LANSING – Governor Rick Snyder will get the personal property tax phase-out he wanted, but only if voters approve it as the administration won a hard-fought effort for legislative passage.

Thursday was a wild day for the personal property tax legislation as it emerged that the plan had serious problems in the House, resulting in the serious consideration of an alternative plan, developments first reported by Gongwer News Service.

But in the end, the alternative was not needed as the bills as reported were essentially Snyder’s plan on the PPT although it became known as the “Calley Plan” because Lt. Governor Brian Calley was instrumental in its design and winning legislative approval of it. Passage represented a huge victory for the Snyder administration and the Republican-led Legislature, as well as the state’s manufacturers, which have hated the tax for years as a disincentive to buying new equipment.

That plan would phase out the industrial portion of the tax from 2016-22 with local governments receiving replacement of 80 percent of the revenue they lose, provided the lost revenue equals at least 2.3 percent of a local government’s total property tax revenues. That 2.3 percent threshold was lowered from the previous level of 2.5 percent.

Local governments could then use a special assessment on industrial property to replace 100 percent of lost revenue for police, fire, ambulance and, under an amendment from the House, jail operations.

As passed the House, the bills would also replace all lost school funding with use tax dollars.

But the replacement funds would come largely from the use tax, which requires voter approval in the August 2014 primary election to change its current distribution among state funds. Because all the bills are now tied to HB 6026 that makes that change, they all require voter approval for the PPT on industrial property to begin phasing out.

Left mostly untouched is the personal property tax on commercial and utility personal property.

However, some commercial personal property holders would get a break. Starting in the 2013-14 fiscal year, businesses with less the $40,000 in total commercial or industrial personal property in any one jurisdiction would not have to pay personal property tax to that jurisdiction.

All industrial personal property purchased after 2011 would become exempt in fiscal year 2015-16. Then industrial personal property would become exempt as it reaches 10 years old beginning in fiscal year 2015-16.

The bills would create a Metropolitan Area, essentially a statewide authority that would accept the use tax funds (between 1 to 1.5 cents of every 6 cents on the dollar of the tax) and redistribute them to qualifying communities.

Democrats argued the package would unnecessarily cut funds from communities. “The PPT reform should not create winners and losers and harm over 130 communities,” Rep. Harold Haugh (D-Roseville) said. “This series of bills are going to impact our communities, and there’s going to be no escaping them.”

“The elimination of the PPT is yet another blow that cannot be sustained by our municipalities,” said Rep. Joan Bauer (D-Lansing).

They urged a plan that would replace all of the revenue lost from the PPT elimination, and asked that the issue be held off until next year to find a plan that would have more buy-in.

But supporters said the plan meets both the needs of eliminating the tax and assisting communities in adjusting.

“Everyone agree the personal property tax is a very bad tax,” Rep. Jud Gilbert (R-Algonac), Tax Policy Committee chair, said. “What we’re going to do here is allow everyone to eliminate this tax in a way that’s responsible.”

He said the shift would be a positive if for no other reason that personal property depreciates while real property tends to appreciate.

The bills would mean revenue losses for both the local governments and the state. The Senate Fiscal Agency predicted losses in 2013-14 of $46.6 million for locals and $33.8 million for the state and in 2016-17 of $18.4 million for locals and $366.3 million for the state.

But all of the changes would depend on a statewide vote in August 2014. Changing the allocation of the use tax between the general fund and School Aid Fund requires voter approval. Currently, two-thirds of the tax goes to the general fund with one-third to the School Aid Fund.

Business groups said they were thrilled with the legislation.

“The elimination of the industrial personal property tax has put Michigan on the right path to competitiveness for job-creating capital investment,” said Chuck Hadden, president and CEO of the Michigan Manufacturers Association, in a statement. “This action has leveled the playing field with other Great Lakes states that do not impose this tax.”

Tricia Kinley of the Michigan Chamber of Commerce said it was a huge victory.

“Is it exactly what we wanted? No,” she said. “But is it a big, meaningful step forward? Absolutely, unequivocally.”

Both Hadden and Kinley praised Calley, House Speaker Jase Bolger (R-Marshall) and Senate Majority Leader Randy Richardville (R-Monroe) for pulling off the change. Ms. Kinley said the PPT has been a Gordian knot that has snared past officials.

“This will help put Michigan in a better standing to tell our large employers and large taxpayers that Michigan is serious about getting us competitive,” she said.

Local government groups agreed to switch from opposition to neutral once the entire package was tie-barred to HB 6026, which requires voter approval at the August 2014 election to move a portion of use tax revenues to the new authority that will reimburse some local governments for some of their lost revenue. If voters reject the proposal, then the phaseout of the industrial portion of the personal property tax will not tax place.

“We’re pleased to have the tie-bar between the reform and the proposal being placed before the voters,” said Judy Allen of the Michigan Townships Association.

Allen said the change to make eligible for reimbursement local governments whose personal property tax revenue loss equaled at least 2.3 percent of their total property tax revenues, instead of the previous 2.5 percent, will help many more communities.

Overall, Allen said more information will be needed to determine the legislation’s impact.

Deena Bosworth of the Michigan Association of Counties said the switch to a 2.3 percent threshold means seven more counties are eligible for reimbursement, up to 63 of 83 counties. Bosworth also praised the decision to tie-bar the whole package to the outcome of the August 2014 vote.

“We needed to be able to get as much assurance as we could possibly get that the money would be available to reimburse local governments,” she said. “This, to date, was the best solution they’ve come up with.”

Still, the plan has its issues, Bosworth said.

“Overall, this is a complicated solution to a very difficult issue and although it’s not perfect, we’re hopeful that we can address some of our questions and concerns during the next legislative session,” she said.

Asked whether the alternative plan might have been a ploy to prompt local governments to become more amenable to Calley’s plan, Bosworth said, “I would say that it elevated the discussions.”

And Don Wotruba of the Michigan Association of School Boards said his group supported the legislation because it replaces nearly 100 percent of all revenue to schools, the one exception being sinking fund millages. He said the change would put pressure on the general fund long-term.

The alternate plan would have simply exempted all industrial personal property purchased January 1, 2013, and afterward from the tax. That would have created an informal phaseout where, eventually, as equipment purchased before that date depreciates or is taken out of use, the tax on industrial personal property disappears. It was unclear what, if any, replacement revenue would have been involved, but business groups said that was not their priority. House Republican spokesperson Ari Adler said earlier in the day that any PPT plan would involve replacement revenue for local governments.

But local government groups aggressively sounded alarms, spreading the word via Twitter, Facebook and email that a new plan had surfaced with the possibility of no replacement revenue.

One factor that emerged publicly Thursday is that amid the chaos surrounding action on right-to-work last Thursday, December 6, few outside those most closely following the PPT issue realized that when the House passed what appeared to be Calley’s proposed reimbursement mechanism it had actually stripped out much of the content of the bills because Calley’s plan was short of votes.

To satisfy the constitutional requirement that the Senate wait five days before passing the bills after they first arrived from the House, the bills had to be passed last Thursday with the idea of final action this week. So other than those closest to the issue, the PPT plan appeared to moving along swimmingly when in fact there was real danger of seeing it collapse in the House.

About 6:30 p.m., local government groups and business groups agreed to try to get the votes for the Calley plan with the local government groups going neutral on it. They were given an hour, but it took more than three to assemble enough support. Sources described a frantic effort to find the votes, unusual in the 2013-14 term, where lawmakers have largely lined up with less difficulty behind major bills.

HB 6022 , the most technical in the package, passed 57-52 as seven Republicans joined Democrats in opposition: Rep. Mike Callton (R-Nashville), Rep. Cindy Denby (R-Fowlerville), Rep. Joel Johnson (R-Clare), Rep. Matt Lori (R-Constantine), Rep. Greg MacMaster (R-Kewadin), Rep. Ed McBroom (R-Vulcan) and Rep. Sharon Tyler (R-Niles). The same voting dynamic held on HB 6024 , the bill to allow local governments to issue a special assessment on industrial real property to ensure police, fire, jail operations and ambulance service retains 100 percent of their current funding.

On HB 6025 , setting up the authority to receive a portion of the use tax and disburse the money to local governments to compensate for losing personal property tax revenue, the vote was 56-53. MacMaster voted yes on this bill, but on this one, Rep. Bob Genetski II (R-Saugatuck) and Rep. Patrick Somerville (R-New Boston) joined Democrats in opposition.

On HB 6026, to earmark part of the use tax toward reimbursement for lost PPT revenue and schedule an August 2014 election to gain voter approval on the issue, the vote was 56-53. On this one, the same Republicans voted no as did on HB 6022 and HB 6024, this time joined by Genetski.

Then the House more easily passed the bills that reduce and phase out portions of the PPT itself – SB 1065 , SB 1066 , SB 1067 , SB 1068 , SB 1069 , SB 1070 and SB 1071 . Those bills all passed the House with 57 or 58 votes and then won Senate concurrence with 25 or 26 votes.

This story was provided by Gongwer News Service. To subscribe, click on Gongwer.Com