By Ashanti Kafi
I’ve noticed, as I’m sure you all have, There has been a lot of recent discussion about tax credits, tax abatement, and rebates given to corporations as it relates to redevelopment of the City of Detroit. Particularly in Downtown Detroit. And I began to ask myself “Do I really understand what this means?” “Is what’s happening good for the city and good for me, a single taxpayer?” So, I started to research to understand how it all works. This is not the most entertaining subject, but come to school with me. Here’s what I’ve learned.
Corporations pay taxes on commercial property that they own, the same as a homeowner pays taxes on their residential property. The difference however, is how those taxes are calculated. And how the municipality, in this case, the City of Detroit, uses that tax revenue.
I own my home in Detroit. My property taxes, like yours, if you own residential property, are primarily calculated using a formula that is based on market value and land use. We know this to be the assessed value. The assessed value is further calculated to get to a taxable value. The taxable value is multiplied by a Mill or a rate, which has been predetermined at the voting booth.
The formula for calculating taxes on a commercial property is based on future or projected income the property will generate.
For Instance, If I purchased a commercial storefront on Woodward. And I’ve projected that I would lease out that space for $7,000 per month or $84,000 per year. The property taxes that the City will make me pay would be based on that $84,000, in the assessment calculation. The assessed value is further calculated to get to a taxable value. The taxable value is multiplied by a Mill or a rate, which has been predetermined at the voting booth.
As voting citizens we’ve agreed that our tax revenue generated from the collection of taxes on real property will go to things such as state education, the general city fund, debt services, the library, school operating expenses, school debt, waste management (trash collection) and Wayne county.
Whereas, how tax revenue is generated and used from commercial properties, particularly commercial property development in Downtown Detroit is a little more complicated. The State of Michigan allows struggling cities to create governing bodies such as the Detroit Economic Growth Corporation (DEGC) and the Downtown Development Authority (DDA) which define how captured tax revenue is used to finance the redevelopment of a zoned area within its jurisdiction. In our case, Downtown Detroit.
These governing bodies have determined that most of the tax revenue generated from within these zones Downtown stays Downtown. They have also decided to use Tax Abatement and Tax Increment Financing (TIF) as strategies to draw commercial investors/developers to the City for the purpose of redeveloping Detroit.
Tax abatement is the process of eliminating, reducing, or postponing the payment of property taxes. While Tax Increment Financing is a financial strategy that gives tax money back to the investor or back to the zone using tax revenue generated from other sources.
We don’t want to persuade you in any direction on how to feel about what’s happening in our City. Simply to state facts. The redevelopment of our City has just been underway within the last 10-15 years. To get to where we are today, our elected officials have been crafty in how this redevelopment of our great city gets financed. Due to the size of our undevelopment, and the state of our neglected infrastructure and property supply, the cost to transform Detroit is enormous. Our Mayor and City Council have adopted the strategy of rebuilding our City from the Center out. Their approach delays the redevelopment of residential neighborhoods outside of the Downtown area. This delay affects the administration of our schools, the development of residential housing, mental assistance programs and the like.
But I see momentum happening beyond Downtown on the horizon. We’ll talk about those later as well as if tax credits are applied equitably.
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