Detroit Public Schools recently made national headlines for the heartbreaking conditions of its school facilities and a widespread teacher “sick-out.” For Detroit, these are sadly just the latest hurdles to overcome: The public school system has been in dire financial straits for many years, while national testing data indicates that the district’s students are among the lowest-achieving in the nation.
A report from the Lincoln Institute, a nonprofit that focuses on land use and tax policy, provides a fascinating angle on the Detroit situation. It highlights the massive problems that the Motor City encounters when trying to finance public services, including education, through its local property tax system. Consider just a few bleak statistics reported in this paper: 1) The property tax delinquency rate was a staggering 54 percent in 2014; 2) roughly eighty thousand housing units are vacant—23 percent of Detroit’s housing stock; 3) and 36 percent and 22 percent of commercial and industrial property, respectively, sat vacant.
The report also highlights ways that property tax policies exacerbate the school system’s revenue woes. First, property tax abatements—tax breaks aimed at spurring re-investment—have reduced or exempted the tax liabilities of more than ten thousand properties. Whether the benefit of these reductions outweighs the cost to public services is hotly debated, but the fact remains that schools lose potential funding. Second, the report spotlights the significant number of tax-exempt parcels in Detroit (owned by public or nonprofit agencies), an issue that is being further aggravated as foreclosed properties transfer to public ownership. Third, property assessment policy (how a property’s value is determined) has apparently been a disaster. As reported by the media, widespread problems in assessing property values in 2013 led public officials to retract the valuations and start over.
What lessons do we learn from the Detroit debacle? The reliance on property taxes can put schools at risk when local conditions deteriorate. State policy makers need to be careful to ensure that students aren’t lost when the tax base collapses. (Ohio’s fiscal distress commissions are one example of state intervention in troubled districts.) Meanwhile, though not the topic of the Lincoln Institute paper, schools must also do their part when local conditions deteriorate. As difficult as it may be, this means addressing costs, including reductions in force (ideally, dismissing the lowest-performing teachers first) or selling underutilized property. Thankfully, Ohio’s urban school systems aren’t in the deplorable condition of Detroit; yet they should absolutely be on guard and learn how not to go broke.
Source: Gary Sands and Mark Skidmore, Detroit and the Property Tax: Strategies to Improve Equity and Enhance Revenue (Cambridge, MA: Lincoln Institute of Land Policy, November 2015).
