Inside 208

Late yesterday evening, House Republicans pushed through an eight-bill property tax cut package that would reduce revenue to schools and local governments by over $5 billion dollars.

Collectively, the bills include eliminating the uncapping (pop-up tax) for all property upon sale, eliminating the State Education Tax, eliminating the state real estate transfer tax, eliminating all personal property taxes, and a one billion dollar reduction in residential utility rates.

The final piece of the package would create a new sales tax on services. This bill was not voted on but would act as the revenue replacement mechanism for schools and local government due to the loss of property tax revenue. It proposes to hold schools harmless first, then provides revenue to local units of government. If there is not enough revenue to hold local governments harmless, they would get a prorated amount based on the funds available. Details of what items would be taxed have not been released.

Below is a list of the bills with links and short descriptions.

• HB 5872 (Bollin) Elimination of the uncapping (pop-up tax) upon sale of a property.
• HB 5873 (Frisbie) Elimination of the State Education Tax
• HB 5874 (Linting) Repeal of the state real estate transfer tax.
• HB 5875 (Bohnak) Implementation legislation to repeal the state real estate transfer tax.
• HB 5876 (Kuhn) Implementation legislation to repeal the state real estate transfer tax.
• HB 5877 (Robinson) Implementation legislation to repeal the state real estate transfer tax.
• HB 5878 (Schriver) Elimination of all Personal Property Tax.
• HB 5879 (Thompson) Utility rate rollback.
• HB 5880 (Meerman) Sales tax on services.

The day began with a six-minute committee hearing where they took no testimony on the eight bills before voting them out. The bills then passed the House just over 8 hours later with all but one republican voting in favor, and all democrats voting against the legislation.

The League has been calling for meaningful property tax reform for over a decade. Michigan’s system is broken, and we welcome any serious effort to fix it. As written, we are unable to support this effort and submitted testimony in opposition to HB 5872, 5878, and 5880.

We expressed in our written testimony the importance of understanding the historical context of this issue and that we have two constitutional amendments that limit property taxes. The Headlee Amendment (1978) capped how much existing property tax millage could grow with inflation across an entire taxing jurisdiction, requiring millage rollbacks when assessed values rose faster than inflation. Proposal A (1994) then capped the growth of taxable value on each individual parcel effectively deferring growth and created the “pop up”. The pop-up is now the single mechanism that allows long-held parcels, many capped well below market, to rejoin the active tax base.

Flawed as these limitations may be, they recognize that growth, even the deferred growth of our system, is a necessary element of any revenue system. Any amendments to our system must recognize that for Michigan communities to thrive, a fully functioning revenue system is a necessity. Anything less will result in reductions to critical services all Michigan residents rely on.

Combined with the existing Headlee and Proposal A caps, eliminating the pop-up effectively removes any organic revenue growth for local government. When you include the loss of personal property tax revenue, we create a system of funding local government that will jeopardize our ability to adequately fund police, fire, roads, or any of the services residents expect.

We encourage the legislature and the governor to work with us to craft a reform package that delivers relief to taxpayers, fairness, and a sustainable revenue foundation for local governments, ensuring our ability to provide vital services. Please do not hesitate to express your concerns about these bills with your legislators and the impact they will have on your community.

John LaMacchia is the League’s director of state & federal affairs. He can be reached at [email protected] or 517-908-0303.