Michigan’s real estate values are booming, so why aren’t cities benefiting?

Michigan’s real estate values are booming, so why aren’t cities benefiting? This excellent question was the basis of a recent in-depth article in mlive.com under the headline, “As Michigan real estate values rebound, property tax revenues continue to lag.”

The Feb. 3, 2020 article included quotes from the Michigan Municipal League’s Anthony Minghine, a municipal finance expert and frequent SaveMICity speaker. The basis of the article is something we’ve been saying a lot here at SaveMICity: Michigan’s system for funding its communities is broken and must be fixed. A key way it’s broken is that it doesn’t track with the economy. You would think that when Michigan’s economy improves, as it’s currently doing, revenue to our communities would improve correspondingly. Unfortunately our system doesn’t work that way. But it should.

Here’s an excerpt from the article that explains it well:

After a rough decade in regards to real-estate values, property assessments in Michigan communities such as Troy, Wyoming and Portage are finally above pre-recession levels.

But the property tax revenues are not.

Blame Michigan’s law, which has no floor on how much property valuations can fall for tax purposes, but caps annual increases. That meant property-tax revenues plummeted during the recession, but are taking much longer to return to previous levels.

“It’s an absolutely broken system for funding local government,” said Anthony Minghine, deputy executive director for the Michigan Municipal League. The property tax structure “is built in such a way that some communities will never be able to fully recover.”

The article goes on to explain that at issue are conflicts between two state laws – the Headlee Amendment and Proposal A.

Minghine explains in detail how the system can be fixed:

Minghine said that Michigan’s local governments have been pushing the Legislature for reforms to address the issue of stagnant taxable values.

“We have a system where there’s no limit to how far things can fall, but we have two limits on upward mobility,” he said. “That’s very problematic. You need a system that moves both ways.”

One possible fix is a return to allowing millage rates under Headlee to roll both upwards and downwards, which was in place before Proposal A, Minghine said.

Another is excluding property sales when calculating Headlee rollbacks. Currently, when taxable values increase because of property sales, that can trigger in an automatic rollback of the millage rate, “essentially negating that gain” from a tax-revenue purpose, he said.

“Those are two changes that we could actually make today,” Minghine said, adding state lawmakers seem to be warming to the idea of some reforms, with Senate Majority Leader Mike Shirkey saying “he thinks this is an issue that needs to be looked at.”

One problem is that “most people don’t understand the issue,” Minghine said. “It’s pretty complicated.”

That last point by Minghine is what the SaveMICity intiative, started by the Michigan Municipal League in 2016, is all about. We’re trying to inform anyone who will listen that the system is broken, how it’s broken and how it can be fixed.

Articles like this one in mlive indicate we are starting to get heard. We’re not there yet, but it’s encouraging. We do know this – if the system isn’t fixed when the next recession hits, the results will be devastating for many communities that continue to struggle financially from year to year.