Industry Update
February 13, 2016

A third of the property in the city of Flint is vacant.

That’s according to the Genesee County Land Bank, the organization charged with pushing back against the encroaching wave of blight that touches nearly every neighborhood in this struggling city — of 56,000 parcels in Flint, about 20,000 are empty or blighted.

And it’s going to get worse.

How much worse, no one can say. But there’s little doubt in the minds of Doug Weiland, executive director of the land bank, and Genesee County Treasurer Deb Cherry, that because of Flint’s ongoing water crisis, more people will stop paying their property taxes in the years ahead.

“It’s hard to know the impact, because we’ve never been through anything like this,” Cherry said.

In the long-term, it likely means more homes will be foreclosed, and almost certainly become vacant or blighted. In the short-term, the city will lose revenue, leaving Flint with less money to pay for police officers and firefighters, for garbage pickup and schools — or for repairs to or investment in its infrastructure, like the water system.

Flint’s water crisis exacerbates a cycle that has been taking place for decades in cities across Michigan: places like Flint or Detroit or Saginaw or Benton Harbor.

In Flint, it’s linked to the city’s economic travails — the departure of General Motors dealt a devastating blow to the city from which it has not recovered. And now, to its water, still not safe to drink, nearly five months after the State of Michigan admitted that the city’s water supply had been compromised.

People leave, thus tax revenue drops. The city has less money with which to provide basic services, so more folks move out — meaning there’s even less money. So more people leave.

Flint spent four years under a succession of state-appointed emergency managers, brought in to balance the city’s budget — along the way, endorsing or making a series of disastrous decisions that left the city’s water undrinkable.

Nor was the emergency managers’ basic charge — balancing the budget — successful. In the last fiscal year, the city’s deficit was about $7 million.

Even after Flint’s water is safe to drink, the city’s long-term problems, those made worse by the crisis, will remain. And that’s a reality neither Gov. Rick Snyder nor the Michigan Legislature have begun to publicly entertain.

“What kind of increase (in foreclosures) that will correlate to, I don’t know, but I would guess that it’s going to be pretty significant,” said Alex Alsup, chief product officer at Detroit-based data firm Loveland Technologies, which has worked extensively to chronicle Detroit’s blight and cycle of foreclosures. “The thing that needs to happen is, if the state is thinking about water bill reductions or paying off water bills, they need to be thinking about property taxes the same way.”

Facing the crisis

For nearly two years, water contaminated by coliform bacteria, a hodgepodge of ill-chosen chemicals, and finally, lead, has flowed through Flint’s pipes, into homes and businesses, exposing the nearly 100,000 residents of this town to terrible health risks. Slow to acknowledge the problem, and glacial in response once it had, the State of Michigan has finally begun to treat Flint’s water crisis as the public health catastrophe that it is.

Snyder’s budget proposal, released last week, envisions $195 million plowed into the city for emergency relief, infrastructure repair, services for children, who are most vulnerable to the serious, lifelong effects of lead poisoning, and $30 million for residents’ water bills — about half what Flint Mayor Karen Weaver says is required to keep the system intact.

All of this, and more, is necessary.

But none of it addresses the problem of Flint’s value, or the city’s long fight against blight.

Last year, Flint collected about $19 million in property taxes; that’s about 23% of the city’s $81-million general fund budget. The taxable value of all property in the city is about $750 million, according to the land bank. Collections have declined since 2004, when about 89% of Flint residents paid their property taxes promptly, the Free Press reported earlier this month. Now, it’s about 64%. And even after five years of emergency management, the city’s running a deficit — about $7 million last year.

Before the water crisis, Flint’s rate of foreclosure had stabilized, Cherry said, hitting consistent numbers each year. That was progress.

The land bank’s Weiland says the city’s high rate of poverty means some residents can’t afford to relocate. But even if folks don’t walk away, the prospect of reduced property assessments — granted when the value of a property is negatively impacted (by something like undrinkable water) — means tax revenue would shrink. Appraisers and real estate attorneys told the Free Press earlier this month that it is inevitable that many such assessment reductions would be requested, and granted.

Foreclosure law issues

Michigan’s foreclosure law, updated in 1999, shortens the span of time between a property’s first tax delinquency and foreclosure, and allows county treasurers some leeway in exercising foreclosure. If a city can’t collect property taxes, the delinquent bill is sent to the county, which attempts to collect for two years. At the third year, the property is foreclosed on, and put up for sale in the county’s tax auction. The whole idea is to get property into the hands of folks who’ll pay the taxes.

In places like Flint, it doesn’t work.

About 2,500 properties in Genesee County were put up for sale in last year’s tax foreclosure auction — including about 1,700 properties in Flint. Just 271 properties in the county-wide inventory were sold; 2,112 were transferred to the land bank. The land bank’s job is to keep such properties well-maintained, and out of the hands of speculators, preparing for the day when those parcels will again have value.

“The abandoned property we have, there’s very little market,” Weiland said. “I expect we’re going to be holding these properties for a long time” — but, he says, the land bank is still doing business, even after the water crisis.

Yet a land bank is palliative care, a way to deal with the problem of blight and abandonment after it has been created.

“As we’ve seen in Detroit, there are a lot of conditions and symptoms that are damaging to the city and its people, but it’s really the property taxes and this super-efficient foreclosure law that seems to have the greatest impact in displacing people from their property. It’s perpetuating cycles, expansion of vacancy and blight, so I would expect that if there’s not any kind of intervention, that’s going to be a pretty serious problem for the city,” Alsup says. “The whole country’s built on real estate values, property taxes and (losing that is) really what is toxic to the organism of the city.”

Cherry is near-militant about Flint’s plight. When the city hands its tax-delinquent properties to the county later this year, Cherry says, she’ll refuse to foreclose on homes considered tax-delinquent because of unpaid water bills attached as liens to property taxes.

“My attorney says I have the right to do that because they’re fraudulent water bills,” she said. “Unless something changes, that’s what our plan is.”

And it’s difficult to imagine any local or state official leading the charge to force Cherry to foreclose on homeowners with undrinkable water. And she says her office is often able to work with property owners to avoid foreclosures.

But again, Cherry’s best efforts can only stanch the bleeding.

The state’s response thus far to the Flint crisis has focused on the water. That’s important. But we’re just beginning to understand the span and depth of its reverberations — and what must be done to mitigate the harm.

Source: Detroit Free Press