Can Council House Defense Fund

February 14, 2005
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GRAND RAPIDS — Talks have quietly gone on for years about setting up a legal defense fund for municipalities, school districts and other boards in the region that receive property-tax revenue, and now that discussion has moved into a preliminary planning stage.

The Grand Valley Metro Council, which is made up of 33 area governments, is taking a look at its state charter to find out if it can become a clearinghouse for the defense fund. The fund would contain an unspecified pool of dollars dedicated to help defray the legal costs of municipalities when a unit faces a serious, and possibly trendsetting, challenge to a property-tax assessment from a business.

“More and more businesses throughout the state are challenging their tax assessments in fundamental ways, suggesting that they have no value or a limited value that is far less than what the assessors throughout the state have looked at,” said Grand Rapids City Manager Kurt Kimball.

“And there are attorneys who have been very aggressive in recruiting businesses, big and small, to challenge their tax assessments. So, what we’re seeing is a flurry of activity that strikes at the heart of what is a fundamental source of revenue for local governments,” he added.

When a challenge is made it has historically been left up to the local unit to defend its assessment. If a challenger isn’t pleased with the outcome at the local level, it can take its case to the Michigan Tax Tribunal. Defending itself at the state level can become a costly experience for a government, especially for smaller units without lawyers on staff.

“Townships and smaller cities typically have to rely on outside counsel and other experts for which they pay a great deal of out-of-pocket money to go the distance for the tax appeal process at the tribunal. It can be very, very expensive,” said Kimball.

Even for a larger city with its own legal staff, like Grand Rapids, the cost of pleading a case at the state level can be pricey. The most recent noteworthy assessment case that the city had to defend itself against was from an appeal made by the Amway Grand Plaza Hotel in 1999, a case that took the better part of two years to decide.

By the time a decision was made, Kimball said the city had spent over $100,000 to defend its evaluation, despite having attorneys and assessors on staff. That cost, he said, would have soared if the city had to hire outside professionals for its defense.

Kimball said the Metro Council is looking to become involved because when a unit defends itself in an appeal, it’s not only doing so for itself but also for others that rely on property tax revenues, such as schools districts and downtown development authorities.

In addition, he said a decision that involves a single jurisdiction could actually affect other units. If Grand Rapids loses a case, then other taxing jurisdictions in the area also get nicked. Because of that situation, it makes sense for units to pool their resources in order to create a legal defense fund to fight appeals.

The tax tribunal heard 68 challenges in 2004. While a handful were made against the state, most were filed against cities and townships. Kimball said more firms have been challenging more appeals in recent years. He also felt that a number of those challenges, which are being pushed by lawyers, have been less than valid.

“It’s sort of common sense that if they have a functional business that is performing well, their properties must have some value. But often you hear very preposterous suggestions from the attorneys for these corporations that their facilities have no value. It’s preposterous on its face,” said Kimball.

“But there we are, and clever attorneys can make arguments on just about anything. And that is happening a lot more now because you simply can’t afford to fight these if they come at you as an onslaught of cases.”

The idea for a defense fund first surfaced a few years ago when Gerald Hunsberger, associate supervisor for the KentIntermediateSchool District, and Kent County Fiscal Services Director Robert White suggested that units consider creating one. White began talking about it when he was still with the city.

Membership in the fund wouldn’t be restricted to Metro Council members, should the regional planning agency end up acting as a home base for it. Downtown development authorities, school districts and other agencies that depend on property-tax revenue would be allowed to contribute and use the fund to fight the most serious appeals.

The council recently held its first meeting on setting up the fund and has a long way to go to establish one. But the wheels are in motion, as the council is now looking into whether it can lawfully do so.

“We have to ascertain whether legally if the Metro Council can house a collaborative fund to provide some assistance to communities. But not on every issue that comes before the tax tribunal, just those that we think would be trendsetting,” said Don Stypula, Metro Council executive director.

“Because we’re chartered under a state statute, we just want to make sure we can set up some type of a mechanism like that within the Metro Council.”    

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