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untanglingwebs
El Supremo
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Pam Faris
July 17
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Confusion about Proposal 1 on the August ballot? Basically it is another business tax cut but instead of the revenue that would be eliminated from schools and local units of government based on business paying less taxes it will be keeping the local governments and schools whole. The use tax we pay on internet sales, lodging, used vehicle sales and phones normally goes into the state general fund but will now go into a fund set up for just this purpose and it will bypass the state appropriation process. Because the use tax will not be enough to cover the debt, we will take money out of the state general fund to make up the difference. This will create a hole in the general fund.
Here is one of the best explanations I have seen.
Citizens Research Council Releases an Analysis of Proposal 2014-1: Personal Property Tax Reform
July 2, 2014, Proposal 1, the only statewide measure on the August 5 ballot, asks Michigan voters to approve the conversion of a portion of the state's current use tax to a new local tax as part of a plan to reimburse local governments for the cost of recently enacted exemptions of business property from the personal property tax. The Citizens Research Council of Michigan (CRC) has released its analysis of the ballot proposal to explain the ballot measure for voters.
The state Legislature and Governor enacted legislation in 2012 and 2014 that bring significant personal property tax (PPT) relief to Michigan businesses. Because the PPT is levied locally on the taxable value of business property, which includes everything from business equipment and machinery to chairs and computers, local governments stand to be most directly affected by these changes.
"Past efforts to exempt business personal property from the local property tax base eventually failed because the state was never able create a reimbursement method to keep local governments whole," said Bob Schneider, CRC's Director of State Affairs. "For some local units with a strong manufacturing base, the tax on personal property brings in a lot of local revenue."
To address this local impact, the legislation creates a mechanism to reimburse local governments for any lost PPT revenues. A key element of the plan is the conversion of a portion of the state's current use tax into a new local community stabilization share tax. The revenues of this new tax would be distributed to local governments to offset lost PPT revenues through a new special authority -- the Local Community Stabilization Authority (LCSA). The LCSA is considered a local unit of government in the legislation, but would look rather different than other local governments.
"The new authority is defined as a local government, but has statewide boundaries, so we essentially have a very unique statewide local unit of government set up to administer the reimbursement of other local units of government," said Schneider. "This peculiar arrangement really revolves around assuring local governments that they'll get their money. They don't want to see this money pass through the state government's appropriations process."
The conversion of a portion of the state's use tax to a new local tax, however, creates other constitutional issues. In 1978, voters added several sections to the Michigan Constitution (commonly referred to as the "Headlee Amendment") that limit the taxing authority of both the state and local governments. Calling the new tax a local tax means it has to be approved by voters, which explains the need for the ballot measure.
"Because the law creates a new local tax, that local tax needs to be approved by local voters," said Schneider. "And, in this case, because the 'local' tax is administered by a local authority that happens to have statewide boundaries, the usual local vote now becomes a statewide vote."
The tax shift will have significant fiscal implications for the state's General Fund. The state will lose a portion of its current use tax revenues under the proposal. The analysis suggests state general fund/general purpose (GF/GP) revenues will be $107 million lower in FY2016 and $349 million lower in FY2017 as more and more state revenue is shifted to the new local tax. By FY2025, the GF/GP revenue loss is expected to reach $500 million.
Because all of the enacted PPT legislation was "tie-barred" by the legislature, the August vote effectively becomes a referendum on the entire package of reforms. If the ballot question is approved by voters, the personal property tax reforms will go forward, with local revenue reimbursement from the new tax. If the measure fails, all provisions of the personal property tax reforms will be repealed effective for tax year 2015, meaning that all businesses would once again be subject to any relevant tax levies on personal property.
Susan Hudson Voting No. The "hole" in the general fund will have to be filled by "something" and I have a feeling that "something" will be a tax hike for citizens.
July 18 at 8:58pm · 2
Steve Losey I think you are very correct Susan.
July 18 at 9:00pm
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Robert Napieralski Another thing causing me some unease is that this vote is being scheduled on an election day that is predicted to be one of the lowest voter turnouts. This was done purposely for political purposes to advantage its passage. Another thing as pointed out...See More
July 19 at 9:49am
Doug Quinn Thank you for pointing out what I already pointed out Robert. You have been very helpful in clearing up any confusion anyone else might have because my "tongue in cheek" example below....
bad legislation = sweep under rug ...See More
July 19 at 10:00am · Edited · 2 |
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Fri Jul 25, 2014 9:47 pm |
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untanglingwebs
El Supremo
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| This commentary was printed in the Detroit Papers. Notice how the Flint media only shows one side. Facebook has more comments. |
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Fri Jul 25, 2014 9:50 pm |
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untanglingwebs
El Supremo
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Feedback: Proposal 1 is unfair, burdensome to Michigan cities
July 25, 2014 |
14 Comments
Last month, the Free Press’ editorial about Proposal 1 on the Aug. 5 primary election ballot, stated “There’s no apparent opposition to Prop 1.”
As the mayor of Warren, the state’s third-largest city in population, I oppose Proposal 1 because it is unfair and burdensome to cities like Warren.
How will Proposal 1 affect city of Warren finances?
Recently, Warren voters approved three millages for library operation, police and fire, and neighborhood road improvements. With all of these millages, voter approval was based on revenue projections. This proposal interferes with those projections and critically alters the ability to make future projections because the reimbursement is dependent on use-tax collections. Our city assessor anticipates a loss of 15% from these voter-approved millages if Proposal 1 passes.
Already, Warren stands to lose as much as $400,000 without reimbursement this year now that the state implemented the elimination of the personal property tax for small businesses. If Proposal 1 passes, that loss stands to skyrocket by 2016 to $10.5 million when the industrial manufacturing personal property tax begins to phase out, and it’s unclear how much of that will be reimbursed.
The proposal for replacement of these lost property tax revenues is an authority-administered use tax that will reimburse local units of government. There is no guarantee that the revenue loss to the local jurisdiction will be sufficiently replaced. Each year, the Department of Treasury will determine which jurisdictions get reimbursed and by how much. That calculation in the near future is dependent upon the total taxable value of all commercial and industrial personal property in a given year being less then that total was for 2013.
In other words, if the total taxable value of commercial and industrial personal property is less than it was in 2013, a jurisdiction would be eligible for some reimbursement. It’s unclear what the reimbursement may be available in 2016, when the industrial exemption kicks in, and we are concerned that there will be no reimbursement at all.
The argument claiming that personal property tax increases the overhead for the municipality and is a bureaucratic nightmare is not valid either. In fact, this proposal increases the paperwork, monitoring, verifying and reporting of both exempt and nonexempt personal property for the municipality.
It should be left up to the local jurisdiction to determine whether it can afford to exempt personal property for a manufacturer. A jurisdiction already has the right to exempt personal property to industries on a per parcel basis. Proposal 1 takes that local control away.
It has been our experience that businesses choose to locate and invest in communities for a variety of reasons, only one of which is low taxes. Qualified workers, excellent transportation, reliable infrastructure, dependable public services, quality schools and desirable neighborhoods are all important ingredients.
I view Proposal 1 on the August ballot as another large corporate giveaway that will result in service cutbacks and employee lay-offs by cities like Warren. So much for the argument that the proposal will create new jobs. This is a very confusing propaganda proposal, primarily benefiting industrial manufactures. For that reason, I call it a hoax on taxpayers and urge voters to vote against Proposal 1.
James R. Fouts
Mayor of Warren |
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Fri Jul 25, 2014 9:59 pm |
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