Will personal property tax tug-of-war drag cities into the mud?

Legislation that would phase out Michigan's personal property tax -- essentially a business equipment levy -- on industrial and commercial property is working its way through the Michigan Senate. The repeal is strongly backed by business groups such as the Michigan Chamber of Commerce and manufacturers. It is just as strongly opposed by alliances of local governments and schools, who insist that any repeal of the tax must include a constitutional guarantee of replacement revenue to protect public services.

'Murky' bills take millions from communities, schools, with no replacement assured  By Mattie Hatchett and Bryan Girbach Around the state and nation, more people are seeing the legislation to slash Michigan’s business personal property tax (PPT) for what it is. “Murky,” says the Detroit News. “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. Publications that cover the nation’s bond markets report the eight bills, introduced in the state Senate last week, will drive local borrowing costs higher, potentially along with local property taxes. Some local columnists are warning readers to brace for local tax increases if the bills pass. Let’s cut right to the chase. The bills only do two things: 1. They allow the Legislature and governor to take hundreds of millions of dollars in local tax revenues away from local Michigan communities and local public schools, revenues that under current law are paid directly to local communities and schools with no interference or involvement from Lansing. Under current law, the Legislature and governor do not touch or control these revenues, which pay for local police and fire stations, local schools, local parks, local libraries, local water treatment facilities, courts, jails and other local services. 2. They give another tax break to hundreds of commercial and industrial businesses across the state at the expense of local communities, local schools and local services. That’s all the bills do. Supporters of the bills claim they do something else. They claim that under the legislation, the local communities and schools that are losing the PPT revenues will be repaid up to 81 cents for every dollar lost. That claim is false. Yes, the bills create a new fund in the state Department of Treasury called the Personal Property Tax Replacement Fund. Yes, the bills say, in future years, local communities and schools will be repaid by the Legislature from the Replacement Fund. Here’s the problem: It is illegal, plain and simple, for the current Michigan Legislature and governor to compel and bind any future Legislature or Governor to spend one penny on anything. Not one penny. On anything. These bills do not assure one dime of the revenue is ever replaced. The only solution: A constitutional amendment that would scrap the PPT for all Michigan businesses and assure the revenues are replaced to all local communities and school districts stripped of the funding. If the legislation passes as is: There will be more cuts to local police and fire services, schools, parks and libraries, road and bridge repairs, public health programs for senior citizens, and more. More school districts and cities will become financially insolvent and potentially end up under the control of a state emergency manager. Many local schools and libraries use PPT revenues to repay bonds for capital projects approved by local voters. Even if the PPT revenues are lost, the bonds still must be repaid. As a result, local property taxes will increase across the state. Some estimate tax increases are possible in more than 400 local Michigan school districts. Future costs to borrow will also increase, costing local taxpayers even more. The Replace Don’t Erase coalition dislikes the PPT as much as the businesses that pay it. The tax is complex and tough to administer for the local governments that assess and collect it. However, taking these revenues from local communities and schools without assuring replacement will trigger widespread local fiscal disasters. The only way to guarantee future legislatures will replace the funds lost by locals in these bills is a constitutional amendment.

PPT is a roadblock
to Michigan businesses
trying to grow

By Lt. Gov. Brian Calley

After struggling through the last decade with a lagging economy, Michigan once again is becoming America’s success story.

One year ago, the state was cutting its way out of a $1.5 billion deficit. Today, Gov. Rick Snyder is proposing a fiscal year 2013 budget that strategically invests in key priorities such as education, public safety and transportation.

Just a few short years ago, Michigan was known for its high unemployment rate. Today, we’re seeing the lowest rate since August 2008.

While Michigan’s once-unfriendly business climate hampered job growth, today we’re seeing an increase in private-sector jobs, which climbed by 76,000 from February 2011 to February 2012.

This is no accident. We’re making tough decisions and enacting needed reforms that are creating an environment in which job providers can thrive.

But our work is not complete. Businesses still face too many barriers to expansion and job creation. One of those obstacles is the Personal Property Tax, or PPT.

The PPT is a tax on industrial, commercial and utility equipment that is paid by job providers. Incredibly, it penalizes job providers for their success. When a company expands or modernizes, it is punished with a tax on new equipment ranging from computers to already expensive tools and machinery. This is especially hard on manufacturers, who rely on costly equipment.

Considering that neighboring states such as Ohio and Illinois already have eliminated their versions of this outdated tax, Michigan can’t afford to be at such a competitive disadvantage.

To help grow our economy and put families back to work, an eight-bill package recently was introduced in the state Senate that phases out the PPT on eligible manufacturing personal property and exempts small parcels.

This proposal was fashioned in a thorough, deliberative manner and reflects months of discussion. It recognizes the heavy reliance that local governmental units have on the tax. Each classification of personal property generates about $400 million, or a total of $1.2 billion annually for local governmental units and the state. The proposal establishes a mechanism to protect local units as a portion of that total is phased out.

It should be noted that the PPT is burdensome to communities as well as businesses. The tax carries high administrative costs, as many municipal leaders point out. Easing this burden will reduce business compliance and local administrative costs by tens of millions of dollars.

Under the legislation:

• All “new” eligible manufacturing personal property is exempt beginning in 2016. This is all eligible manufacturing personal property that was placed into service on or after Jan. 1, 2012.

• The existing tax on eligible manufacturing personal property is phased out over seven years, beginning in 2016. By 2022, no manufacturing personal property will be subject to taxation.

• Beginning in 2013, all of a taxpayer’s industrial and commercial personal property within a local tax collecting unit is exempt, as long as the aggregate taxable value of that property is less than $40,000. This change alone will fully exempt the majority of commercial and industrial parcels.

• Eligible taxpayers will not have to file a PPT return. However, they will have to file an annual affidavit stating that the aggregate amount of industrial and commercial personal property does not equal or exceed $40,000 taxable value within a local tax collecting unit.

• Beginning in fiscal year 2016, the Department of Treasury will prepare an estimate for each category of political subdivision of revenue lost in that fiscal year as a result of the proposed exemptions. The estimate is based on reimbursing 100 percent of the debt mill loss and 100 percent of tax increment financing debt loss, as well as reimbursing locals for any remaining loss that exceeds 2 percent of their 2012 budget. The fund’s revenues will be derived from expiring certificated tax credits, which are credits to which the state already has committed. The fund will have enough revenue to hold at least 98 percent of each local unit’s budget harmless.

• Local governmental units will be responsible for developing distribution formulas for revenues earmarked for each political subdivision such as counties, cities, townships, authorities and school districts.

Michigan is on the move, but Lansing can’t stand still. Ridding employers of the antiquated, unfair PPT is the logical next step in Michigan’s march to prosperity.