Detroit’s strategy illustrates the fiscal policy paradox facing many cities. Lowering assessments makes homes more affordable to low- and moderate-income people, but not if they have to pay back taxes. Making homes more affordable by bringing assessments into line with depressed home sale values also works if cities don’t increase tax rates to maintain municipal services. Cities could reduce tax rates by cutting services, but that could backfire if the level and quality of those services falls, thus depressing property values and causing people and businesses to move.
Ironically, Michigan law waives property taxes for homeowners like Gresham whose household income put them below the poverty line. But the rule isn’t well known, and filing the documents can be complicated, University of Michigan (Ann Arbor) urban and regional planning professor Margaret Dewar told Bloomberg Businessweek. If the rule were widely known and applied, the tax load borne by other taxpayers might increase, thus creating another policy paradox.