Decoding October’s PPT Reimbursement Payment

Posted on October 29, 2018 by chackbarth

On October 20th, the Local Community Stabilization Authority began distributing approximately $200 million to local units of government as reimbursement for their annual losses related to the new Personal Property Tax system.  The October payments represent the third year of reimbursements under the new system as eligible manufacturing personal property continues to phase off of the tax rolls.

Nearly 500 cities and villages received payments that represent 100% of losses, using the 2012 tax year as the baseline.  A key difference between this year’s payment from the prior two years, the October 2018 payment only represents the reimbursement at  100%.  In 2016 and 2017, there was more revenue in the LCSA than was needed to reimburse all eligible local units at 100%.  The remaining funds in those two years were then distributed on a pro-rated basis and included with those prior payments.   For many communities this pro-rated addition was a pleasant surprise, but one that was completely unpredictable and inconsistent with local expectations.

For 2018 and future years, PPT reimbursements will now be split into two payments, the 100% payments that occurred on October 20th (or will occur in February 2019 for some municipalities) and a May 2019 payment.  This forthcoming May payment will allow Treasury to address any errors or omissions from the October payments and then the remainder will be distributed on a pro-rated basis as has occurred the past two years.  While the exact amount of remaining revenue is dependent on the number of errors or corrections that still need to be accounted for, it is expected that there will be a significant balance within the LCSA to distribute to all eligible municipalities in May.

The formula for distribution of these remaining dollars is still a subject of major discussion within the Legislature, potentially with legislation during the upcoming lame duck session.  Current law outlines PPT reimbursements according to two components; eligible Essential Service Distributions are guaranteed at 100%, while other Qualified Loss Distributions are to be distributed on a pro-rated basis after all Essential Service Distributions have occurred.  A community with a majority of their losses classified as other Qualified Loss would receive less than 100% of that component’s losses if the LCSA was short of funds, but benefits from additional disbursement from the LCSA when there is more revenue than needed to reimburse all eligible losses at 100%…this latter situation has been the case so far under the new law.  Proposed changes to how these pro-rated dollars are distributed to local governments are expected in the coming months and could serve as a way to preserve those dollars for local governments in the long term.

Any funds available on a pro-rated basis in May should be treated as one-time dollars that will fluctuate significantly from year to year and will eventually be phased out as the new “dynamic” formula takes the place of the current reimbursements for other Qualified Losses based upon the 2012 tax year.  The dynamic formula will be based upon the acquisition cost of all manufacturing equipment in a community in that year as a proportion of the value of all eligible equipment in the state.  This new formula will begin to be phased in starting in 2021 according to the current law.

Numerous other changes were made in PAs 247-248 of 2018 that seek to correct the unpredictable nature of the prior year’s payments and allow communities more confidence as they budget going forward.

Chris Hackbarth is the League’s director of state & federal affairs. He can be reached at 517-908-0304 and [email protected].

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