Bridge Magazine Article Explains How Michigan’s System for Funding Municipalities is Broken

There is an excellent article in Bridge Magazine this week about how Michigan’s communities continue to struggle financially despite rising property taxes. The article effectively explains how Michigan’s system for funding cities is broken and doesn’t track with the economy as it should.

The Michigan Municipal League, as part of the SaveMICity initiative, will be talking a lot more about this at the Detroit Regional Chamber’s Mackinac Policy Conference at the end of this month, The League’s Anthony Minghine will be participating in a panel discussion during the conference and the League is then hosting a reception where we will roll out a new statewide education campaign to show the need for investing in communities. The panel discussion, titled “Not Open for Business: Why Disinvestment in Michigan Cities is Hampering Economic Opportunity,” is generously sponsored by the Charles Stewart Mott Foundation. Learn more about the session here.

The Bridge Magazine article, under the headline Property Values Roar Back, But Many Michigan Communities Left Behind, explains how overall market values are up an average of 21 percent among Michigan’s 1,500 townships and cities since 2014. But it further explains how the state’s system for funding municipalities is broken because it doesn’t track with the economy.

Here’s an excerpt that we really liked:

“But while increasing values help owners, they have been less helpful to many older municipalities, which rely on property taxes to balance budgets, keep parks open and law enforcement in uniform.

Taxes are based on taxable value of property, which are one-half of market value. Under Michigan law, it’s easy for taxable values to plunge dramatically, but hard to catch up.

“You can never recover because (tax value) never moves up,” said Ruth Beier, a city council member in East Lansing, whose voters rejected a proposed income tax in November to bail the city out of a financial crisis.

That’s been the case since 1994, when Proposal A went into effect following a statewide referendum that curtailed annual jumps in taxes.

Property values increase with the market, but unless homes or businesses are sold, the law caps taxable value to 5 percent or the rate of inflation, whichever is less.

In some parts of the state, taxable values plunged as much as 40 percent during the real estate meltdown, and it will take years for tax bases to recover even if the housing market is booming.

Horrible laws?

The restrictions have put a squeeze on communities like East Lansing.

Heavily reliant on property taxes, the college town surrounding Michigan State University has trimmed its workforce to 320 workers from 460 in the past 12 years.

…

But in most of Michigan, construction is just now picking up after a decade of decline, and many communities simply don’t have room to grow.

“It’s a horribly designed system,” said Tony Minghine, deputy executive director and chief operating officer of the Michigan Municipal League, which has long sought to soften the impact of Proposition A and the Headlee Amendment.

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