Local government not benefiting from economic recovery

Lack of revenue limits local units to enjoy economic recovery.

There seems to be an n Lansing to visit the 25 year-old property tax system that was defined by Proposal A. The Great Recession of 2008 has not allowed local communities, schools and other public entities to recover from and lost revenue from capped increases of taxable values of property and the decline of taxable value of property statewide. As the economy improved and is now in a sustained upward trajectory communities are hamstrung by restrictions that are in place in Proposal A.

Previous articles by MSUE (Walcott) have discussed the details about Proposal A and the Headlee Amendment. Please follow the hyperlinks to view details of these laws and associated articles. The purpose of this article is to provide insight into the consequences of both as a result of the recession and challenges communities face today. It would be most helpful to understand both measures prior to understanding the anomalies they are created during the recession and the prosperity that followed.

First, a definition of a local municipality (herein referred to as entities) referenced in this article. Local municipalities include cities, villages, and townships.  These entities are limited by the Michigan Constitution regarding the creation of revenue. That is to say that entities are limited the growth in taxable value which has an impact on the creation of revenue.  An entity may increase its millage rate and thereby “create” additional revenue (millage rate X taxable value).More directly, revenue is not capped by Proposal A however, taxable value is.

The lag in funding has placed a significant budget burden on local units of government to provide for basic services like law enforcement, fire and ambulance protection. Local units bore this burden as well as the burden of a decrease in interest income for retiree pensions and other post-employment benefits (OPEB), further pinching budgets for almost 8 years. The result of this recession left local units without choice but to cut services, raise additional revenue (within statutory limits) or a combination of both.

There seems to be some initial discussions in the Michigan legislator about looking at funding options for municipalities. According to a Detroit Free Press article, several legislators are visiting this issue. This is encouraging. Future articles will provide possible details with plans the legislature may consider that addresses this need with respect to millage rates, property tax exemptions or other strategies. 

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