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League Testifies on PPT Reimbursement Proposal

Posted on May 10, 2018 by Dene Westbrook

As the House and Senate continue to make progress on the 2018-19 state budget, they have also begun work on the related pieces of legislation necessary to implement some of the spending plans proposed by the Governor.

One of those proposals deals with the Governor’s recommendation for changing the distribution of any personal property tax reimbursement dollars that remain after all eligible losses have been fully reimbursed.  In 2017, over $150 million was distributed to local governments above what was needed to reimburse those eligible losses at 100%.  According to the current formula, any revenue remaining after losses are fully reimbursed, is distributed on a prorated basis to communities based upon their proportion of non-guaranteed qualified losses.  While that formula makes sense when there is not enough money to fully reimburse at 100% requiring a downward pro-ration, it does not work as well when pro-rating upwards.

The Governor had proposed distributing any of these remaining dollars beyond 100% on a per capita basis, by unit type.  Based upon the proportion of 100% loss reimbursements in 2017, that would have resulted in 48% of any remaining balance being attributed to cities and 2% of that balance being distributed to villages.  The remaining funds are divided between townships (5%), counties (30%), and community colleges (15%).

The Governor’s proposal also called for the first $15 million of PPT reimbursement revenue to be used to fund the local government fire protection grant program, replacing the now-eliminated Driver Responsibility Fee revenue that had served as the main funding source for those grants that reimburse communities that host large state facilities or higher education institutions.

State Representative Rob VerHeulen, chair of the House General Government budget subcommittee that oversees revenue sharing,  worked closely with Municipal League staff in developing House Bill 5908, to address this proposed new distribution formula.  While HB 5908 changes the methodology for distributing the remaining balance, it does differ from the Governor’s recommendation.  The House Bill sets fire protection grant funding at $12 million from the PPT balance (as opposed to the current budget’s $10.6 million, but below the Governor’s recommended $15 million) and distributes the remaining balance on hybrid basis, phasing up to a point where 50% of the remaining balance is distributed per capita and 50% based upon the currently used proportion of non-guaranteed qualified loss.

League staff was joined by Howell City Manager and MML Municipal Finance committee chair, Shea Charles on Wednesday in the full House Appropriations committee testifying in overall support for HB 5908.  Of key importance to League members, HB 5908 will establish consistency and budget predictability for communities in future years as this portion of PPT revenue is distributed.  A more predictable and equitable distribution formula will also provide needed funding to communities that have PPT losses that are not recognized by the current formula…more than 75 cities with PPT losses received no funding from this remaining balance in 2017.

PPTRevSharing.Approps2

While supportive overall, the League continues to work with the sponsor and other legislators to improve the allocation for the fire protection grant program and investigate alternative options for distributing the second 50% designated in the bill to more correctly reflect the proportion of total PPT losses in each community.

The bill was reported by the committee with overwhelming bi-partisan support and now moves to the House floor for a possible vote next week.

Chris Hackbarth is the League’s director of state & federal affairs. He can be reached at 517-908-0304 and chackbarth@mml.org.

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