Patrick F. McGow (P47258) | Ruth H. Swartout (P59258) | Miller, Canfield, Paddock and Stone, P.L.C. | 150 West Jefferson Suite 2500 | Detroit MI 48226 | 313-963-6420

Tax increment financing is a tool for economic development that allows a DDA to “capture” property taxes which are levied by other taxing units (city, village, township, county, schools, community college, library, parks, etc.) against property within the downtown district. At the time the tax increment financing plan is adopted, the value of property in the DDA district
is frozen. Although the taxing units continue to receive tax revenues based on the frozen value, the DDA can capture the taxes from any increase over the frozen value. The DDA is entitled to capture the taxes on the increase on the theory that the increase in value was a result of the improvements made by
the DDA. The DDA can use the captured tax increment revenues to pay for public improvements in the DDA District to promote economic development. Many DDAs issue bonds to pay for the public improvements and use the tax increment revenues to pay the debt service on the bonds. In the present case, the Circuit Court took the erroneous position that a governing body of a
taxing jurisdiction which levies ad valorem property tax that would otherwise be subject to capture by a
DDA may exempt its taxes from capture after any public hearing relating to the DDA, not solely after
the public hearing which establishes the authority and designates the boundaries of the downtown
district.
The decision of the Circuit Court is significant to Michigan municipalities because it goes to the heart of tax increment financing and the ability of municipalities and DDAs to exercise their power and implement the purposes of Michigan’s tax increment financing acts. The practical result of the Circuit Court’s ruling is that taxing jurisdictions will be allowed to exempt their taxes from capture at any time throughout the life of a downtown development authority each time a public hearing of the authority is held, regardless of the purpose of the public hearing. If that decision is allowed to stand, the State’s downtown development authorities will no longer be able to rely on a predictable stream of revenue upon which to base financial decisions and issue bonds to pay for downtown improvements.

Court of Appeals:
In this case of first impression, we must decide whether Holly Township timely adopted a resolution to exempt its taxes from capture by the Village of Holly Downtown Development Authority. MCL 125.1653(3) provides, in pertinent part: “Not more than 60 days after a public hearing held after February 15, 1994, the governing body of a taxing jurisdiction levying ad valorem property taxes that would otherwise be subject to capture may exempt its taxes from capture by adopting a resolution to that effect and filing a copy with the clerk of the municipality proposing to create the authority.” The issue on appeal is whether, despite the use of the indefinite article “a” preceding “public hearing,” the Legislature intended to refer only to those public hearings necessary to create a downtown development authority or to amend the boundaries of an existing authority. By reading subsection 3 in context, we conclude that the Legislature intended to refer only to public hearings specified in MCL 125.1653. Accordingly, we reverse the trial court’s judgment to the contrary.

The village of Holly formed its DDA in 1984. In 2000, the village passed a resolution giving notice of its intent to expand the boundaries and noticed a public hearing for July 11, 2000. A public hearing was held; however, the village took no action and decided to consider different boundaries for the expanded district. A second public hearing was held on October 24, 2000 to consider a new proposed ordinance to expand the
boundaries. On January 9,2001, the village adopted an
ordinance to expand the boundaries of the district. The village then gave notice under the act for an April 24, 2001 public hearing on a proposed development plan and TIF plan for the expanded DDA. The public hearing was held and the village adopted an ordinance approving them. On May 15,2001 the township adopted its own resolution entitled “Resolution to exempt taxes from capture,” after that date the township treasurer refused to account for or transfer taxes from the expanded DDA. The township argued that its exemption resolution was adopted within 60 days following the public hearing on a proposed development plan and TIF plan. The village countered that the resolution was invalid because it was
not adopted within 60 days following the public hearing
regarding the expansion of the boundaries of the DDA. The trial court noted that the act requires two public hearings and found that the township’s exemption resolution was timely.