Inside208

Headlee/Proposal A Reform Bill Introduced

Posted on December 3, 2020 by Dene Westbrook

As a part of the League’s long-term commitment to municipal finance reform and following the League’s recent press conference promoting critical policy changes needed during the current lame duck legislative session, State Representative Jim Ellison (D-Royal Oak) introduced House Bill 6454 aimed at addressing one of the key reform measures needed to protect local government from debilitating drops in property value.

Ellison, a former Royal Oak mayor and co-chair of the Legislative Municipal Caucus, has been a long-time supporter of Municipal League and the need to fix our broken municipal finance system.  His understanding of the impact that the Great Recession had on his community’s budget prompted him to work with the League to sponsor this piece of legislation.

The timing of this legislation could not be more important given the upcoming December 31 Tax Day.  With the COVID-19 pandemic causing the permanent closure of businesses and reducing occupancy for retail and commercial office space across Michigan, local governments will be facing pressure to reduce property values — and incur cuts to property tax revenue.

As we learned from the Great Recession, the fiscal impact to local governments that result from declines in property values caused by the pandemic will become permanent due to the unintended interactions between Proposal A and Headlee.

This broken system has caused the crisis of the Great Recession to continue for over a decade for local governments while other sectors were able to rebound alongside the economy. Without a resolution, like what is provided in HB 6454, communities’ ability to respond to the needs of citizens and businesses will be severely impacted.

The provisions within HB 6454 focus on two main issues:

  • The first will allow millage rates to adjust both up and down depending on the relationship of property value growth or decline to general inflation. It is important to note that a millage rate could never increase above charter limits, maintaining
    the upper limit on millage rates. Additionally, for parcels that do not have a change in ownership, the maximum charter tax rates will not increase by more than inflation.
  • The second component fixes the rollback formula so cities, schools and other taxing authorities can benefit from the deferred growth from property sales. This fix would remove the “popped up” values from the calculation of the Headlee rollback which currently works to negate that growth. This is especially important for fully developed communities because these sales are their only opportunity to benefit from a growing economy.

This bill has been referred to the House Local Government and Municipal Finance committee where it awaits consideration.  League members are encouraged to contact the committee chair and the other committee members to urge that the committee support this important reform.

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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