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As tax cuts end, Detroit assesses enterprise zones

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Ellington Lofts manager Petra Russell lays out floor plans at her sales office in Detroit. Home buyers are taking advantage of a 12-year property tax break by buying in certain Detroit areas.

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Ellington Lofts is in a neighborhood enterprise zone at Mack and Woodward.

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JoAnn Knasiak and husband Ken have enjoyed a 50 percent tax break on their Victoria Park home on Detroit's east side.

As tax cuts end, Detroit assesses enterprise zones

Neighborhood designations enriched tony districts but left others out, critics say.

By Natalie Y. Moore / The Detroit News

DETROIT -- In a neighborhood of manicured cul-de-sacs and winding roads, JoAnn Knasiak has enjoyed her bi-level home since 1994. Since moving in, her house's value has doubled, to more than $200,000.

"I just fell in love with it," said Knasiak, a nurse. "The neighborhood was well-maintained, and people were conscientious about their homes."

The ample back yards and long driveways that characterize homes in her subdivision are reminiscent of Detroit suburbs. But guess again: Knasiak lives on the east side of Detroit, in Victoria Park -- one of 70 areas in the city where residents of new homes have been lured with the promise of property tax breaks.

These areas, called neighborhood enterprise zones, offer homeowners a 50 percent property tax cut for 12 years.

For Knasiak, who pays $1,500 in yearly property taxes, the honeymoon will soon be over. Her tax break ends in two years.

She and her neighbors were the guinea pigs of NEZs, as neighborhood enterprise zones are called, and as the first wave begins to expire, city officials and urban experts are assessing how well the designation works.

Developers say without the benefit, it's unlikely a crush of new condos and townhouses would have cropped up in the city.

They cite the emergence of new condos in Midtown and the New Center area as fruits of the zone designation.

However, critics insist that the enterprise zone should not be used for luxury housing but to enrich the most blight-ridden neighborhoods.

By offering the tax break, the city has sacrificed at least $6.9 million in potential taxes since 1995. But city officials say no new taxes would have been generated if the NEZs did not exist.

"You can see why this is necessary for us to do," said Detroit Chief Financial Officer Sean Werdlow, noting that before 1992, few new houses were built.

'Wonderful incentive'

Ehrlich Crain is a vice president at Crosswinds, a development company that uses neighborhood enterprise zones, including five in Detroit.

He lives in the tony University District but soon will trade in his house for a custom home near the Detroit River. Ehlrich and his wife, Yolanda, will benefit from the NEZ.

"Without [NEZs], it'd be difficult to attract residents back to the city," said Crain, 47. "Buyers shopping in new communities are expecting that now."

Empty nesters, young urbanites and childless couples are jumping at the chance to live in a $200,000-plus place, with a 12-year tax break.

David Ellis, 59, is bidding on a $260,000 new townhouse on Ferry Street near his job at the Detroit Medical Center. He and his wife have never lived in the city. The couple, relocating from East Lansing, is excited to avoid lawn detail and live near cultural treasures such as the Detroit Symphony Orchestra.

"Obviously, the tax break is a wonderful incentive," Ellis said. "We think (the house's price) is a steal."

The City Planning Commission recently completed a report on NEZs. It suggested that each future project be required to have at least 20 percent affordable units -- and if not, the tax abatement should be reduced from 12 years to six years.

As Detroit looks to diversify its population and available housing, some say it should be done in a more methodical way.

"There needs to be as many ways to target redevelopment in certain areas," said Robin Boyle, professor of urban planning at Wayne State University, suggesting clusters or a village concept of housing to direct subsidies. What's more, he said, is the lack of transit-oriented development in Detroit. "That's the very big picture," Boyle said.

Luxury prices

Critics of the zones say they are used unfairly to price out some residents.

The Park Shelton on Woodward faces the Detroit Institute of Arts. The historic high-rise is being rehabilitated and turning condo with hopes of becoming a neighborhood enterprise zone. Tenants in the building are upset about having to move out. When completed, some units will go for more than $300,000.

Angela Jones, 33, who rents a one-bedroom apartment at Park Shelton for $750, doesn't want to move but can't afford to buy.

"The NEZs have become a way to abuse the system because what's happening is the NEZs aren't taking into consideration long-term residents of the area or they're being used where the community is not blighted," Jones said.

She and others have gone before city council, which usually approves NEZs without a hitch, with their grievances. Local entities have the authority to tweak requirements for the zones and some council members want to take that up after the first of the year.

"[NEZs] were not to make luxury units more affordable," Councilwoman Barbara-Rose Collins said. She added that people who can afford high-end housing don't need a tax break.

Former deputy mayor and one-time city assessor Freman Hendrix, who is likely running for mayor in 2005, said the zoning policy needs to be reviewed because old buildings available for loft conversion or property near the river are unique assets to Detroit and would already draw development. So tax abatements should be used in special situations, he said, in part to prevent developers from making tons of money off the designation.

Jay Rosenthal, project coordinator for Ram Development, which has a loft project at Woodward and Mack, said developers don't line their pockets when they get a NEZ. The market determines the price point, he said.

"When its new construction, the tax implication can be large and the 12-year NEZ offers a significant reduction in that tax issue," he said. "It helps in marketing and competing with suburban properties and making it attractive and making it financially feasible for some."

Meanwhile, homeowners in established neighborhoods such as Indian Village, Boston-Edison and Palmer Woods want their high tax rate lowered.

Michael Einheuser and wife Diane Willard live in an elegant, 6,000-square-foot house in Palmer Woods and pay $19,000 yearly in property taxes.

Nearly two years ago, he started the Detroit Tax Forum, an online group pressuring the city to make its tax policies competitive with those in surrounding communities.

"I've lived in the city all my life. We're committed to be here but that commitment isn't enough to save the city. I doubt we're ever going to move. I worry when I look at the population decline. ... It's not just white flight but green flight," said Einheuser, referring to green as the financial and tax pressures that drive people out of Detroit.

Mayor Kwame Kilpatrick has hinted for more than a year about offering those in established neighborhoods some type of property tax cut. He is expected to propose a plan in the next 30 to 45 days.

"We are evaluating several areas in which we could enhance the city's financial condition," said spokesman Howard Hughey. "Certainly the idea of some tax relief could possibly help to retain and or stimulate our middle class tax base."

You can reach Natalie Y. Moore at (313) 222-2396 or [email protected]

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