The Seven Percent Solution

May 7, 2007
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GRAND RAPIDS — Commissioners will decide this week how much tax revenue Kent County will contribute to economic development projects.

And if board members adopt the new policy the Finance Committee approved last week, the county will raise its contribution.

“We’re very much appreciative of your policy,” Grand Rapids Township Supervisor Michael DeVries told committee members.

Property tax captures and abatements by cities and townships in the county have been somewhat of a sore point for the county recently, especially since the state stopped making revenue-sharing payments to the county.

In recent months, commissioners decided not to participate in the new Byron Center Downtown Development Authority and the Plainfield Corridor Improvement Authority established by Plainfield and Grand Rapids townships. Opting out of those tax-increment financing authorities means those districts can’t claim a share of the county’s property tax.

But County Administrator and Controller Daryl Delabbio made it clear at the time that the county wasn’t completely shutting the door on either district and was willing to create a separate tax-financing deal with both.

The new policy, known as the Economic Development Participation policy, gives the county some guidelines to follow when negotiating such an agreement.

“It’s a good move,” said Commissioner Harold Voorhees. “I think it’s needed and the county has an interest in economic growth.”

“It’s time we had a policy like that,” added Commissioner Harold Mast. “We do provide for economic development in a lot of different ways.”

Under the new directive, the county would create a cap of 7 percent of the total taxable value that could go to tax captures and abatements every year — a figure estimated at $1.5 billion for 2006. Last year, the county had $1.26 billion subject to abatement or capture, or 5.89 percent of the total taxable value. So the new policy would let another $240 million be captured or abated, an amount that would push the cap another 1.11 percent to 7 percent.

“I don’t think you’ll hit the 7 percent mark for another seven years,” said Robert White, county fiscal services director.

But if abatements and captures top 7 percent, then the county can suspend agreements to get back under the cap. If tax revenue to the county’s General Operating Fund doesn’t grow annually by 3 percent, the county can also suspend agreements.

“If something occurs in the future to impede your ability to pay (for county services), you can suspend the agreements,” said White to the committee. “You’re willing to give up 7 percent of your tax revenue for economic development.”

The new policy also protects revenue to the Senior and Corrections millages, two levies approved by voters that dedicate tax receipts to services for senior citizens and to the jail and juvenile detention center. The policy allows the county to refuse to enter into an agreement with a TIFA if that TIFA captures a share from one or both of the levies.

“My job is to protect the county, and I think this policy is fair and reasonable,” said Delabbio.

State law allows the county to opt out of a new DDA or an expanding area of an existing DDA. The county can also decide not to participate in SmartZones, corridor improvement districts and historic neighborhood TIFAs. The county can also veto creation of commercial rehabilitation districts, the only abatement program that Kent can choose not to be involved in. But these powers aren’t limited to just county governments.

“Local units have the same options; they can opt out of these districts, too,” said Delabbio.

The county had $6.2 million of its property-tax revenue abated or captured in 2005 and that figure rose by 8 percent to $6.7 million last year. The amount would rise under the new policy. The capture from the Senior Millage jumped by 41 percent over those two years to $396,506 after voters chose to increase that millage for 2006.

Property tax is the county’s single largest source of revenue for its general operating fund, which foots the bill for most of the county’s services.

“I think this policy is more critical to Kent County than other communities. Seven percent is a significant amount,” said Delabbio.

White said the county wasn’t putting other units at risk by opting out of TIFAs because cities and townships can use taxes these units generate to fund improvements within their districts.

“There are no new tax dollars,” he said. “These are the same tax dollars being used by different communities.”

The taxable value of real property in the county is nearly $22.5 billion for 2007.

More Being Exempted And Captured

Had the 7 percent policy that county commissioners will vote on this week been in effect in 2005 and 2006, another $240 million of taxable value could have been eligible to be exempted or captured by townships and cities in the county.

But from 2005 to 2006, the countywide property-tax amounts that were exempted and captured rose higher (7 percent) than the limit (6 percent), had it been in place for those years.

The amount exempted rose by 4 percent from 2005 to 2006, while the amount captured increased by 14 percent over the same period. Here are those figures and the year-to-year percentage change for both.

          Percent

    2005   2006   Change

Tax Exemption  $779,939,470  $810,213,181  4%

Tax Capture  $395,368,000  $449,979,000  14%

Total   $1,175,307,470  $1,260,192,181  7%

Proposed 7% Limit  $1,416,876,569  $1,497,524,798  6%

Source: Kent County Fiscal Services Office, May 2007
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