The City of Detroit, facing a $300 million budget deficit this year, is looking to strengthen rules for homeowners seeking poverty exemptions on their property taxes. After uncovering dozens of instances of taxpayers receiving exemptions despite not meeting the income requirements, a police investigation was launched, as was a review and rewrite of the rules. The Detroit City Council authorized the Board of Review to create new guidelines to protect against any fraud.. Under the new rules, in order to qualify for the reduced or eliminated property tax rate, citizens must meet the following qualifications: income must meet federal poverty guidelines, have lived in their home since at least December 31st of the previous year, have total household assets of less than $5,000, and the taxable value of the home must be less than $95,000.
According to a 2007 investigation by The Detroit News, the rate of exemptions is increasing each year, from 1,300 in 2001 to 3,200 in 2006, resulting in nearly $4 million of lost revenue each year. The investigation discovered that 300 recipients drove luxury vehicles (Cadillac, Lexus, Corvettes, etc.), several were granted for homes worth more than $500,000, and 5 hardship exemptions were granted to dead people.
The Hardship Committee was established by the City Council to handle the property tax exemption applications. No notes are taken, no audits completed, and no fact checking is done when the committee reviews applications. The Board of Review was commissioned to address these issues, as the city hopes to establish more concrete procedures to ensure that only qualified applicants receive the exemption, saving potential tax dollars the city desperately needs.
In other tax related news, the city council delayed voting on contracts for the city's Comprehensive Annual Financial Report (CAFR) which is a governmental audit of the city's finances. The city is notoriously behind on the annual requirement, having just recently submitted its 2008 CAFR to the state. The 2009 CAFR, due last December 31, isn't expected to be completed until June. The State of Michigan disburses revenue sharing funds to cities based on their completed audits. As a result, the state is withholding millions of dollars due to Detroit until the audit is completed. The council's decision to table the vote came as the council questioned the Mayor's reasoning for not bringing the contracts to council earlier.
Detroit is taking other measures to combat the $300 million deficit, including some layoffs, 10% wage cuts for city employees - which have been met with great resistance from city unions, the sale of revenue bonds, and looking to the possibility of privatizing certain city services, like garbage collection or public lighting.