County estimates initial PPT revenue loss

June 8, 2012
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At last week’s budget session, Kent County estimated it will lose $575,000 in personal property tax revenue next year if the state House passes the eight-bill package the Senate approved in May. The county normally collects about $10 million annually from the state levy. The tax, though, may be on its way to the same scrap pile that already contains the Michigan Business Tax.

The county’s estimated tax loss comes from just one of the eight bills. SB 1070 would exempt all commercial and industrial businesses that have personal property valued at $40,000 or less from having to file a return. The exemption goes into effect Dec. 31 and would eliminate about 75 percent of all PPT returns that are filed each year. The Senate Fiscal Agency projected that local units of government, including the county, would lose $80 million in PPT revenue from SB 1070 alone.

Other provisions in the Senate-approved package would abate the tax on all industrial machinery bought after Dec. 31 and eliminate the tax on any qualified equipment that is 10 years old. Both provisions would become effective Dec. 31, 2015, and effectively eliminate the PPT except for utilities.

In the meantime, county officials are putting together their general operating budget for 2013 without knowing exactly what state lawmakers will do.

“We don’t know what the final version of the personal property tax will be. What we’ve heard is it will not come out of the House until after the election,” said Daryl Delabbio, county administrator and controller.

One of the eight bills the Senate approved, SB 1072, would create a reimbursement fund for counties, townships, cities and tax-increment financing authorities to cover the loss of PPT revenue. The primary sponsor of that bill was State Sen. Jack Brandenburg, R-Harrison Township, who was named the state’s most conservative senator in 2011 by the Michigan Information and Research Service. State Sens. Dave Hildenbrand, R-Lowell, and Mark Jansen, R-Gaines Township, are secondary sponsors.

The legislation calls for the Department of Treasury to establish the reimbursement fund in fiscal year 2015 from “certificated credits” that were part of the old Michigan Business Tax, such as the historic preservation credits that were eliminated this year.

According to the analysis, the bill mandates that “the total amount paid to all local taxing units and tax-increment financing authorities within a category of political subdivisions or consolidated category would have to equal the amount appropriated for that category or consolidated category.”

“We’re not sure what that means,” said Delabbio.

County Budget Manager Marvin Van Nortwick gave the Finance Committee a revenue estimate for the 2013 general operating budget last week. Van Nortwick said total revenue to the fund should be $160.7 million, about $700,000 more than this year’s total for an increase of four tenths of 1 percent. Tax revenue is expected to make up 52 percent of that total income next year at $83.7 million, a gain of one-tenth of a percent from this year.

Van Nortwick said the property-tax revenue estimate is based on an increase in taxable value of seven-tenths of a percent, a gain that would hike the total from $20.04 billion this year to $20.05 billion next year. But his calculation includes a reduction of $135.8 million in the taxable value due to a likelihood that a portion of the PPT will be exempted. “If we’re going to continue to maintain a balanced budget, we have to control costs,” said Van Nortwick.

As for property taxes, County Equalization Director Matt Woolford told the committee that the gap between the State Equalized Value and the taxable value of all property in the county has tightened significantly over the past 10 years. That isn’t good news for the county because when the two numbers meet, property taxes can’t rise. This year the taxable value is 95 percent of the SEV, which leaves little room for the county’s operating millage to grow and bring in more revenue to general operations.

“There is only a 5 percent gap between the two. Theoretically, it’s possible the two could close, but it’s not likely. To an extent, you’re always going to have a lag,” he said to committee members. “Five percent of your value has a chance to grow.”

The SEV was $21.7 billion last year and fell to $20.9 billion this year, a decline of 3.43 percent. The taxable value was $20.5 billion last year and dipped to $20 billion this year, a drop of 2.28 percent. The most recent banner year for the county’s SEV was in 2007 when it reached a record of $24.3 billion. But the following year it began to dive and has dropped by $3.4 billion since then to this year’s mark, which matches the $20.9 billion SEV that was recorded in 2004.

Since the dive began, Woolford said the state has ordered assessors to look at residential values on a yearly basis. An assessment has been taken Oct.1-Sept. 30 every year for the last three years. “I don’t know whether they will order that again this year,” he said.

Woolford explained that he primarily analyzes the previous year’s changes in the real estate market and isn’t a prophet. But he does think residential values will stabilize and possibly grow a bit for next year. “The downward pressure on prices seems to be easing,” he said, adding that he hasn’t seen any upward pressure and doesn’t expect any major growth. “I foresee things being flat and stable next year.”

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