For release on:
December 14, 2016
Contact: Eric Lupher
Citizens Research Council Examines Massive Hit to Local Government Tax Bases
With the end of the year quickly approaching, local governments across the state are thinking about “tax day,” the point in time at which municipal assessors value properties for purposes of property taxation. For local governments of all colors, including school districts, 2017 will mark another step in what has been a very slow recovery of the lost taxable value suffered as a result of the Great Recession.
The Citizens Research Council of Michigan has quantified the severity of lost taxable value for the general-purpose local governments in the state in a new report: The Prolonged Recovery of Michigan’s Taxable Values.
Because of state constitutional limitations, growth of the taxable value of property is effectively constrained to the rate of inflation unless ownership of a property is transferred to a new owner. The effect of this limitation is evident on the statewide tax base. While the unrestrained state equalized value has grown 10.6 percent since 2007, statewide taxable value has grown only 1.6 percent.
Looking at changes over the longer term reveals that the statewide values of residential and commercial properties are slightly above their inflation-adjusted 2000 values and industrial property value is severely diminished, 32 percent less than the value held in 2000.
The slow rate of growth is evident among the individual local governments. In 2016, 85 percent of Michigan cities and townships have less taxable value than they did at their peaks, before being diminished by the Great Recession.
Because the period just before the Great Recession includes what many perceive as an artificial inflation of property values, the Research Council also compared 2016 taxable values to the inflation-adjusted 2000 values. This comparison revealed that 16.4 percent of the cities and townships have less taxable value in 2016 than they did in 2000. These local governments are located throughout the state, but roughly half of them are located in Southeast Michigan and along the I-75 corridor. Nine counties have less tax base in 2016 than they did in 2000 when adjusting for inflation.
The implications of this extend beyond the diminished ability of local governments to provide the basic services expected of them. Local government employment constitutes nine percent of the state’s total employment, so the inability of local governments to employ necessary workers to provide those services is acting as a drag on economic growth. The taxable value of property also serves as the tax base for state and local taxes that make up part of school funding. And it can be expected that the diminished local government service levels that are resulting from the lost tax bases will impair the ability to attract new businesses, which will limit the rate of growth for state income and sales tax revenues.
“The data provide an illustration of the broken municipal finance system that Michigan’s local governments operate within,” stated Eric Lupher, President of the Citizens Research Council of Michigan. “Almost half of the state population resides in a local government that has less tax base in 2016 than it did in 2000. The lost tax base is affecting quality of life services provided to these residents and the businesses that are the economic engine of the state.”
The full report is available at no cost on the Citizens Research Council’s website, www.crcmich.org.