Thu July 31, 2014
Southwest Michigan Officials Weigh in on Proposal 1
Voters have the chance to consider a major change in Michigan’s tax policy next Tuesday.
Proposal One would exempt many – but not all – businesses from the assessment known as the personal property tax. The revenue it generates is important to many local governments, and for some it’s critical.
Many support the proposal now that the legislature has offered a plan for replacing that revenue. But not everyone has confidence in that plan.
Supporters of Proposal One say the personal property tax is a burden on business owners. Despite its name, the PPT doesn’t apply to personal possessions. Instead it’s assessed on commercial and industrial equipment.
That includes everything from the appliances in a rental unit to the machinery in a factory. When a business makes a purchase that falls under the PPT, says Kalamazoo Vice-Mayor David Anderson,
“A tax form comes out in the mail, you have to fill it out, you have to send it back, it is run through a calculation to assess its slightly decreasing value as the years go on, and then you get a tax bill for that.”
Anderson supports the effort to end the personal property tax for many businesses. He owns rental property and wouldn’t miss the PPT. But he says, in some cases, it’s burdensome for the government too.
“When someone’s paying a few dollars of tax a year and all the paperwork that’s required, the city has already spent more dollars collecting that tax than the revenue that’s generated,” he says.
Proposal One would eliminate the personal property tax for all businesses with property worth less than $80,000. It would also phase out the PPT for all industrial property. Commercial businesses would see it end for some of their equipment.
“There’s been a strong sentiment to eliminate the Personal Property Tax for quite a while now. Both in the business community, in the legislature, and frankly even if you talk to a lot of local officials,” says Michigan Municipal League Associate Executive Director Anthony Minghine.
When legislators first approved the changes in 2012, they didn’t plan to replace the revenue for local governments. Minghine says that would have devastated the general funds of many counties, townships, and cities.
“We spent many months working with the legislature, with the administration, and the business community to try to craft a better way of doing it, and to ensure that hundred percent replacement revenue. And we got that,” he says.
A few months ago lawmakers came up with a new plan. It would have the state replace PPT money with a share of the use tax on things like hotel rooms and mail-order purchases that otherwise would go into the state’s general fund.
Anderson says he thinks that’s a good deal.
“This provides us with, I believe, the best opportunity to do a one-for-one replacement which was not originally proposed, and make sure that there is a codified, recognized-by-statute manner that those funds can keep coming to local entities,” he says.
Many local officials agree with Anderson. But that doesn’t mean there’s a consensus. Tom Lowry is the mayor of Three Rivers, where more than 35 percent of all taxable property is personal property. In the City of Kalamazoo it’s closer to 14 percent.
Lowry – who owns two bookstores - says Proposal One’s supposed benefits for small business have been exaggerated.
“This personal property tax does not help small business nor does it hurt them, really. It’s a huge issue for manufacturing,” he says.
Lowry says he doesn’t trust the state to keep up the reimbursements after the first five years.
“At the very least, at the end of 20 years all of us will be firing policemen and firemen, and so there’s this vagueness and this huge uncertainty. All that the state did was to push that day of reckoning off,” he says.
If Proposal One passes, the state would reimburse governments for the money they currently get from the PPT for five years. But starting in fiscal year 2020, the formula would gradually change to reflect the amount of personal property present at that time.
Lowry says he attended a meeting where State Senator Bruce Caswell said local governments would have to take “competitive measures” to keep their reimbursements. Lowry says that’s pretty vague.
“We were going to have to meet some kind of competitive criteria yet to be developed,” he says.
Caswell’s office didn’t return a request for comment. But the state Treasury Department says that whatever politicians have in mind, the eventual formula change wouldn’t have any thumbscrews in it.
The department's Director of Legislative Affairs Howard Ryan says the reimbursement could go up if districts end up with more personal property. And if the reimbursement goes down, it won’t be less than under the current system.
Lowry says larger manufacturers will certainly save lots of money if Proposal One passes. But he’s skeptical that it will lead to a giant economic boost as some proponents have claimed.
“That whole argument that you are guaranteed more growth or more tax revenue or more job creation when you eliminate taxes on businesses is not true. It does sometimes but it certainly does not do it at all times. And a state plays havoc with their budget when they buy into that argument,” he says.
And for his part, Lowry says he doesn’t find the personal property tax to be a burden on his small businesses in Three Rivers and Sturgis.
Anderson, who supports Proposal One, says he’s also skeptical of claims that the tax cut would spur growth.
“I am a little concerned when I see the advertising come out and it’s you know, ‘create 15,000 new jobs.’ I have no idea what that’s based on,” he says.
By 2025 the statewide cost of the reimbursement is expected to reach more than $500 million a year. Groups like the nonpartisan Citizens Research Council point out that that’s money the state won’t have for other things. And Anderson acknowledges that any time money comes from the state, it could be affected by Michigan’s fortunes.
Though Anderson would like to see Proposal One pass, he’s worried that it won’t. He’s not convinced that voters know what Proposal One would do – and reading the proposal might not help. Where it claims to “help small businesses grow and create jobs,” Anderson says people might suspect a trick.
When he receives literature in support of Proposal One, he says, it can be hard to tell who’s behind it.
“It’s one of these classic things where a group is created with a name, you know, Citizens in Support of Whatever, green energy, and then you find out at the end of the day it’s a group of coal companies that have formed it, for example, and in this case I think that raises doubts and suspicion,” he says.
Lowry doesn’t like the language of the ballot question either. But, unlike Anderson, he’s worried Proposal One will be approved.
“Just the fact that that language is so flowery and misleading I think suggests that there’s forces at work that don’t want the citizens to realize what’s being done,” he says.
To add to the confusion, the text of Proposal One contains no references to the personal property tax. It does ask whether the state should direct a portion of the use tax to a new tax that would go to local governments.