for over 40 years buying houses cheaply at government auctions and renting or selling them via land contract. His companies were able to amass a large amount of blight violation debt for a number of reasons, including cuts to City collection staff.

In 2002 he owned Joy Management and other companies, and they owned an estimated 1,000 homes in Detroit. Property taxes were delinquent for at least 500 of the homes.[59] City attorneys estimated that $4 million in taxes were owed for these homes.

His companies didn’t certify properties as rentals with the City and didn’t get the homes inspected annually, as required by law. City officials didn’t know how many more properties he or his companies owned or what their total tax bill amounted to, because the property deeds were held by so many different companies, and ownership of them was difficult to determine. In numerous Court cases, he denied owning the shoddy rentals. He claimed he was merely the property manager. Because Michigan corporations weren’t required to disclose ownership or financial information, his tactic often worked. If authorities and the Courts can’t figure out who owned a property, it was difficult to hold anyone accountable.

His companies were involved in hundreds of Court cases. Disgruntled tenants and the government sued him and his businesses time and again, with little impact. His attorneys made it difficult on the plaintiff attorneys where many just gave up. His attorneys won a ruling that forced the City to toss out its Housing Maintenance Code. They argued the City’s code was “improperly adopted,” and the Court agreed. The City had to adopt a new code. Hiss attorneys claimed the problem with Detroit was that it doesn’t follow its own laws, codes and procedures.

The City of Detroit had an affordable housing crisis. Hundreds of thousands of Detroiters couldn’t afford safe, decent, viable housing. This resulted in low income housing providers such as Joy Management. This was the economic reality that created slums.[60]

Lisa Collins of the Metro Times had the following observations of a Joy Management company office and employee in November 2002:

““Patience my ass, I’m gonna kill somebody,” are the words displayed on the front window of a large camper truck with handicapped plates parked outside Joy Management’s offices. Its driver, known as “Magic,” is tall, muscular, bearded, wearing sunglasses and decked in black Harley gear from hat to toe. He sometimes drives prospective tenants to look at properties.

When a photographer starts snapping photos, Magic becomes infuriated, yelling, “I just smashed a guy’s camera for taking my photo,” before stomping off in a fit of curses. Inside the office, Eugene Hunter, the office manager, sits with a tenant, surrounded by a cloud of cigarette smoke. His blue plaid shirt is sticking out of his pants; his clothes are disheveled and stained. When asked about the condition of houses Joy Management rents, Hunter launches a harangue.

“These houses are low income houses, period. What the hell do these people think? I advise people, ‘Beware, they are low income houses.’ They choose them on their own. “Let me put this to you another way. Don’t you know a deadbeat when you see one? Their credit is fucked up. Why don’t you start this story on the right side, and go look into their history with landlords. … They’re deadbeats! They don’t have to rent these houses. If they want a mansion, keep going. We don’t have none.

We fix them as soon as possible. The houses are as old as hell. If they don’t like it, kiss my ass. Fuck ’em. They’re the ones in this situation. Their problem is they want repairs and don’t pay any damn money. I’m sick of this shit. You deal with what you got. If you jerk my chain too hard, I jerk back. A lot of people lie, they lie to the reporters. I dare them to find any better in Detroit.

If they think they’re so great, they can go to the same ass place we went to get these houses: the city and the state. It’s not that hard. If you got some money, just bid on a house.”…

“If we don’t rent to these sons of bitches, they go in there and squat. Is that what you want?”…”

Bad landlords took advantage of the poor people in Detroit. The City didn’t properly enforce building codes. Many people lived in squalor adding to their misery. As the blight grew more people abandoned the City leaving less for those that remained.

John Foster Dulles, the former Secretary of State said:

“The measure of success is not whether you have a tough problem to deal with, but whether it is the same problem you had last year.”

The City didn’t deal with its tough problem in the bankruptcy.

Peter Hammer, a Professor of Law at Wayne State University wrote Judge Rhodes on the Expert’s report on the feasibility of the Plan of Adjustment (POA) for the City of Detroit. He detailed the City’s issues and the shortcomings of the POA. He found that the POA didn’t address the City’s poverty issues and racial conflict within the Southeastern Michigan region. He believed that this was a glaring oversight and the POA should never had been approved without addressing these root causes of the City’s financial demise. I’ve summarized below these issues and shortcomings Hammer found.[61]

“Creating a viable city requires much more than balancing revenue and expenses in a narrow accounting framework. A broader, multidisciplinary set of expertise is required; including expertise in examining the City’s interconnected social, economic and political systems.

I was concerned, given the absence of any meaningful discussion in the City’s Plan of Adjustment and its Disclosure Statement, that issues of race and regionalism would be marginalized in the expert analysis, particularly if experts were drawn exclusively from the field of municipal finance. A feasible Plan of Adjustment based on reasonable forecasts and projections must be assessed in light of the City’s history of unhealed racial conflict and the City’s position within a segregated regional economy.

The divisive history of racial conflict and subsequent urban neglect affects how the state shares with local governments. Furthermore, the extreme segregation of race and wealth in the region has direct implications for any analysis of the labor and housing markets, which directly affect future income and property tax revenue for the City. No defensible economic analysis can ignore these issues.

One of the primary weaknesses of the Expert Report is its failure to properly diagnose the underlying problems (engaging in a root cause analysis) and failure to apply tools and methods appropriate to the complex challenges at hand in the Detroit Bankruptcy. The Detroit Bankruptcy does not present a run of the mill set of problems. For many central issues, such as the operations of the Detroit real estate market, appropriate tools and methods do not exist and expert analysis must go beyond that found in the standard literature.[62]

Any legitimate analysis of the Detroit Bankruptcy and the City’s Plan of Adjustment must be situated in the context of the Three R’s — Race, Regionalism and Reconciliation. …From that perspective, I am deeply disappointed by the neglect of these issues in the Expert Report. The Report is a word-searchable pdf document. Nowhere in the document are the words “race,” “racism,” “discrimination” or “segregation.” While the phrase “white paper” appears twice, the phrase “white flight” does not appear at all. These are the root causes of Detroit’s current financial crisis and yet they are completely absent from the report. The Report looks at the root causes of failures of generic IT Systems, but never once examines the root causes of the fiscal crisis underlying Detroit’s municipal distress. If you do not know the cause of a problem, it is very difficult to figure out how to solve it.

The Expert said in her report that Detroit’s fifty year decline was caused by changing demographics, economics and the failure of elected officials to respond effectively. The downward spiral finally resulted in the City filing for Bankruptcy. No effort is made beyond this to state why these phenomena occurred. There is no discussion of an eighty year history of discrimination, segregation, racial tension and white flight, producing a dysfunctional region.

…Detroit is a city where nearly 40% of the population lives below the federal poverty level, yet it sits in a region that is defined by its relative wealth and prosperity. The Michigan Roundtable and the Kirwan Institute of Race and Ethnicity at Ohio State have conducted “opportunity mapping” of the region. “Opportunity,” defined by a metric reflecting the quality of housing, education, employment, health care, transportation, and civil society, can be assessed and given a colored representation on a map of Southeast Michigan. What becomes obvious from the map is that there are high levels of opportunity in the region and low levels of opportunity in the region and that these areas are spatially segregated. One can almost see the outlines of the geopolitical boundaries of Detroit and Pontiac as defining the lowest levels of opportunity in the Region. When one overlies spatial mappings of race on top of the mapping of opportunity, one sees that a region completely segregated in terms of both race and opportunity.

Other absences also define the Report. Tellingly, the word “poverty” appears only once in the entire 226-page Report, and then only in the context of defining a qualifying criteria for participation in the pension income stabilization fund. The failure to consider the economic effects of poverty is inexcusable. Endemic, structural poverty lies at the heart of the tax foreclosure crisis, the collapse of the real estate markets and the water shutoffs that have triggered international condemnation. These factors are critical to any serious economic assessment of reasonableness and feasibility, yet they appear nowhere in the Expert Report. The absence of such analyses substantially undermines the credibility and usefulness of the Report’s conclusions.

Remarkably, the word ‘’foreclosure” appears nowhere in the Expert Report. Since 2008, the beginning of the Great Recession, more than 60,000 Detroit properties have gone through the tax foreclosure process.

These are mind blowing statistics that bear directly on the issues of reasonableness and feasibility. They document the devastating effects of poverty in Detroit and the complete collapse of the City’s real estate market. These numbers represent people losing their homes for the inability to pay taxes, let alone the need to pay for water, utilities, insurance and mortgages. How can an Expert Report ostensibly examining the reasonableness of future property tax revenue forecasts not even raise this issue? The tax foreclosure crisis does not stand in isolation. To this disaster must be added the mortgage foreclosure crisis, fueled by racialized predatory Wall Street practices. Adkins v. Morgan Stanley is a class action race discrimination case brought by the ACLU challenging sub­prime lending practices in Detroit tailored to meet the demands of the secondary lending market. The case is now pending in the Southern District of New York. In denying Morgan Stanley’s motion to dismiss, Judge Harold Baer directly linked the issues before him to the Detroit Bankruptcy.[63]

All of these issues are interrelated. The tax and mortgage foreclosure crises, endemic poverty, the collapse of the Detroit real estate market and the question of the reasonableness of the POA’s projection of future property tax revenue. Completely ignoring the question of endemic poverty and the tsunami of tax foreclosures, the Report reduced the problem of property tax collection to a simple question of individual “skill and will.”

In the face of the tax and mortgage foreclosure crisis and the collapse of the real estate market the City needs much more than “intestinal fortitude” and more highly “skilled” tax collectors. It needs a rigorous examination of future revenues, methods of collection and structures of tax assessment that are predicated on the realities of endemic poverty and limited resources. Such critical elements are completely missing from the POA and the Expert Report.

The court’s decision will determine not only the quality of life of the citizens of Detroit for decades to come; it will also determine the fates of scores of similar cities that will likely pass through Chapter 9 proceeding in the coming years. Like Detroit, the majority of these cities will be characterized by endemic poverty. Since poverty is racialized in this country, these cities will also predominately be majority minority central cities, most often, like Detroit, surrounded by wealthier white suburban regions. As such, the bankruptcy determination of feasibility is also a determination of the future lives and livelihoods of the citizens of these cities and what stake they will be given in the larger American dream.”

The Kerner Commission Report can be viewed as its own Plan of Adjustment, detailing the types of programs and investments necessary to provide essential services in cities like Detroit. The Report outlines proposals for employment, education, the welfare system and housing, in addition to reforms in police departments and practices. The Report was a self-conscious national call to action to invest in our cities and its residents.

Dr. Martin Luther King said “In a sense we have come to our nation’s capital to cash a check. When the architects of our republic wrote the magnificent words of the Constitution and the Declaration of Independence, they were signing a promissory note to which every American was to fall heir. This note was a promise that all men, yes, black men as well as white men, would be guaranteed the unalienable rights of life, liberty, and the pursuit of happiness. It is obvious today that America has defaulted on this promissory note insofar as her citizens of color are concerned. Instead of honoring this sacred obligation, America has given the Negro people a bad check, a check which has come back marked “insufficient funds.” But we refuse to believe that the bank of justice is bankrupt. We refuse to believe that there are insufficient funds in the great vaults of opportunity of this nation.”

This promise remains unfulfilled in the context of the Detroit Bankruptcy. Central cities have become separated, unequal, minimal cities, with minimal wealth, minimal opportunity and minimal city services.[64]

While a slight oversimplification, the POA envision a post-bankrupt city that essentially provides only 1) police protection; 2) fire protection; and 3) the demolition of blighted buildings. At its base, this is an anemic list of “essential” services that provide only a shadow of the services required to take care of the needs of city residents and to provide them any meaningful opportunity for the future.

When the POA is juxtaposed to the opportunity mapping of Southeast Michigan, the implications are clear. The state-appointed Emergency Manager wants this court to ratify as feasible and, therefore, legitimize the de facto existence of “two societies, one black, one white — separate and unequal.” [Status Quo]

The POA’s focus on property and not people is clear. While the POA makes no serious investment in creating opportunities for people, the POA contains substantial funds for the demolition of buildings. The Blight Removal Task Force Report proposes spending $850,000,000 dollars for the demolition of residential buildings (it will require an additional 500 million to 1 billion dollars to demolish larger commercial and industrial properties). Where will this money come from? The answer is “exit financing” through the POA. Ironically, after the City’s struggles with long term debt and legacy costs it will take out new debt, primarily to knock down buildings.”[65]

[The blight removal costs take money away from public safety and other essential services. The City has spent nearly a billion dollars to demolish what others have left behind. It will take hundreds of millions more to demolish the remaining abandoned houses. These costs are borne by the neighbors who remain. The scale of the blight in Detroit is greater than in any other American City.[66] The City has a difficult task in deciding where to focus its limited resources and prioritize where investment will have the greatest impact on the people who still live in the City. The City couldn’t afford to demolish all the blighted homes. The Hardest Hit Grant Funds from the Federal government helped but weren’t enough. Given the City’s low tax base there was a need for shared sacrifice in the State and region to clear the City’s blight.]

While blight is a serious problem and a one that needs to be managed, it is but one of a constellation of reciprocally related causes underlying Detroit’s municipal distress. The POA, adopts a myopic focus on demolishing buildings, in as rapid a manner as possible, in response to a falsely generated sense of urgency.

The same could be said of infant mortality and the entire meltdown of public education, but no one is seeking to invest in people (human capacity) rather than property. This is seriously flawed.

The economic exercise is to ask whether the investment in blight removal would create greater social benefits if it were invested for some other social purposes. Blight removal is a near-billion dollar investment in a moribund and failed real estate market…

What would be the economic benefits of investing comparable amounts in people — building human capacity — head start, schools, reducing health disparities, citizen re-entry, job training and economic opportunity? Even in a narrower economic frame, we need to ask what would be the differential in economic benefits of spending comparable funds in foreclosure relief designed to keep people in their homes, as opposed to demolishing those same homes after the residents have been forced to leave. This type of analysis is critical to an economic evaluation of the POA, but it is completely missing in the Expert Report.[67]

The POA does not see the reality of endemic poverty, water shutoffs and tax foreclosures. It does not see the reality of the segregation of race and wealth and regional conflict that underlie the bankruptcy. It sees complexity only in standard issues where those realities are reflected in the existing literature (pensions and IT systems), but fails to see the multiple unique complexities that define Detroit’s municipal distress — the realities of dysfunctional regional labor, transportation and real estate markets.”

Jack Lessenberry wrote in 2013:

“So, what makes the difference between thriving and dying cities? “Elasticity.” Cities that were “elastic” — that could annex their borders and expand territory — nearly always got richer and stronger. Cities that did not expand, declined. Looked at one way, Detroit did continue to expand. National stories all mention that Detroit’s population officially peaked in 1950, when it had 1,849,568 people. Since then, Detroit has continually shrunk. But not really. The metropolitan area had 3.2 million in 1950. Half a century later, that had risen to almost 4.5 million. That should have meant a bigger — not smaller — tax base. But while the vast majority of people came to the area for Detroit jobs, within a few decades they no longer lived in — or paid taxes to — Detroit.[68]

When Coleman Young won election as mayor in Detroit in November 1973, he said he was happy. But he added: “On the other hand, I knew … I was taking over the administration of Detroit because the white people didn’t want the damn thing anymore. They were getting the hell out.”

…In his book Two Nations, Andrew Hacker, a political science professor, showed that integration has essentially failed, and that whites tend to leave any neighborhood in which blacks are more than 10 percent of the population. This seems to have been even more true in Detroit.

There are many reasons for the city’s decline thereafter. But race and, especially, “elasticity,” were even deadlier poisons. People left for the suburbs — in some cases moving a single block away — and Detroit lost the power to tax them. The city responded by increasing taxes on those who remained, which drove more people to leave, increasing the speed of the vicious circle. Detroit promised benefits and pensions to city workers, hoping to have the funds to pay them. But it didn’t. In recent years, black flight has exceeded white flight. Detroit has fewer black residents than it did in 1970 and fewer white ones than in 1870.

If those in power choose to ignore the fact that the city is, indeed, the metropolitan area and don’t provide for some form of revenue and power sharing across the region, it is hard — if not impossible — to see how Detroit can possibly survive, let alone thrive.

Nor is it easy to see how Michigan can have much future, if its largest city remains largely a penniless and blighted ruin.”

In 2017 the City finished a citywide reappraisal of residential property, the first in 60 years. The City did not address the issue of overassessments and overbilling of property taxes prior to the reappraisal which caused many people to lose their homes. Lawsuits have been filed and the Courts are dealing with them.[69]

Detroit at one time had the greatest concentration of single family homes in the country. Detroit was renowned as a place where workers could own their home. Black residents enjoyed some of the highest homeownership rates in the nation.

Single family homes that average 80 to 90 years in age that have been neglected for years are not the best housing for an impoverished people. Much of the City housing was built between 1920 and 1950 and was in need of repairs and improvements and was not compliant with the building codes. With so many residents living in poverty it was difficult for them to maintain the homes let alone improve them. Most of these homes were not affordable even for a middle class household. In addition, it didn’t make sense to buy such a home and make improvements that likely would cost more than the home could sell for.

In 2015, for the first time in half a century, renters outnumbered homeowners in Detroit. About 53% of Detroiters were renters. The foreclosure crisis resulted in many owner occupied homes being bought up by investors and speculators that turned them into rental properties.[70] While rents may be cheaper in many Detroit neighborhoods than in Oakland County, they can be high relative to the income levels of families paying 30% to 50% of their income on housing.[71]

How do you provide decent and affordable housing for people living in poverty? A City with a low tax base and insufficient support for housing from the Federal and State governments does not have the financial resources to provide decent and affordable housing. The core issues of poverty and providing for peoples basic needs such as decent and affordable housing has to be addressed.

[1] Detroit News “Six decades in Detroit”, Joel Kurth October 4, 2013

[2] Katz Marilyn, “A Half Century After Detroit Uprising, City Still Stranded by Capitalism and Federal Government”, In These Times, http://www.inthesetimes.com

[3] Katz Marilyn, “A Half Century After Detroit Uprising, City Still Stranded by Capitalism and Federal Government”, In These Times, http://www.inthesetimes.com

[4] Sugrue Thomas, The Origins of the Urban Crisis: Race and Inequality in Postwar Detroit, 2005, Princeton University Press

[5] Boyle, Arc of Justice: A Saga of Race, Civil Rights and Murder in the Jazz Age, 2004, Henry Holt & Company

[6] Sugrue Thomas, The Origins of the Urban Crisis: Race and Inequality in Postwar Detroit, 2005, Princeton University Press

[7] Sugrue Thomas, The Origins of the Urban Crisis: Race and Inequality in Postwar Detroit, 2005, Princeton University Press

[8] Kurth Joel, Six decades in Detroit”, October 4, 2013, Detroit News

[9] Katz Marilyn, “A Half Century After Detroit Uprising, City Still Stranded by Capitalism and Federal Government”, In These Times, http://www.inthesetimes.com

[10] Katz Marilyn, “A Half Century After Detroit Uprising, City Still Stranded by Capitalism and Federal Government”, In These Times, http://www.inthesetimes.com

[11] Kurth Joel, Six decades in Detroit”, October 4, 2013, Detroit News

[12] Kurth Joel, Six decades in Detroit”, October 4, 2013, Detroit News

[13] Sugrue Thomas, The Origins of the Urban Crisis: Race and Inequality in Postwar Detroit, 2005, Princeton University Press

[14] Kurth Joel, Six decades in Detroit”, October 4, 2013, Detroit News

[15] Court, Adkins v Morgan Stanley, Civil Action No l:12-cv-07667 (SDNY), www .aclu.org/cases/racial-equality/adkins-et-al-vs-morgan-stanley.

[16] Court, “STATE OF MICHIGAN IN THE CIRCUIT COURT FOR THE COUNTY OF WAYNE”, City of Detroit Versus various Banks

[17] Court, “STATE OF MICHIGAN IN THE CIRCUIT COURT FOR THE COUNTY OF WAYNE”, City of Detroit Versus various Banks

[18] Court, “STATE OF MICHIGAN IN THE CIRCUIT COURT FOR THE COUNTY OF WAYNE”, City of Detroit Versus various Banks

[19] Goldberg, “Planning and Development Department Neighborhood Stabilization Plan”, January 2009, Page 6, Exhibit 2 Goldberg/Sole

[20] Goldberg, “INTERESTED PARTY DAVID SOLE’S OBJECTION TO CITY OF DETROIT’S DISCLOSURE STATEMENT WITH RESPECT TO PLAN OF ADJUSTMENT”, DOCKET 2709

[21] Court, “STATE OF MICHIGAN IN THE CIRCUIT COURT FOR THE COUNTY OF WAYNE”, City of Detroit Versus various Banks

[22] Goldberg, “Planning and Development Department Neighborhood Stabilization Plan”, January 2009, Page 6, Exhibit 2 Goldberg/Sole

[23] Kurth Joel, Six decades in Detroit”, October 4, 2013, Detroit News

[24] Court, “STATE OF MICHIGAN IN THE CIRCUIT COURT FOR THE COUNTY OF WAYNE”, City of Detroit Versus various Banks

[25] MacDonald Christine and Wilkinson mike, “From the archives: Half of Detroit property owners don’t pay taxes”, June 13, 2018, Detroit News

[26] ‘Perkins Tom, “Too big to care’: Deteriorating bank‑owned homes costing taxpayers millions annually”, December 13, 2015, Ann Arbor News

[27] Zagorin Edmund, “Detroit’s Housing Disaster Is Its Leaders’ Fault”, October 11, 2016, Huffington Post

[28] Study: Bad assessments prompt 10K Detroit foreclosures The Detroit News Christine MacDonald June 14, 2018

[29] Court, STATE OF MICHIGAN WAYNE COUNTY CIRCUIT COURT Complaint Various Groups Vs City and County 16–008807-CH, Filed July 13, 2016

[30] AlHajal, “Detroit property tax assessments to decline as 62,000 properties face foreclosure”, January 28, 2015, MLive, <http://www.mlive.com/news/detroit/index.ssf/2015/01/detroit_property_tax_assessmen.html

[31] Kurth & MacDonald, “Detroit braces for a flood of tax foreclosures”, Detroit News July 1, 2015

[32] Atuahene Bernadette and Berry Christopher, “Taxed Out: Illegal property tax assessments and the epidemic of tax foreclosures in Detroit”, June 26, 2018

[33] Perkins, “Are real estate investors from Oakland County to Hong Kong driving Detroit’s blight?”, May 4, 2016, Metro Times

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[37] Atuahene Bernadette and Berry Christopher, “Taxed Out: Illegal property tax assessments and the epidemic of tax foreclosures in Detroit”, June 26, 2018

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[49] State of Michigan, Michigan Public Act 123 of 1999, 211.87c

[50] Drumb Richard, My notes from Wayne County CAFRs 2004–2015

[51] Drumb Richard, My notes from Wayne County CAFRs 2004–2015

[52] Kurth Joe, Wilkonson Mike, and Herberg Laura, “Sorry we foreclosed your home. But thanks for fixing our budget”, June 6, 2017, Bridge Magazine

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[57] Montemurri Patricia and Ball Zacharie, “Some profit but neighborhoods pay price”, July 11, 1989, Detroit Free Press

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[59] Collins Lisa M, “This cold house”, November 6, 2002, Detroit Metro Times

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[66] Badger Emily, “Autopsy of a City Slowly Consumed by Blight”, May 29, 2014, Washington Post

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[68] Lessenberry Jack, “Chapter Regionalization There are Two “Detroits”, September 13, 2013

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[70] Gallagher John, “In Detroit, more people rent homes than own them”, March 19, 2017, Detroit Free Press

[71] Gallagher John, “In Detroit, more people rent homes than own them”, March 19, 2017, Detroit Free Press