LANSING – Local government and school groups howled Tuesday about the new plan to reimburse them from revenue lost through the phase-out of the industrial portion of the personal property tax, but their lines of defense appeared to fracture with legislative Democrats signaling support and one significant mayor also voicing backing.
Two Democratic senators, Sen. Steve Bieda of Warren and Sen. Rebekah Warren of Ann Arbor, as well as Dearborn Mayor John “Jack” O’Reilly Jr., joined Lt. Governor Brian Calley, House Speaker Jase Bolger (R-Marshall) and Senate Majority Leader Randy Richardville (R-Monroe) to formally announce the new plan at a Capitol news conference.
However, House Democrats took a more adversarial tone. It appeared that while Senate Democrats were involved in constructing the proposal, House Democrats were not.
For local governments, Calley said the new plan “provides significantly more assurance, absolutely zero appropriations risk and more reimbursement than the plan that local governments units were neutral on as it passed out of the state Senate.”
That the plan represented an upgrade over the Senate version was a point Calley made repeatedly, implying that if local governments were neutral on that plan, then surely they could not possibly oppose this one. But his theme only seemed to irritate officials with the Michigan Municipal League and Michigan Association of Counties.
The plan to phase out portions of the tax remains similar to what the Senate passed earlier this year in SB 1065 , SB 1066 , SB 1067 , SB 1068 , SB 1069 , SB 1070 , SB 1071 and SB 1072 . Businesses with less than $40,000 combined in industrial and commercial personal property in any one jurisdiction would not have to pay the personal property tax on that property starting in 2014.
And the industrial portion of the tax would phase out between 2016 and 2022. Starting in 2016, personal property purchased from 2012 onward or 2005 and earlier would be exempt. In each subsequent year, personal property purchased between 2006 and 2011 would be exempted until full phase out was complete in 2022.
The big change, as expected, involves how local governments and school districts would be reimbursed from the estimated loss of $593.2 million in revenues they currently receive from the tax on industrial personal property. The plan calls for replacing $500.9 million of that money.
The Senate plan called for using the revenue from expiring business tax credits to compensate local governments that lost at least 2 percent of their general fund revenue as a result of the tax changes. The new plan says that local governments whose revenue loss is at least 2.5 percent of their real property revenues are eligible for reimbursement totaling 80 percent of what they had received from the PPT for all services other than police, fire and ambulance.
Calley said “significantly more” local governments, especially counties, would qualify for reimbursement under the new plan than the original Senate one. However, he did not know the numbers and officials in the administration of Governor Rick Snyder were unable to produce that data upon request Tuesday.
Instead of having the expiring business tax credits directly provide the reimbursement revenues to local governments – and the Legislature needing to appropriate those revenues annually with the PPT coming back into effect if it failed to do so as previously passed by the Senate – the new proposal would set aside between 1 and 1.5 cents of the 6-cent use tax on each dollar of remote sales purchases that consumers makes through catalogues and the Internet.
That money would instead go to a new authority that would disburse the revenues to local governments starting in 2016. Under current law, two-thirds of use tax revenues go to the general fund and the other third goes to the School Aid Fund. The money for local governments would only come out of the general fund portion with the School Aid portion protected. The revenue from the expiring business tax credits would then be used to backfill the general fund and the School Aid Fund, and Calley said he anticipated no negative impact on the general fund.
But moving part of the use tax to the new authority requires statewide voter approval to comply with the Headlee Amendment to the Constitution. Calley said officials have not settled on a date for that election, but want it to coincide with a regularly scheduled statewide election prior to 2016 to avoid the $10 million cost of a statewide special election – which makes the August 2014 primary and November 2014 general election prime candidates.
The proposal itself is a statutory change, not a constitutional one, so a simple majority of both houses of the Legislature is all that would be required to send the proposal to the ballot.
Additionally, local governments would have the option to levy an “essential services assessment” on the real property of those otherwise exempted from the personal property tax to replace 100 percent of the revenue that otherwise would have funded police, fire and ambulance services from their general fund. This assessment would not require voter approval, but could be subject to a voter referendum.
Calley said this essential services assessment, which is different from a millage, already is allowed in law and is “commonly used.” However, local government officials said this mechanism is rarely used and noted voters could repeal it in a community through a referendum.
The piece requiring voter approval and the possibility of local voters repealing the assessment, however, worried local government officials. While the Senate plan represented an effective guarantee that local governments would not lose the bulk of the revenue they now receive from the personal property tax, there is no such guarantee here.
Additionally, there is always the possibility that the Legislature could amend the newly created authority to divert some or all of the revenues from reaching local governments.
Asked about what would happen should voters reject moving a portion of use tax revenues to an authority to then provide those funds to local governments, Calley said that would be a signal from voters that they prefer to have the Legislature annually decide how to appropriate those funds.
“That would mean there’s no guarantee,” Calley said. “With a positive vote, there’s a guarantee. Without a positive vote, we’re back to the plan local governments were neutral on as it passed the Senate with the exception of the addition of the essential services assessment.”
And even though local governments are not required to use the special assessment to shore up funding for public safety services, Calley said, “I expect it to be utilized across the board.”
Conceivably, the state could reimburse 100 percent of lost revenues if it dedicated more of the use tax to the effort. But Calley said it chose the 1 to 1.5 cent range because, “This is the amount that we absolutely know will be available.”
Notable by their presence at the news conference were Bieda and Warren. Warren said the legislation is “not quite soup yet,” but she is “very supportive” of the concept behind the plan.
The key piece at this point, Warren said, is to get all the ideas into bill form so local government groups and other interested parties can dissect it.
“I still have questions,” she said. “We are still kind of I think negotiating what level of reimbursements we’re going to see and what that’s going to look like. For me and my caucus, we’d like to see those reimbursement rates continue to climb. We do have in this package the ability for it to get to 100 percent reimbursement rate for essential services. We’d like to keep pushing toward that. I think that will be a big sticking point for my colleagues to make sure that we’re not leaving any communities in financial harm’s way. But we’re happy to be at the table.”
Indeed, Bieda’s and Warren’s participation does not equate yet to support from the full Senate Democratic caucus, which at this point has no position, said Bob McCann, spokesperson for Senate Minority Leader Gretchen Whitmer (D-East Lansing). McCann said Bieda and Warren kept Whitmer updated on the talks.
“Senator Warren and Senator Bieda were at the table during the negotiations, but I think we all recognize that this is an incredibly complex issue that still needs a great deal of discussion before any of our members can say for sure if they are supportive of the plan,” he said.
Notably absent from the news conference was any member of the House Democratic caucus.
House Minority Leader Richard Hammel (D-Mount Morris Township) sounded a much different theme than Warren.
“We have serious concerns about the newly announced personal property tax proposal,” he said in a statement. “For example, how will outstanding bond debt be resolved with respect to our local libraries and schools? Will taxes be raised on homeowners to offset PPT repeal? How will police, fire and emergency services be affected? Our caucus has no details on this reform and will need to review any draft of the bill. A bill of this magnitude should not be rushed through the Legislature. We insist that businesses pay their fair share for use of those services and that local communities not be left to foot the bill, as middle-class families did last year.”
A big part of the House Democratic reaction, sources said, came from their lack of involvement in the legislation.
O’Reilly, the mayor of the city that is home to Ford Motor Company and a recipient of considerable personal property tax revenue, was on hand and lent his blessing to the proposal. He said the personal property tax’s reliability as a revenue source has fallen. In the past four years, tax revenues have fallen anywhere from 20-50 percent as a result of depreciation and valuation, he said.
“This is a good alternative in its predictability,” he said. “Is it perfect? No. Is there anything perfect? No.”
But the main priority is, “We just want to be able to know where we’re going,” he said.
Manufacturers, which are itching to end the hated tax on their equipment, hailed the revised proposal.
Charlie Pryde, Ford’s regional manager for government affairs, said automakers cannot produce new products without new equipment, and the tax makes it harder to buy new equipment.
“The Snyder administration’s plan will phase out this tax and create a system to protect local governments from lost revenue,” said Mike Johnston of the Michigan Manufacturers Association in a statement. “It’s a win-win plan that will attract new manufacturing investment and create more jobs in Michigan. We look forward to working with Governor Snyder’s administration and state leaders to move this legislation forward before the end of the year to help Michigan become a more competitive, attractive state for manufacturing investment and job creation.”
Shortly after the news conference with Calley and lawmakers concluded, the Replace, Don’t Erase coalition tore into the proposal at a separate news conference at the Michigan Municipal League’s offices.
The coalition of local governments, libraries, law enforcement and schools questioned the wisdom of jamming through such a complicated proposal, which is not yet even in bill form, with just three weeks remaining in the session.
“I don’t understand being rushed and pushing something this complex through in nine days,” said Samantha Harkins of the MML.
Also, unlike the Senate proposal, there is no guarantee of replacement funding, said Deena Bosworth of the Michigan Association of Counties. More critically, no one has provided them with a formula on how the essential services assessment would work, nor on how the new authority would distribute the revenues. Another question: Would local governments get 80 percent of the personal property tax revenues they received for non-public safety services in 2012 in perpetuity or would any growth be built into that equation?
Bosworth said counties are concerned that sheriff, jail and 911 services may not qualify for the essential services assessment. Don Wotruba, deputy director of the Michigan Association of School Boards, said his organization thinks special education also should be eligible under that assessment.
Many intermediate school districts assess a separate millage to fund special education services, and under the proposal, ISDs are looking at a reduction in that revenue as a result of only getting 80 percent reimbursement from no longer being able to tax industrial personal property, Mr. Wotruba said.
David Lossing, the Linden mayor and president of the MML, said he likes O’Reilly, but said he does not speak for other cities, which have grave concerns about the proposal.
“It’s going to push us over the edge into an area we don’t want to go financially as a state,” he said.
Libraries also voiced strong concern, noting they were looking at a certain 20 percent loss of the personal property tax revenue they receive through library millages.
Christine Berro, library director of the Portage Library District, said 20 percent of the district’s overall budget comes from the personal property tax. Some libraries in Michigan could lose as much as 50 percent of their budget. She said the state is encouraging people to use their local libraries’ computers to receive state services, such as filing for unemployment, yet now is about to impose a significant revenue reduction.
“We have to have basic dollars to keep our doors open and open the number of hours our public needs there to be in order to provide those services,” she said.
And officials blasted Calley for trying to frame the debate by repeatedly noting local governments were neutral on the Senate plan. Harkins called the comments disingenuous.
Considering the total lack of data, as well as the loss of a guarantee, “We have no way to take any sort of position right now,” Harkins said.
In the midst of hitting the proposal hard with criticism, Bosworth did say the proposal represented progress. She pointed to the proposal seeking to avoid the annual appropriations process.
After years of revenue sharing cuts in the previous decade, local governments are loathe to lose the personal property tax as a source of revenue without a guaranteed replacement.
“We’re willing to continue to talk about it,” she said, but quickly noted the lack of a guarantee is a problem. “There’s a trust issue. And getting around that trust issue is going to be very difficult.”
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