Metro Council Is Facing Deficit

August 17, 2004
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GVMC Executive Director Don Stypula recently told members that the regional planning agency would likely have to dip into its fund balance to cover a projected deficit of $11,742 for the next fiscal year that begins on Oct. 1.

Stypula said the group made internal reductions that included cutting back on health-care coverage for its staff and deciding not to fill a natural-resources management department. He said fewer grants coming from the Michigan Department of Transportation and other agencies were why the cuts had to be made.

Members then heard a timely report from the Michigan Municipal League and Plante & Moran that said the state’s method of financing local governments was broken and in need of some repair.

Summer Minnick, a manager of tax and finance policy for the MML, said her group was calling for a change to the General Property Tax Act (GPTA). She said the state has looked at how school districts were being financed and that a committee was examining the taxation system for businesses, but jurisdictions were being ignored in Lansing

“No one is looking at local governments,” said Minnick.

The MML study, done by Plante & Moran, showed that the difference between the State Equalized Value (SEV) — about half a property’s market value — and the taxable value (TV) — the figure assessed for tax purposes — has grown wider the past five years. The result of that gap means that local units haven’t been able to capture taxes that reflect a property’s true value.

This has happened due to the way the 1978 Headlee Amendment, which limits revenue increases to a community to the inflation figure, and Proposal A, passed in 1994 to cap property-tax increases to inflation, interact with the GPTA.

As long as a homeowner remains in a house, its value stays in the TV category and tax increases are limited to inflation, while property values rise at a much higher rate. When a homeowner sells a house, that home is supposed to move into the SEV category because it has a new owner. And because the SEV is higher than the TV, the taxes on that property are supposed to rise.

But Frank Audia of Plante Moran explained that doesn’t happen.

Audia said when a house changes hands, the GPTA defines the sale as growth on existing property, which causes Headlee to kick in and roll back the tax hike to inflation. That means local governments are taxing recently sold properties at the TV figure instead of at the higher SEV number.

“Millage rates are continuing to decline. The millage rollbacks are permanent unless you do a Headlee override election,” said Audia.

On top of that, Audia said that over the past four years the state has cut revenue-sharing payments to local governments by $1 billion.

Minnick said the MML has drafted legislation that would amend the GPTA and prevent Headlee from affecting property sales. She said the MML has asked Gov. Jennifer Granholm to make the MML proposal part of the upcoming budget agreement.

“We can’t continue to operate under this system. Significant changes have to be made, but it’s not a silver bullet,” said Minnick of the MML bill.

Grand Rapids Mayor George Heartwell said a group of urban mayors, who represent the largest cities in the state, also was asking Granholm for changes to the tax system. He said the system has remained static and should be more dynamic to reflect current times.

“It’s a complex issue. Every time I hear it, it brings my blood back to a boiling point,” said Heartwell, who has heard the MML report three times. “It is that important.”    

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