April 1, 2021 • 33 mins
Homeownership has been a main source of intergenerational wealth in the U.S. But it’s one that is out of reach for many Black Americans. Decades after fair housing reforms, the dramatic disparity between Black and White homeownership isn’t getting any better. In this episode, we look at why this gap persists, with many Black homes overtaxed, undervalued and unjustly foreclosed on.
The focus of our story is one problem that's a “textbook case of institutional racism”: In thousands of U.S. counties, the method for calculating property taxes means Black Americans are experiencing unfairly high taxes. It's the reason why Di Leshea Scott is renting a home she used to own.
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Speaker 1 (00:03):
For most of my family members. Holding onto our land
in Gilmour, Texas was simply more trouble than it was worth.
What started with eighty acres of potential farmland or property
to extract resources from, turned into a liability over time,
Why taxes. My name is plus Maurice Montgomery, the third.
(00:27):
You might remember Plas from episode one. He's a computer
technician by trade and lives in Dallas. He came into
about two acres in much the same way my dad did.
It was passed down to him from my great great
aunt and uncle. The Broodics Pleas, more than any relative
(00:48):
I spoke to, has tried to make something of our
family's land. He leased the trees on it to a
timber company, he sold oil rights. He even toyed with
the idea of turning it into a farm. But as
time went by, he decided to give up on the land. Basically,
what I decided to do, or what I wanted to do,
(01:09):
was to simply sell the land so that it was
no longer a liability on me or my family. The
problem was his tax bills kept going up. When I
first started following this, I'd get tax statements every year
from ups your county. The the whole thing would come
out to maybe undred two thousand dollars, okay, two thousand
(01:36):
dollars a year, yes, And then suddenly the tax statements
I would get they started to increase exponentially. The last
statement I remember was right around and when when when
this this this increase took place. It went up to
(02:00):
ten thousand dollars, and then I noticed so I increases
over the next few years. And then in two thousand
five or so, the statement I got indicated almost a
twenty dollar tax liability and it continued to rise from
(02:24):
there over the years. Plus its tax liability gained as
he fell behind on payments. It's also made it hard
for him to find a buyer who would take on
those unpaid taxes. In a wide ranging interview, the mayor
of Gilmour, Tim Marshall described the essential role of property
taxes and funding local projects. I think what people are
(02:45):
expecting are they're expecting their infrastructure to be maintained, and
people don't understand. Sometimes it's the infrastructure, even though a
little small town like this is the sewer, water, streets
in different things like that, the police department, the fire department.
There's a lot of inner workings within the city, and
the value of your land typically most people around, has
(03:06):
gone down a little bit. So by raising your taxes
a little bit the right we generate the same amount
of money. No one disputes the need of a county
or district to raise funds for schools and roads. But
for many Black Americans, like Pleas, high tax bills have
also become the greatest burden on land ownership, and in
thousands of US counties, something more is happening. Black Americans
(03:30):
are experiencing unfairly high taxes. In today's episode, we'll take
you to one of those places. How the statistics are
other cruel. The gap between the average income for Negroes
(03:53):
in this country and the average income for lights has
not clued. Do you think a Negro family and moving
here will affect the community as a whole? I think that, well,
the property utters will immediately go down if they are
allowed to move in here on any number. So much
bitterness built up in a person and resentment when you
know that you're being segregated again simply because you're black. OK.
(04:16):
At the bottom of the economic letter, the bottom of
the housing letter, the bottom of the educational letters. We
have lived. I'm leaving town on Andition for how many years?
Before hundred years? I was prepared to try to get
used to having a colored family on the block. Now
there's another one across the street. You pretty soon they'll
(04:38):
be one next door, and before you know what, those
streets are gonna start looking like Harlo Well. I don't
want to live in a colored slum. I don't want
to live in a colored slum? Is that terrible? Welcome
back to the paycheck. I'm Rebecca Greenfield and I'm Jackie Simmons.
(05:00):
In the US, owning property has been a major driver
of wealth creation. Last week, we talked about land ownership
and how black farmland in particular has been chipped away
over the years. This week, we're turning our attention to
the heart of the American dream, owning a home. As
we talked about previously, race and racism has a lot
(05:23):
to do with who historically has had access to the
US housing market, and we see those legacies play out
in the stats today. Nearly three quarters of white families
own homes, while less than half of black families do.
This has how white people build wealth in all sorts
of ways. What's even more troubling is that these disparities
(05:43):
aren't getting any better. In Black home ownership rates had
a record low since at least ninety There are lots
of reasons for that, but at least some of it
has to do with taxes. A new Bloomberg Business investigation
uncovers how an unfair taxation system is hitting black homeowners hardest.
(06:06):
Jason Grotto has the story, I want to take you
on a journey of what it's like for me when
I have to pay my rent every month. I don't
It's the last weekend of the month. So Dilicias Scott
(06:28):
is on her way to the post office. Ah, can
I have a money order? I need a money order?
Where is it going to for a payment? From there,
she drives north on the freeway, just past Detroit's city
(06:48):
limit to hand deliver her rent to a drab office
building Noble for Era. So if I drop it off myself,
driving here, I know a gay here, I see that
it went into the building, so no one can say, well,
we didn't get her payment. This monthly ritual leaves her
feeling angry and frustrated. That's because this isn't just any
(07:11):
house she's renting. She's been running a home that for
years she used to own. It's not just a rental property.
This is my home right. I raised my children in
this space, my one thought since he was two years old,
my other six kids five or six. We did things
(07:34):
in a home that you can't take out. I can
pack up my tangible stuff, but I can't pack my memories.
Despite the trouble it's caused her, Dilicia clings fiercely to
the two story tutor where she's lived with her three
children for sixteen years. The landlord refuses to give her
a lease or fix the collapsing back porch, and when
(07:57):
it rains well, she needs three buck gets upstairs to
catch water from the leaky roof. You can tell, brain,
and you can tell how hard you cant will pour
in in the drift. So like if I'm sleeping in
the middle of the night and it's start the storm,
(08:17):
and it's right in real hard, the drifts wants like
a bucket. The story of how Dilicia lost her home
is tied up in an injustice that has gone on
for years and touches nearly every community in the country.
It's a problem that has contributed to the racial wealth
gap by saddling lower income, mostly black communities with burdens
(08:42):
that wealthier and wider ones avoid. It's a systematic injustice
that lurks in the most mundane of manners, municipal property taxes.
Dilicia lost her home in two thousand fourteen because she
fell three years behind on her party taxes. She got
laid off from her job at a domestic violence shelter
(09:04):
during the Great Recession. Then her partner, the father of
her kids, left, drastically reducing the family's monthly income. It
took her two years to find a job at a
new shelter. By then, the fees and fines from missing
payments compounded the money she already owed, leaving her stuck
in a crushing cycle. I fell into depression. There was
(09:27):
days where I didn't even realize that my kids had
to go to school, Like I just couldnt get out
of the bed. My mental capacity just wasn't there to
recoup the unpaid taxes. Wayne County, Michigan, foreclosed on her home,
which she had purchased in two thousand and five for
sixty three eight hundred dollars. Then the county auctioned it
(09:50):
off in November two thousand fourteen, and a Utah based
investment company snapped it up for just forty dollars. Since then,
the house is old two more times two different investors.
The last sale in February fetched eighty four thousand dollars,
eighteen times the price paid six years earlier. Dilysia meanwhile
(10:13):
lost her entire investment. In fact, she pays more now
in rent than she did when she had a mortgage.
But here's the catch. She never should have lost her
home because their tax bill should never have been that
high in the first place. For years, Detroit city officials
(10:38):
used wildly and accurate valuations of the house to calculate
Dilysia's property tax bills, artificially inflating them by about fifty
eight hundred dollars more than she should have paid, according
to a Bloomberg analysis of her tax records. Once she
fell behind, late fees and other penalties made it even
harder to catch up. After missing two more bill, she
(11:00):
was nearly ten thousand dollars in the whole Hers was
among tens of thousands of homes in Detroit's lower income
black neighborhoods That city officials routinely overvalued for tax purposes. Meanwhile,
homes and affluent areas were systematically undervalued, reducing the taxes
those homeowners paid. Detroit officials have admitted they over taxed
(11:25):
about a hundred and thirty thousand people between two thousand
and ten and two thousand and thirteen, but they say
that now, while mistakes do happen, the system overall is fair.
That assessment is disputed by Christopher Barry, who first uncovered
these inequities. A public policy professor at the University of Chicago,
(11:46):
Chris has been studying property tax systems for years. I
met him while working as a reporter in Chicago, where
he started documenting unfair assessments. He didn't realize that at
the time, but he was about to embark on years
research uncovering the fundamental unfairness of property taxes. I had
kind of been thinking of this as one of these
(12:07):
only in Chicago sort of phenomena, and there's just so
many things like this that you get used to if
your person that lives here in Chicago. But as that
Chicago work began to do to get attention, I started
to hear from people elsewhere, and first it was you
know some activists in Detroit who said, hey, you know,
we read about what's going on in Chicago and the
work you did there. We're having the same issues here.
(12:28):
You should take a look. And then it was you know,
a lawyer in New York says, we've got a lawsuit
going on similar issues here. And then as a reporter
in St. Louis, you know, every place I look, I'm
finding something similar. You know, the names changed, some of
the details are different, but the overall pattern of unfairness
and equity is just repeated place after place. Chris found
(12:49):
that in cities and towns across the US, local officials
have systematically overvalued the lowest priced homes relative to the highest,
creating higher effective tax rates for those who can least
afford to pay. From two thousand and six through two
thousand sixteen, inaccurate valuations gave the least expensive homes in
Baltimore an effective tax rate that was more than two
(13:11):
times higher than the most expensive in New York City.
It was three times higher in St. Louis, almost four
In theory, these taxes should be completely fair. Property taxes
are what's known as ad valorum Latin for according to value.
Every property in a given place is supposed to be
(13:34):
taxed at the same effective rate. What determines that rate
is the value of the property, and that's where things
go wrong. Chris found the nature of the problem is
that people that own lower priced homes are systematically having
their homes valued at more than their worth, while people
at the top are systematically having their homes valued at
less than their worth. And when the values are not right,
(13:56):
and the values are unequal, then the taxes which are
just comp huteed based on those values are also going
to be unequal. Chris found the property tax is deeply
unfair because it's regressive. That means the burden of the
tax falls heavier on lower income people. It's the opposite
of progressive taxes such as the federal income tax, which
(14:19):
applies higher rates to people with higher incomes. And that's
a big deal because Americans pay more than five hundred
billion dollars a year in property taxes. That pays for
public safety, schools, sanitation, and all the other services cities
and towns provide. This as a matter of equity and
(14:42):
our our values as a society. There are lots of
reasons why people may argue about progressive taxation. I mean,
should should the rich pay more? But there's really nobody
who's making a normative argument in favor of regressive taxation,
right that as a matter of principle, we should have
the poor pay more. This isn't happening in a vacu.
The disparities hurt Black communities disproportionately because the legacy of
(15:05):
racial discrimination has left those communities with a larger share
of lower priced homes. The median home value in black
census tracks is nearly half of what it is in
majority white and Hispanic ones, according to a Bloomberg analysis.
So the way that shakes out is black homeowners end
up paying more in property taxes relative to their market
(15:25):
value than white ones. This is just a textbook example
of institutional racism or systemic racism, or whatever you'd like
to label it. And what I mean by that is,
I don't think there's anybody in the assessor's office who's
(15:47):
sitting there and explicitly saying, hey, let's go in the
black neighborhoods and you know, jack up their assessments, and
then let's go into the white neighborhoods and make them
lower up but nevertheless, the outcomes that we see from
the system are racially disproportionate, and that's the very definition
of sort of institutional racism. But of course, these kinds
(16:11):
of disparities are rooted in a history of racial discrimination
that is explicit, and it's impossible to understand why this
taxation disproportionately affects black communities without talking about the US
legacy of housing segregation. I sat down with Bretton Mock
of Bloomberg City Lab. He's been covering this for a while. Hey, Breton,
(16:39):
thanks for joining us. Yeah, thanks for having me on.
I'm excited to dig into this. Yeah. Well, it all
starts with home ownership, which is one of the primary
ways that many Americans accumulated wealth in the twentieth century.
But it's one that white families have been able to
capitalize on in ways that black families have not. And
this runs so much deep for than property taxes, right,
(17:01):
I mean, the history here helps explain why Black Americans
are the ones with lower valued homes to begin with. Yeah,
and here's the irony. You talked about homes being overvalued
when it comes to setting the property tax rate. Well,
many of those same homes are being undervalued by a
different set of appraisers when it comes to deciding what
(17:21):
they're worth on the market. Because of racial segregation, properties
and majority black communities have historically been appraised at much
lower values and sold at lower prices than similar properties
and majority white neighborhoods. That kind of price coding has
pretty much been cemented in the housing market thanks to
the practice of redlining. Redlining Katerina talked about that in
(17:45):
episode two. How does that fit into our story? Yeah,
Like Katerina explained, redlining was a government sanctioned program for
deciding that entire neighborhoods would be considered risky by giving
them a grade between A and D. Black neighborhoods were
routinely graded D and literally shaded and read on real
estate maps in just about every city in the US.
(18:08):
This practice pretty much ensured that very few people in
black neighborhoods would be able to purchase houses or even
get loans to improve homes that were already purchased. But
those laws have been reformed now have fair housing laws
at least begun to reduce the gap between white and
black home appraisals. Well, that's the crazy part. Yes. Starting
(18:29):
in nine eight with the Fair Housing Act, these particular
practices were banned. But actually, recent research has found that
the gap between appraisal values of black and white homes
has widened. The gap is being exacerbated because the praisers
currently decide to homes value by looking at the selling
prices of surrounding homes without any kind of correction. That
(18:51):
history of low values has just compounded over time. But
what does that disparity mean in economic terms? So I
spoke with Andre Perry at the Brookings Institution to help
put this into context. I worked with him on a
book several years ago about undervalued black properties. Since then,
he's done a study to quantify differences in black home values.
(19:14):
He explained how, after controlling for all housing and neighborhood factors,
homes and black neighborhoods were under priced in appraisals compared
to white neighborhoods. By here's Andre, accumulatively, that's about a
hundred billion in lost equity. And that's just in alone.
I always put it in in um perspective. Um, the
(19:36):
hundred fifty six billion would have financed more than four
point four million black owned businesses based on the average
amount Blacks used to start up their firms, they would
have paid for more than eight million UM college degrees
based on the average amount of a public education. Now,
this is money that is really robbing people of the
opportunity to lift themselves up. And remember where we started
(20:00):
this conversation, the racial wealth gap. These differences matter because
home massets are supposed to appreciate as they are passed
down through generations. As Andre puts it, wealth begets wealth.
So if you are able to own a home, if
your grandfather was able to own a home and they
(20:21):
and here's he had children, he could pass on the
equity gained from that house to the child, or UM
you can apply it to um the college education, you
can use it to start a business. Remember most people
start their their business using the equity in their home.
(20:43):
So UM, if you did not have if your grandfather
great grandfather could not own a home, it's it's less
likely you're going to be able to have wealth. Dilicia
(21:06):
is acutely aware of this relationship between home ownership and wealth.
It's why she's so doggedly committed to buying her home back,
despite the perversity of the costs she has already borne.
Like so many other parents, She's concerned about leaving her
three kids an asset that will give them a leg
up because she believes they'll be better off in the
(21:27):
long run. For her, the house could be a source
of foundational wealth. You know, I just want to leave
them more than a couple of insurance policy. And that's
that's the only thing. A couple of insurance policy and
a ragny car. That's the only thing I have to
offer them right now. And that's not fear for them.
(21:49):
And I have to think about my mortality. I have
to think about a plan. What is going to happen
to them? Um, I don't want them even if if
if I'm a going to buy this house, I don't
want them to have to live there for the rest
of them their lives. Like but I want them to
have an asset right. Dilicia lost the home after was
(22:11):
overvalued by a property tax assessor. Even though many of
the same homes get undervalued when it comes to appraising
their market price, how does that happen? To understand that,
you need to get an idea for how local tax
officials determine the value of homes. Unlike appraisers assessors aren't
able to visit every home in the city. Instead, they
(22:33):
look at the prices of homes that have sold within
the last year or so. They then use computer models
to estimate the value for all the homes in the area.
But those computer models are only as good as the
data going into them. It turns out there are some
significant gaps in the data, and those gaps lead to
some pretty serious errors that cause unfair assessments to creep in,
(22:56):
especially for people in lower valued homes. Chris explains, I
often try to explain this to people by imagining that
we did income taxes the same way we did property taxes.
So imagine that the i r S each year only
got a W two for about one percent of the population.
(23:16):
So for one percent of the people, the i r
S actually knows what your income was, and for the
other people they have to guess. They have to guess
what your income is. And as a taxpayer, you don't
file taxes. You just get a letter from the hares
each year saying, hey, we guessed that you made a
hundred thousand dollars last year. Here's your tax bill. That's
(23:38):
how we do property taxes. And if we did income
that way. I think it would be pretty obvious to
people the ways in which that would be sort of
incorrect and unfair. Just to build on the professor's analogy,
local property tax officials do a bit more than just
flat out guessing. They try to compare similar homes. Say
a four bedroom, two bathroom branch sells for two dollars.
(24:02):
Local officials will use that information to help guide how
they assess the value of other four bedroom to bathroom
ranch houses in the same area or neighborhood. If the
i R S used that same method to set income taxes,
the resulting unfairness becomes pretty clear. Suppose they knew nothing
about you at all. The best they could guess is
(24:23):
that you were making the average income. They'd say, we
think you made the average income last year. Pay taxes
on the average income. Well, that's really bad for people
who earned below the average, because they're being treated as
if they earned more than they did, and they're paying
taxes that are too high. But it's a great deal
for people who were above average, because they're being told
(24:44):
they were average and they're paying taxes that are too low.
And so you can already see the inequity that's built
in this kind of averaging. That's what would happen if
they had no data about you at all. Even with
a little more data, the method that local officials used
to set property values just isn't robust enough to capture
(25:07):
important differences in market values among different homes for people
like Delicia, those flaws can be disastrous. In fact, in
places like Detroit, they just don't keep black families from
acquiring and passing down wealth, they contribute to the actual
destruction of it. One of the things we know about
that the whole property tax process is that when people
(25:29):
can't pay, they are subject of various kinds of sanctions
by the state. And so you may have had your
home systematically over tax overcharged too much, and then if
you can't pay those unfair taxes, you might lose your
home due to a tax foreclosure, or you might have
your home sold from out from under YouTube some kind
(25:50):
of investment firm that that is going around buying up
these low value at homes. And you know, there's nowhere
in the country where this has been a bigger problem
than Detroit, where fully one quarter of all home in
Detroit have been foreclosed on for failure to pay taxes.
I'm not talking about any mortgage foreclosure here, but in
fact a tax foreclosure. In fact, Detroit officials have admitted
they over taxed tens of thousands of people. Yet the
(26:14):
property tax system is so complicated that Dilicia didn't find
out about being overtaxed until she read about Chris's work
in her local newspaper in February two thowy six years
after she lost her home. Soon after, she reached out
to him, but by that point there was nothing she
could do about it. It's embarrassing right there. I feel
(26:36):
like there is no safe place for me to hand
this conversation because I'm going to get a judge one
way or another. Uh, you know, it's it's a lot.
I feel betrayed too. Yeah, I feel left behind. I
feel left behind. And then and then well, last year,
to learn that I was overtaxed why five thousand. It
(27:01):
makes me sad, It makes me depress, It makes me
feel like a failure. And that's another consequence of broken
tax systems. People like Dilicia are forced to process and
struggle with the shame of it all, even though what's
happened isn't her fault because she was treated unfairly. In fact,
(27:22):
Dilicia is so ashamed that six years on she still
hadn't told her children that she had lost the home.
I'm gonna eventually have to have that conversation. I don't
know how, UM, but I figure I have to get
myself a time frame because I don't know. UM is
(27:42):
very scary right now, not being on the least um.
But I have to have a plan for them, Like
I just can't just say like, oh, this is it
and okay, see you guys later. They don't deserve this.
My daughter actually she looked it up and she said, huh,
(28:02):
I was on this site. This is a couple of
months ago, and I was on this site, and it's
that our house was stolen in February. And that's it. Girl,
I don't know what you're talking about. Since Detroit officials
admitted to pass problems, they say they fixed the system
and that now it's fair. Yet Chris is found that
(28:26):
property taxes in Detroit continue to be really regressive still.
Alvin Horne, the city's top assessment official, has come out
against Chris's findings. Here. He is at a recent press
conference evaluation, and a very smart person once told me this,
there's an art, not a science. You have the facts,
but you also have to understand the market Detroit as
(28:47):
a unique market, and you can't. You can't get those
nuances simply from a sales study. You have to live
here and you have to understand what's going on here
to understand valuation. At that same press conference, he and
Detroit Mayor Mike Duggan criticized Chris for refusing to share
the data underlying the study, but later, in an interview
(29:10):
with me, the top possessor admitted he had seen the data,
saying that on average, Detroit system is fair, while acknowledging
that mistakes can still happen. The data say otherwise. In fact,
I replicated parts of Chris's analysis and found the same thing,
Detroit system remains deeply unfair. Despite everything she's been through,
(29:36):
Dilicia still holds onto the hope that she can buy
back her home. To try to save for a down payment,
she took on a second job in October, delivering food
via door dash. Usually, what what happens a typical day
for me during a week is, um I go to work,
like when I work on site, I'll go to work.
(29:56):
Then straight from work, I get in my car, I
turned my dash app and I started dashing to probably
about ten eleven o'clock at night. Then I do it
again on the weekend. Sometimes when she's out delivering food
in more affluent neighborhoods, Delicia can't help but consider all
(30:17):
that's happened to her. I don't need fancy homes, and
they just so nice. They all lit up and beautiful
and um. Last night I went to a house and
they had like about five or six brand new cars
in the driveway. And all I think of when I
see this, like this is nice, this is real nice.
All I want is my piece of like like like,
(30:41):
I'm sure it would be nice, but I just want
what what I've worked so hard for. Lisa's experience shows
one way the system keeps many black families off the
wealth ladder that is home ownership. For plays back in Texas,
(31:05):
there was never going to be a farm or profits
from oil or timber. Instead, with no buyer in sight,
he's stuck with the land and is now on the
hook for at least sixty dollars and taxes and penalties.
That's on top of as much as sixteen thousand dollars.
He says he and some family members have already paid
(31:26):
for the record. I dug into county documents and talked
to local officials. Indeed, his tax bill jumped between two
thousand nine and two ten, more than double, but the
county tax assessor says that overall the tax liability is
where it is because he hasn't paid taxes as they
came to Plas, is now facing foreclosure, and between his
(31:49):
Social Security checks and some income from a side business
fixing computers, he makes sense meet, but says sometimes he's
just living paycheck to paycheck. For the next few episodes,
we'll be looking at ways to close the racial wealth gap.
(32:11):
First up, a program that works, but it's highly controversial.
Without that extra step, you know, I may would have
done okay in life, but I doubt if I would
have I would have gotten a PhD by the time
I was twenty six, and I doubt if I would
have been a profess at the age. Thanks for listening
(32:33):
to The Paycheck. If you like the show, please rate, review,
and subscribe wherever you get your podcasts. This episode was
hosted by me Rebecca Greenfield and Me Jackie Simmons. Today's
episode was edited by Nicole Flato and Francesco Leady. It
was reported with the help of Jason Grotto and Brenton Mock.
This episode was produced by Magnus Hendrickson. We also had
(32:57):
production help from Lindsay Cradowell and editing help Janet Paskin,
Rock Shoto, Soluja, John Boskell, Jackie Simmons and me. Our
original music is by Leo Sidrome. Francesca Levie is Bloomberg's
head of podcasts. We'll see you next time.
For most of my family members. Holding onto our land
in Gilmour, Texas was simply more trouble than it was worth.
What started with eighty acres of potential farmland or property
to extract resources from, turned into a liability over time,
Why taxes. My name is plus Maurice Montgomery, the third.
(00:27):
You might remember Plas from episode one. He's a computer
technician by trade and lives in Dallas. He came into
about two acres in much the same way my dad did.
It was passed down to him from my great great
aunt and uncle. The Broodics Pleas, more than any relative
(00:48):
I spoke to, has tried to make something of our
family's land. He leased the trees on it to a
timber company, he sold oil rights. He even toyed with
the idea of turning it into a farm. But as
time went by, he decided to give up on the land. Basically,
what I decided to do, or what I wanted to do,
(01:09):
was to simply sell the land so that it was
no longer a liability on me or my family. The
problem was his tax bills kept going up. When I
first started following this, I'd get tax statements every year
from ups your county. The the whole thing would come
out to maybe undred two thousand dollars, okay, two thousand
(01:36):
dollars a year, yes, And then suddenly the tax statements
I would get they started to increase exponentially. The last
statement I remember was right around and when when when
this this this increase took place. It went up to
(02:00):
ten thousand dollars, and then I noticed so I increases
over the next few years. And then in two thousand
five or so, the statement I got indicated almost a
twenty dollar tax liability and it continued to rise from
(02:24):
there over the years. Plus its tax liability gained as
he fell behind on payments. It's also made it hard
for him to find a buyer who would take on
those unpaid taxes. In a wide ranging interview, the mayor
of Gilmour, Tim Marshall described the essential role of property
taxes and funding local projects. I think what people are
(02:45):
expecting are they're expecting their infrastructure to be maintained, and
people don't understand. Sometimes it's the infrastructure, even though a
little small town like this is the sewer, water, streets
in different things like that, the police department, the fire department.
There's a lot of inner workings within the city, and
the value of your land typically most people around, has
(03:06):
gone down a little bit. So by raising your taxes
a little bit the right we generate the same amount
of money. No one disputes the need of a county
or district to raise funds for schools and roads. But
for many Black Americans, like Pleas, high tax bills have
also become the greatest burden on land ownership, and in
thousands of US counties, something more is happening. Black Americans
(03:30):
are experiencing unfairly high taxes. In today's episode, we'll take
you to one of those places. How the statistics are
other cruel. The gap between the average income for Negroes
(03:53):
in this country and the average income for lights has
not clued. Do you think a Negro family and moving
here will affect the community as a whole? I think that, well,
the property utters will immediately go down if they are
allowed to move in here on any number. So much
bitterness built up in a person and resentment when you
know that you're being segregated again simply because you're black. OK.
(04:16):
At the bottom of the economic letter, the bottom of
the housing letter, the bottom of the educational letters. We
have lived. I'm leaving town on Andition for how many years?
Before hundred years? I was prepared to try to get
used to having a colored family on the block. Now
there's another one across the street. You pretty soon they'll
(04:38):
be one next door, and before you know what, those
streets are gonna start looking like Harlo Well. I don't
want to live in a colored slum. I don't want
to live in a colored slum? Is that terrible? Welcome
back to the paycheck. I'm Rebecca Greenfield and I'm Jackie Simmons.
(05:00):
In the US, owning property has been a major driver
of wealth creation. Last week, we talked about land ownership
and how black farmland in particular has been chipped away
over the years. This week, we're turning our attention to
the heart of the American dream, owning a home. As
we talked about previously, race and racism has a lot
(05:23):
to do with who historically has had access to the
US housing market, and we see those legacies play out
in the stats today. Nearly three quarters of white families
own homes, while less than half of black families do.
This has how white people build wealth in all sorts
of ways. What's even more troubling is that these disparities
(05:43):
aren't getting any better. In Black home ownership rates had
a record low since at least ninety There are lots
of reasons for that, but at least some of it
has to do with taxes. A new Bloomberg Business investigation
uncovers how an unfair taxation system is hitting black homeowners hardest.
(06:06):
Jason Grotto has the story, I want to take you
on a journey of what it's like for me when
I have to pay my rent every month. I don't
It's the last weekend of the month. So Dilicias Scott
(06:28):
is on her way to the post office. Ah, can
I have a money order? I need a money order?
Where is it going to for a payment? From there,
she drives north on the freeway, just past Detroit's city
(06:48):
limit to hand deliver her rent to a drab office
building Noble for Era. So if I drop it off myself,
driving here, I know a gay here, I see that
it went into the building, so no one can say, well,
we didn't get her payment. This monthly ritual leaves her
feeling angry and frustrated. That's because this isn't just any
(07:11):
house she's renting. She's been running a home that for
years she used to own. It's not just a rental property.
This is my home right. I raised my children in
this space, my one thought since he was two years old,
my other six kids five or six. We did things
(07:34):
in a home that you can't take out. I can
pack up my tangible stuff, but I can't pack my memories.
Despite the trouble it's caused her, Dilicia clings fiercely to
the two story tutor where she's lived with her three
children for sixteen years. The landlord refuses to give her
a lease or fix the collapsing back porch, and when
(07:57):
it rains well, she needs three buck gets upstairs to
catch water from the leaky roof. You can tell, brain,
and you can tell how hard you cant will pour
in in the drift. So like if I'm sleeping in
the middle of the night and it's start the storm,
(08:17):
and it's right in real hard, the drifts wants like
a bucket. The story of how Dilicia lost her home
is tied up in an injustice that has gone on
for years and touches nearly every community in the country.
It's a problem that has contributed to the racial wealth
gap by saddling lower income, mostly black communities with burdens
(08:42):
that wealthier and wider ones avoid. It's a systematic injustice
that lurks in the most mundane of manners, municipal property taxes.
Dilicia lost her home in two thousand fourteen because she
fell three years behind on her party taxes. She got
laid off from her job at a domestic violence shelter
(09:04):
during the Great Recession. Then her partner, the father of
her kids, left, drastically reducing the family's monthly income. It
took her two years to find a job at a
new shelter. By then, the fees and fines from missing
payments compounded the money she already owed, leaving her stuck
in a crushing cycle. I fell into depression. There was
(09:27):
days where I didn't even realize that my kids had
to go to school, Like I just couldnt get out
of the bed. My mental capacity just wasn't there to
recoup the unpaid taxes. Wayne County, Michigan, foreclosed on her home,
which she had purchased in two thousand and five for
sixty three eight hundred dollars. Then the county auctioned it
(09:50):
off in November two thousand fourteen, and a Utah based
investment company snapped it up for just forty dollars. Since then,
the house is old two more times two different investors.
The last sale in February fetched eighty four thousand dollars,
eighteen times the price paid six years earlier. Dilysia meanwhile
(10:13):
lost her entire investment. In fact, she pays more now
in rent than she did when she had a mortgage.
But here's the catch. She never should have lost her
home because their tax bill should never have been that
high in the first place. For years, Detroit city officials
(10:38):
used wildly and accurate valuations of the house to calculate
Dilysia's property tax bills, artificially inflating them by about fifty
eight hundred dollars more than she should have paid, according
to a Bloomberg analysis of her tax records. Once she
fell behind, late fees and other penalties made it even
harder to catch up. After missing two more bill, she
(11:00):
was nearly ten thousand dollars in the whole Hers was
among tens of thousands of homes in Detroit's lower income
black neighborhoods That city officials routinely overvalued for tax purposes. Meanwhile,
homes and affluent areas were systematically undervalued, reducing the taxes
those homeowners paid. Detroit officials have admitted they over taxed
(11:25):
about a hundred and thirty thousand people between two thousand
and ten and two thousand and thirteen, but they say
that now, while mistakes do happen, the system overall is fair.
That assessment is disputed by Christopher Barry, who first uncovered
these inequities. A public policy professor at the University of Chicago,
(11:46):
Chris has been studying property tax systems for years. I
met him while working as a reporter in Chicago, where
he started documenting unfair assessments. He didn't realize that at
the time, but he was about to embark on years
research uncovering the fundamental unfairness of property taxes. I had
kind of been thinking of this as one of these
(12:07):
only in Chicago sort of phenomena, and there's just so
many things like this that you get used to if
your person that lives here in Chicago. But as that
Chicago work began to do to get attention, I started
to hear from people elsewhere, and first it was you
know some activists in Detroit who said, hey, you know,
we read about what's going on in Chicago and the
work you did there. We're having the same issues here.
(12:28):
You should take a look. And then it was you know,
a lawyer in New York says, we've got a lawsuit
going on similar issues here. And then as a reporter
in St. Louis, you know, every place I look, I'm
finding something similar. You know, the names changed, some of
the details are different, but the overall pattern of unfairness
and equity is just repeated place after place. Chris found
(12:49):
that in cities and towns across the US, local officials
have systematically overvalued the lowest priced homes relative to the highest,
creating higher effective tax rates for those who can least
afford to pay. From two thousand and six through two
thousand sixteen, inaccurate valuations gave the least expensive homes in
Baltimore an effective tax rate that was more than two
(13:11):
times higher than the most expensive in New York City.
It was three times higher in St. Louis, almost four
In theory, these taxes should be completely fair. Property taxes
are what's known as ad valorum Latin for according to value.
Every property in a given place is supposed to be
(13:34):
taxed at the same effective rate. What determines that rate
is the value of the property, and that's where things
go wrong. Chris found the nature of the problem is
that people that own lower priced homes are systematically having
their homes valued at more than their worth, while people
at the top are systematically having their homes valued at
less than their worth. And when the values are not right,
(13:56):
and the values are unequal, then the taxes which are
just comp huteed based on those values are also going
to be unequal. Chris found the property tax is deeply
unfair because it's regressive. That means the burden of the
tax falls heavier on lower income people. It's the opposite
of progressive taxes such as the federal income tax, which
(14:19):
applies higher rates to people with higher incomes. And that's
a big deal because Americans pay more than five hundred
billion dollars a year in property taxes. That pays for
public safety, schools, sanitation, and all the other services cities
and towns provide. This as a matter of equity and
(14:42):
our our values as a society. There are lots of
reasons why people may argue about progressive taxation. I mean,
should should the rich pay more? But there's really nobody
who's making a normative argument in favor of regressive taxation,
right that as a matter of principle, we should have
the poor pay more. This isn't happening in a vacu.
The disparities hurt Black communities disproportionately because the legacy of
(15:05):
racial discrimination has left those communities with a larger share
of lower priced homes. The median home value in black
census tracks is nearly half of what it is in
majority white and Hispanic ones, according to a Bloomberg analysis.
So the way that shakes out is black homeowners end
up paying more in property taxes relative to their market
(15:25):
value than white ones. This is just a textbook example
of institutional racism or systemic racism, or whatever you'd like
to label it. And what I mean by that is,
I don't think there's anybody in the assessor's office who's
(15:47):
sitting there and explicitly saying, hey, let's go in the
black neighborhoods and you know, jack up their assessments, and
then let's go into the white neighborhoods and make them
lower up but nevertheless, the outcomes that we see from
the system are racially disproportionate, and that's the very definition
of sort of institutional racism. But of course, these kinds
(16:11):
of disparities are rooted in a history of racial discrimination
that is explicit, and it's impossible to understand why this
taxation disproportionately affects black communities without talking about the US
legacy of housing segregation. I sat down with Bretton Mock
of Bloomberg City Lab. He's been covering this for a while. Hey, Breton,
(16:39):
thanks for joining us. Yeah, thanks for having me on.
I'm excited to dig into this. Yeah. Well, it all
starts with home ownership, which is one of the primary
ways that many Americans accumulated wealth in the twentieth century.
But it's one that white families have been able to
capitalize on in ways that black families have not. And
this runs so much deep for than property taxes, right,
(17:01):
I mean, the history here helps explain why Black Americans
are the ones with lower valued homes to begin with. Yeah,
and here's the irony. You talked about homes being overvalued
when it comes to setting the property tax rate. Well,
many of those same homes are being undervalued by a
different set of appraisers when it comes to deciding what
(17:21):
they're worth on the market. Because of racial segregation, properties
and majority black communities have historically been appraised at much
lower values and sold at lower prices than similar properties
and majority white neighborhoods. That kind of price coding has
pretty much been cemented in the housing market thanks to
the practice of redlining. Redlining Katerina talked about that in
(17:45):
episode two. How does that fit into our story? Yeah,
Like Katerina explained, redlining was a government sanctioned program for
deciding that entire neighborhoods would be considered risky by giving
them a grade between A and D. Black neighborhoods were
routinely graded D and literally shaded and read on real
estate maps in just about every city in the US.
(18:08):
This practice pretty much ensured that very few people in
black neighborhoods would be able to purchase houses or even
get loans to improve homes that were already purchased. But
those laws have been reformed now have fair housing laws
at least begun to reduce the gap between white and
black home appraisals. Well, that's the crazy part. Yes. Starting
(18:29):
in nine eight with the Fair Housing Act, these particular
practices were banned. But actually, recent research has found that
the gap between appraisal values of black and white homes
has widened. The gap is being exacerbated because the praisers
currently decide to homes value by looking at the selling
prices of surrounding homes without any kind of correction. That
(18:51):
history of low values has just compounded over time. But
what does that disparity mean in economic terms? So I
spoke with Andre Perry at the Brookings Institution to help
put this into context. I worked with him on a
book several years ago about undervalued black properties. Since then,
he's done a study to quantify differences in black home values.
(19:14):
He explained how, after controlling for all housing and neighborhood factors,
homes and black neighborhoods were under priced in appraisals compared
to white neighborhoods. By here's Andre, accumulatively, that's about a
hundred billion in lost equity. And that's just in alone.
I always put it in in um perspective. Um, the
(19:36):
hundred fifty six billion would have financed more than four
point four million black owned businesses based on the average
amount Blacks used to start up their firms, they would
have paid for more than eight million UM college degrees
based on the average amount of a public education. Now,
this is money that is really robbing people of the
opportunity to lift themselves up. And remember where we started
(20:00):
this conversation, the racial wealth gap. These differences matter because
home massets are supposed to appreciate as they are passed
down through generations. As Andre puts it, wealth begets wealth.
So if you are able to own a home, if
your grandfather was able to own a home and they
(20:21):
and here's he had children, he could pass on the
equity gained from that house to the child, or UM
you can apply it to um the college education, you
can use it to start a business. Remember most people
start their their business using the equity in their home.
(20:43):
So UM, if you did not have if your grandfather
great grandfather could not own a home, it's it's less
likely you're going to be able to have wealth. Dilicia
(21:06):
is acutely aware of this relationship between home ownership and wealth.
It's why she's so doggedly committed to buying her home back,
despite the perversity of the costs she has already borne.
Like so many other parents, She's concerned about leaving her
three kids an asset that will give them a leg
up because she believes they'll be better off in the
(21:27):
long run. For her, the house could be a source
of foundational wealth. You know, I just want to leave
them more than a couple of insurance policy. And that's
that's the only thing. A couple of insurance policy and
a ragny car. That's the only thing I have to
offer them right now. And that's not fear for them.
(21:49):
And I have to think about my mortality. I have
to think about a plan. What is going to happen
to them? Um, I don't want them even if if
if I'm a going to buy this house, I don't
want them to have to live there for the rest
of them their lives. Like but I want them to
have an asset right. Dilicia lost the home after was
(22:11):
overvalued by a property tax assessor. Even though many of
the same homes get undervalued when it comes to appraising
their market price, how does that happen? To understand that,
you need to get an idea for how local tax
officials determine the value of homes. Unlike appraisers assessors aren't
able to visit every home in the city. Instead, they
(22:33):
look at the prices of homes that have sold within
the last year or so. They then use computer models
to estimate the value for all the homes in the area.
But those computer models are only as good as the
data going into them. It turns out there are some
significant gaps in the data, and those gaps lead to
some pretty serious errors that cause unfair assessments to creep in,
(22:56):
especially for people in lower valued homes. Chris explains, I
often try to explain this to people by imagining that
we did income taxes the same way we did property taxes.
So imagine that the i r S each year only
got a W two for about one percent of the population.
(23:16):
So for one percent of the people, the i r
S actually knows what your income was, and for the
other people they have to guess. They have to guess
what your income is. And as a taxpayer, you don't
file taxes. You just get a letter from the hares
each year saying, hey, we guessed that you made a
hundred thousand dollars last year. Here's your tax bill. That's
(23:38):
how we do property taxes. And if we did income
that way. I think it would be pretty obvious to
people the ways in which that would be sort of
incorrect and unfair. Just to build on the professor's analogy,
local property tax officials do a bit more than just
flat out guessing. They try to compare similar homes. Say
a four bedroom, two bathroom branch sells for two dollars.
(24:02):
Local officials will use that information to help guide how
they assess the value of other four bedroom to bathroom
ranch houses in the same area or neighborhood. If the
i R S used that same method to set income taxes,
the resulting unfairness becomes pretty clear. Suppose they knew nothing
about you at all. The best they could guess is
(24:23):
that you were making the average income. They'd say, we
think you made the average income last year. Pay taxes
on the average income. Well, that's really bad for people
who earned below the average, because they're being treated as
if they earned more than they did, and they're paying
taxes that are too high. But it's a great deal
for people who were above average, because they're being told
(24:44):
they were average and they're paying taxes that are too low.
And so you can already see the inequity that's built
in this kind of averaging. That's what would happen if
they had no data about you at all. Even with
a little more data, the method that local officials used
to set property values just isn't robust enough to capture
(25:07):
important differences in market values among different homes for people
like Delicia, those flaws can be disastrous. In fact, in
places like Detroit, they just don't keep black families from
acquiring and passing down wealth, they contribute to the actual
destruction of it. One of the things we know about
that the whole property tax process is that when people
(25:29):
can't pay, they are subject of various kinds of sanctions
by the state. And so you may have had your
home systematically over tax overcharged too much, and then if
you can't pay those unfair taxes, you might lose your
home due to a tax foreclosure, or you might have
your home sold from out from under YouTube some kind
(25:50):
of investment firm that that is going around buying up
these low value at homes. And you know, there's nowhere
in the country where this has been a bigger problem
than Detroit, where fully one quarter of all home in
Detroit have been foreclosed on for failure to pay taxes.
I'm not talking about any mortgage foreclosure here, but in
fact a tax foreclosure. In fact, Detroit officials have admitted
they over taxed tens of thousands of people. Yet the
(26:14):
property tax system is so complicated that Dilicia didn't find
out about being overtaxed until she read about Chris's work
in her local newspaper in February two thowy six years
after she lost her home. Soon after, she reached out
to him, but by that point there was nothing she
could do about it. It's embarrassing right there. I feel
(26:36):
like there is no safe place for me to hand
this conversation because I'm going to get a judge one
way or another. Uh, you know, it's it's a lot.
I feel betrayed too. Yeah, I feel left behind. I
feel left behind. And then and then well, last year,
to learn that I was overtaxed why five thousand. It
(27:01):
makes me sad, It makes me depress, It makes me
feel like a failure. And that's another consequence of broken
tax systems. People like Dilicia are forced to process and
struggle with the shame of it all, even though what's
happened isn't her fault because she was treated unfairly. In fact,
(27:22):
Dilicia is so ashamed that six years on she still
hadn't told her children that she had lost the home.
I'm gonna eventually have to have that conversation. I don't
know how, UM, but I figure I have to get
myself a time frame because I don't know. UM is
(27:42):
very scary right now, not being on the least um.
But I have to have a plan for them, Like
I just can't just say like, oh, this is it
and okay, see you guys later. They don't deserve this.
My daughter actually she looked it up and she said, huh,
(28:02):
I was on this site. This is a couple of
months ago, and I was on this site, and it's
that our house was stolen in February. And that's it. Girl,
I don't know what you're talking about. Since Detroit officials
admitted to pass problems, they say they fixed the system
and that now it's fair. Yet Chris is found that
(28:26):
property taxes in Detroit continue to be really regressive still.
Alvin Horne, the city's top assessment official, has come out
against Chris's findings. Here. He is at a recent press
conference evaluation, and a very smart person once told me this,
there's an art, not a science. You have the facts,
but you also have to understand the market Detroit as
(28:47):
a unique market, and you can't. You can't get those
nuances simply from a sales study. You have to live
here and you have to understand what's going on here
to understand valuation. At that same press conference, he and
Detroit Mayor Mike Duggan criticized Chris for refusing to share
the data underlying the study, but later, in an interview
(29:10):
with me, the top possessor admitted he had seen the data,
saying that on average, Detroit system is fair, while acknowledging
that mistakes can still happen. The data say otherwise. In fact,
I replicated parts of Chris's analysis and found the same thing,
Detroit system remains deeply unfair. Despite everything she's been through,
(29:36):
Dilicia still holds onto the hope that she can buy
back her home. To try to save for a down payment,
she took on a second job in October, delivering food
via door dash. Usually, what what happens a typical day
for me during a week is, um I go to work,
like when I work on site, I'll go to work.
(29:56):
Then straight from work, I get in my car, I
turned my dash app and I started dashing to probably
about ten eleven o'clock at night. Then I do it
again on the weekend. Sometimes when she's out delivering food
in more affluent neighborhoods, Delicia can't help but consider all
(30:17):
that's happened to her. I don't need fancy homes, and
they just so nice. They all lit up and beautiful
and um. Last night I went to a house and
they had like about five or six brand new cars
in the driveway. And all I think of when I
see this, like this is nice, this is real nice.
All I want is my piece of like like like,
(30:41):
I'm sure it would be nice, but I just want
what what I've worked so hard for. Lisa's experience shows
one way the system keeps many black families off the
wealth ladder that is home ownership. For plays back in Texas,
(31:05):
there was never going to be a farm or profits
from oil or timber. Instead, with no buyer in sight,
he's stuck with the land and is now on the
hook for at least sixty dollars and taxes and penalties.
That's on top of as much as sixteen thousand dollars.
He says he and some family members have already paid
(31:26):
for the record. I dug into county documents and talked
to local officials. Indeed, his tax bill jumped between two
thousand nine and two ten, more than double, but the
county tax assessor says that overall the tax liability is
where it is because he hasn't paid taxes as they
came to Plas, is now facing foreclosure, and between his
(31:49):
Social Security checks and some income from a side business
fixing computers, he makes sense meet, but says sometimes he's
just living paycheck to paycheck. For the next few episodes,
we'll be looking at ways to close the racial wealth gap.
(32:11):
First up, a program that works, but it's highly controversial.
Without that extra step, you know, I may would have
done okay in life, but I doubt if I would
have I would have gotten a PhD by the time
I was twenty six, and I doubt if I would
have been a profess at the age. Thanks for listening
(32:33):
to The Paycheck. If you like the show, please rate, review,
and subscribe wherever you get your podcasts. This episode was
hosted by me Rebecca Greenfield and Me Jackie Simmons. Today's
episode was edited by Nicole Flato and Francesco Leady. It
was reported with the help of Jason Grotto and Brenton Mock.
This episode was produced by Magnus Hendrickson. We also had
(32:57):
production help from Lindsay Cradowell and editing help Janet Paskin,
Rock Shoto, Soluja, John Boskell, Jackie Simmons and me. Our
original music is by Leo Sidrome. Francesca Levie is Bloomberg's
head of podcasts. We'll see you next time.
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