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The tax raid would cost Bay City $1.3 million (11 percent of revenues)

War Looms Between State vs. Local Governments & Schools Over Personal Taxes

"Replace, Don't Erase" Is Motto of Coalition Fighting State Action

May 12, 2012       Leave a Comment
By: Dave Rogers

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Over money, of course.

And we, the taxpayers, are in the middle of it.

The Michigan Municipal League (MML) has issued a call to action to the state Legislature to stop the raids on taxes that threaten to impact local taxpayers.

The tax raid would cost Bay City $1.3 million (11 percent of revenues); Midland would lose $5.9 million (18 percent) and Saginaw would lose $866,000 (15 percent).

The Bay County Library System would lose $400,000 and Saginaw libraries would be cut $389,000. No estimate was given for Midland's Grace A. Dow Library.

Counties also would lose significant amounts.

School bonds could be affected, triggering automatic local tax hikes to make up the lost revenue.

The Bay City School District has about $59 million in debt, Bangor Township Schools have about $11 million in bonded debt on the books, Essexville-Hampton is about $6.6 million in debt and Pinconning owes $14.5 million.

The Associated Press reported Republicans pushed legislation through the Michigan Senate Thursday that would eliminate the taxes businesses pay on computers and equipment while firming up promises that most of the lost revenue would be made up.

The Michigan Chamber of Commerce today expressed support for the Michigan Senate's passage of legislation to begin phase-out of Michigan's uncompetitive tax on office equipment and manufacturing machinery. Reducing, and eventually eliminating, this tax on jobs would send a positive signal to job providers and poise Michigan for further economic growth.

"Senate Republicans, in cooperation with the Snyder Administration, have developed a meaningful plan to fully eliminate the tax for small business owners as well as a long-term strategy to eliminate the tax on manufacturing jobs," said Tricia Kinley, Senior Director of Tax & Regulatory Reform for the Michigan Chamber. "This is the first practical plan we have seen in years.

"Personal property tax continues to place Michigan at a competitive disadvantage, particularly in the Midwest," added Kinley. "In addition to the extraordinary direct cost of the tax on Michigan employers, the cost of compliance is significant.

"We applaud the Senate's rejection of efforts to remove accountability and mandate spending with a constitutionally-guaranteed local revenue stream," Kinley continued. "This proposal outlines a fair and reasonable approach to use expiring business tax credits to replace much of the revenue to local governments and we are committed to working with House Speaker Jase Bolger and House lawmakers to make this plan a reality."

"The personal property tax continues to be a source of great frustration for all of our members," noted Jim Holcomb, Senior Vice President, Business Advocacy & General Counsel for the Michigan Chamber. "Since local governments, schools and others rely on personal property tax as one source of revenue, we agree an incremental approach is appropriate at this time."

Democrats are concerned about further cuts in funding for already strapped school districts and local governments. The bills now go to the House.

MML wants the state to fully replace the personal property tax with revenues that would continue to go to local communities for essential local services.

The replacement funds must be guaranteed for local services so future Legislatures can't raid them for the state budget.

Without that action, the locals are intent on a constitutional amendment to set guarantees in stone forever.

The school districts in all Michigan regions and most Michigan counties would be hit and taxpayers would be dunned.

Local property taxes will increase if the Senate bills pass because local millage rates are adjusted annually based on tax base. If PPT revenues are cut and not replaced in a particular school district, that means the district's tax base has also declined, automatically triggering a local millage increase to pay off the bonds on time.

Homeowners in the districts will feel the most financial pain. "Under the Senate bills, the Legislature and Governor would cut local revenues for local communities and schools by $470 million a year and do nothing to assure one dime of the revenues would ever be replaced," said Kent County Intermediate School District Superintendent Kevin Konarska. "The result will be local property tax increases for thousands of homeowners in literally hundreds of Michigan school districts."

Michigan newspapers, bond market publications and others are warning of higher local borrowing costs and local tax increases because the bills fail to assure replacement funds for local communities and schools.

"Murky," The Detroit News says of the bills. "Inadequate and potentially reckless," says the Lansing State Journal. "(A) nightmare for those who have to live through it," says the Detroit Free Press. "Despicable," says the Port Huron Times-Herald.

"Anything short of fully replacing the funds with guaranteed revenues will almost certainly lead to future raids by the Legislature and higher taxes on local homeowners who would have to pay more in property taxes for local services," said Summer Minnick, the MML's Director of State Affairs.

Senate Bills 1065-1072 would cut the state's business personal property tax (PPT) and give the Legislature new power to take $470 million in local revenues away from local communities and local schools.

The PPT is paid only by businesses on equipment and machinery. The PPT is not paid by individual taxpayers or homeowners. The tax is administered and collected by local governments -- the funds do not come to Lansing for the state budget.

Cities, counties, public schools, libraries and townships use PPT revenues for police and fire protection, teachers, library services, clean drinking water, to repay school and library bonds, road and bridge repairs, and other essential local services. Supporters of SBs 1065-1072 say the bills will repay local communities and schools up to 81 percent of the funds the Legislature is taking.

Minnick states: "That is false: the bills do not assure repayment of one dollar because it is illegal for a current legislature to bind a future legislature and governor to spend money on anything."

A coalition of Michigan organizations fighting the tax grab includes the Michigan Association of Chiefs of Police, Michigan Association of Counties, Michigan Association of School Administrators, Michigan Association of School Boards, Michigan Library Association, Michigan Municipal League, Michigan Professional Fire Fighters Union. Michigan Directors of Services to the Aging, Michigan Sheriffs' Association, Michigan Association for Local Public Health, and American Federation of Teachers.

On May 1 the Senate Finance Committee voted 5-2 along party line votes to pass SBs 1065-1072, the package of bills which eliminates significant portions of the personal property tax (PPT). The bills immediately exempt from taxes all parcels which have a PPT value under $40,000.

Then, beginning in 2016, they phase out "eligible manufacturing" personal property taxes over the next six years. The bills exempt hundreds of millions of dollars, and while SB 1072 suggests expiring tax credits will fund a portion of the lost revenue - no specific revenue estimates from Treasury have been produced.

Comments MML's Minnick: "So, the exact impact on these bills to each community and other entities which rely on PPT is still unknown. The bills now move to the Senate floor for consideration. While we are not sure which day the Senate plans on taking these bills up, the Majority Leader has indicated he hopes it is soon. "Therefore, it is imperative that you contact your Senator now and let them know what the impact would be if these bills become law and urge them to vote NO on SBs 1065-1072."

"The Michigan Constitution is a document filled with our state's legal guarantees, including guaranteed funding for roads, for bridges, for transit, for public education," said Portage Public Schools Superintendent Richard Perry, adding:

"If Lansing is going to take local PPT revenues away from local communities and schools and promise to repay the money, the only way to guarantee replacement and protect local taxpayers from local tax increases is a constitutional amendment.

"Any reduction in the PPT must come with replacement revenue that will allow us to provide a quality education for children, operate and maintain our schools, and meet our obligations to taxpayers."

More about the Replace Don't Erase coalition can be found at ###

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