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Kent County government loses hundreds of thousands of dollars due to preferential transfers to the Land Bank, faces deficit of $955,000, considers raising taxes

The Kent County Taxpayers Alliance previously pointed out that the Kent County government authorized the Kent County Land Bank Authority to cherry-pick prime properties that were slated for public auction due to tax foreclosure, short-circuiting the usual process and depriving county government of much-needed revenue. Now, after analyzing the financials of those preferential transfers, we’ve determined that county government is facing a deficit of nearly $1 million, much (if not all) of which is a result of preferential land transfers to the Kent County Land Bank Authority for government-run real estate speculation. Consequently, county government is now considering a tax increase to pay for shortfalls in the Veterans’ Affairs budget.

Background

When a property owner does not pay the required property taxes for several years, the county government forecloses on that property and takes possession. Normally, these properties go up for public auction to cover the unpaid taxes as well as other costs that the county incurs in the process. Most of these properties sell for more than the minimum bid, bringing in additional revenue to the county, which can then be spent on general county operations.

Normally, land banks across the state acquire property that no one else wants because of blight, limited usability of the property, or environmental cleanup problems. The intent behind the land bank statute is to allow counties a method for making these sorts of properties marketable again so that they do not sit vacant or pose a risk to the community. Indeed, the land bank statute mandates that land banks can only acquire property after the county holds its two auctions and there are still unsold properties.1

Cherry picking and government-run real estate speculation

This year, however, the newly-formed Kent County Land Bank Authority requested and received preferential treatment from the County Commission to cherry-pick prime properties that were slated to be publicly auctioned, and then acquired those properties for only the amount of taxes due to the county. Many of those properties were acquired by the Land Bank solely for the purpose of flipping and profiting to fund the Land Bank’s own operations. Not only did this deprive the county government of much-needed revenue, it shut out individuals and small business owners who normally purchase these properties for private investment. Make no mistake, these transfers to the land bank had nothing to do with rehabilitating properties that otherwise would not have been purchased by local investors. The county has entered into the business of real estate speculation.

An additional consequence is that 50% of the property taxes on flipped properties go to the Land Bank for five years, instead of local government, further depriving municipalities and the county government of revenue.

The 47 properties that the Land Bank acquired for only the taxes due totaled $420,000. The remaining properties that did end up going to auction had a minimum bid total of $977,100, but $1.64 million was raised at the public auction of those properties, resulting in a “profit” of $667,000 for the county. For those properties that did not sell at the first action, they were put up for a second auction with no minimum bid. Those properties brought in $363,400 for the county.

This year, the county needed to bring in $1.9 million to break even on the process. The total brought in was $2.42 million. Although the county did bring in more than it needed to, it lost significant further revenue due to the no-bid sales to the Land Bank.

To conservatively estimate how much the Land Bank properties would have raised in a public auction, we can look at the amount over the minimum that was brought in as a result of the August auction. Since the minimum total bids for those properties was $977,000 and they raised $1.64 million, we can see that the auction brought in 1.68 times more than the minimum bid. This means that, at a minimum, $285,000 in revenue for the county was lost due to the below-market price transfer to the Land Bank. However, since the Land Bank cherry-picked some of the prime properties for its preferential transfer, significantly more could have been obtained on several properties.

For instance, several properties would likely have sold for much higher multiples than 1.68. Examples include the following:

  • 5076 Montuak Dr. Taxes Due: $10,500. Market value: $150,000. Loss of $139,500.
  • 1306 Benjamin Ave SE. Taxes due: $7,875. Market value: $38,000. Loss of $30,125.
  • 1121 Crescent SE. Taxes due: $9,120. Market value: $32,000. Loss of $22,880.
  • 6930 84th St SE. Taxes due: $7,464. Market value: $59,900. Loss of $52,436.
  • 9524 92nd St SE. Taxes due: $7,255. Market value: $80,000. Loss of $72,745.
  • 3447 Raven SW. Taxes due: $4,700. Market value: $40,000. Loss of $35,300.
  • 2796 64th St SW. Taxes due: $10,440. Market value: $62,000. Loss of $51,560.

Being conservative, we can estimate that, at a bare minimum, the county lost out on revenue of at least half a million dollars, but it likely would have been as high as a $1 million.

Recently, the Kent County Land Bank Authority filed an affidavit from its Executive Director, David Allen, stating that the market value of just some of the properties it held was at least $1.4 million, meaning that our conservative estimate is likely low and that the county lost out on significant revenue, inevitably to be made up by taxpayers.2 The Land Bank, by its own admission, has deprived the county government of at least one million dollars.

County deficit and a potential tax increase

Coincidentally, in August the county revealed that it is looking at a $955,000 deficit for the current fiscal year.3 A significant portion (if not the entire amount) can be attributed to the Land Bank’s activities.

Now the county is exploring a new millage to pay for a deficit in the Veterans’ Affairs budget because the county can’t afford to provide critical service to veterans.4 The Veterans’ Affairs budget has a $40,000 deficit, which would easily had been covered if the County had simply sold its foreclosed properties through the usual process.

The Land Bank is a solution in search of a problem

The Grand Rapids Business Journal recently published a story showing that Kent County has the lowest number of foreclosed properties amongst large counties in Michigan. Kent county had an average of 130 tax foreclosures per year between 2006 and 2012 (out of 247,231 housing units). For comparison, Muskegon County had 269, Saginaw County had 687, and Wayne County had 10,427. Clearly, tax foreclosures are not a major problem for communities in Kent County, yet the Land Bank was formed primarily to “stabilize communities” and to reduce “blight.” We have to ask, what blight? The Kent County Land Bank Authority appears to be a solution in search of a problem. The Land Bank is causing more problems than it aims to solve.

This article is available in printable form here.

 

  1. MCL 124.755. Available online at http://legislature.mi.gov/doc.aspx?mcl-124-755. “A foreclosing governmental unit may not transfer property subject to forfeiture, foreclosure, and sale . . . until after the property has been offered for sale or other transfer under . . . the general property tax act . . . and the foreclosing governmental unit has retained possession of the property . . .” []
  2. In the affidavit Allen calls himself, under oath, the “President” of the Kent County Land Bank Authority, yet no such position exists. View the affidavit here: http://bit.ly/TFWF6s []
  3. http://www.mlive.com/news/grand-rapids/index.ssf/2012/08/kent_county_budget_cuts_modest.html []
  4. http://www.mlive.com/news/grand-rapids/index.ssf/2012/09/kent_county_considers_millage.html []

Permanent link to this article: http://www.kentcountytaxpayers.org/kent-county-government-loses-hundreds-of-thousands-of-dollars-due-to-preferential-transfers-to-the-land-bank-faces-deficit-of-955000-considers-raising-taxes/