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Property tax revenue is up

March 14, 2017

Courtesy of MIRS News

Michigan collected more property taxes in 2016 than it did in 2015, the 15th time in the last 20 years that’s occurred, which has James HOHMAN of the Mackinac Center questioning whether local governments are truly being “starved of revenues” by the state’s tax limitations.

Property tax collections went up 1.32 percent in 2016, which Hohman said slightly beat the inflation of around just over 1 percent. While the $13.65 billion is still below the $14.25 billion collected 10 years ago in 2007, Hohman said the recent growth from a five-year low of $12.7 billion in 2012 should relieve pressure on local governments. 

“It’s going to make a lot of things in government more affordable and it’s going give them some room to catch up on their unfunded pension liability, so thing are looking up in Michigan, as they have for a while,” Hohman said on the Michigan Big Show. 

Earlier this year, the Michigan Municipal League (MML) re-ignited their legislative drive to address a “broken city finance system” that has cities across the state “drowning” in fiscal problems. Cities’ property tax revenue is struggling to pre-recession levels because Proposal 1 and the Headlee Amendment limit their ability to increase property tax assessments to the rate of inflation or 5 percent. 

Property tax collections went down sharply when property values took a dive in 2009-2012, but now that values are increasing 20 percent since 2014, city revenues are only up 4 percent (See “‘Broken System’ Has Cities ‘Drowning’ In Fiscal Troubles,” 1/24/17). Interestingly, conservative economist Gary WOLFRAM of Hillsdale College stuck up for the municipalities on this point in an opinion article printed this week in The Detroit News.

But Hohman said that when you look at the revenue trends, Michigan’s property tax system is “doing remarkable well” and recovered “pretty well” from the 2009 recession. 

The key is that capped property tax increases don’t apply to new construction and “there’s a lot of new construction,” as shown by the higher-than-inflation property tax revenue numbers. 

Hohman credited the higher property tax revenue on new construction. 

“When you look at the rates from 2000 to 2009, you’re seeing double and sometimes triple what inflation was,” he said. “Property taxes were going up at a time when nothing else was. Local governments were protected from Michigan’s decade-long recession in ways other industries (were not).” 

From 2000 to 2009, Department of Treasury numbers show property tax revenue increased anywhere from 2.1 to 8.3 percent. 

Also worth noting is that Michigan’s average property tax rate is 41.7, higher than any point in the last 20 years. So while the rate is high, Michigan governmental units are still collecting less money from the tax today than it did in 2007, 2008 and 2009 when the average tax rate was between 39.89 and 38.94. 

“It’s irrefutable that we have a broken municipal finance system,” said Anthony MINGHINE, MML’s COO and associate executive director. “We need no additional evidence than the stats provided by the Mackinac Center, which shows that on average, our communities property tax collections are still below what they were in 2007. And in our hardest-hit cities, the realities are even worse. We need to take this opportunity to reform the system now, because if we don’t and there is another recession, our communities will not survive.

Of the total property tax pie in 2016, a combined 58.4 percent was carved up to schools, 15.5 percent to the counties, 7.9 percent to townships, 17.6 to cities and .6 to villages, according to the Department of Treasury report.

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