This post appeared as an op-ed in the Detroit News
Over the next month we’ll be hearing a lot about negotiations between Governor Whitmer and legislative Republicans as they try to craft a funding package to address crumbling roads, as well as next year’s state budget. The Citizens Research Council of Michigan thinks these negotiations should include expanding the menu of local-option road taxes to equip local road agencies with the resources to mend the secondary roads that are their responsibility.
While these negotiations will occupy Lansing’s full-time attention in September, local governments will focus on collecting fall property tax bills. Property taxes are the sole source of locally-raised revenue for most Michigan local governments. The spring and summer taxes paid to your city or township are distributed to the state, counties, school districts, community college districts, and any special authorities (such as the Huron Clinton Metropolitan Authority that runs the Metro Parks in Southeast Michigan).
Altogether, the taxes levied by all of these governments make Michigan property tax rates among the highest in the nation. These high tax rates hurt the economic competitiveness of the state as it works to attract businesses and new families.
Included in this mix are dedicated property taxes for roads levied by almost 700 local governments. Statewide, the average road millage is 1.76 mills (a mill means a dollar of tax for every $1,000 of assessed value). Many cities and townships across metropolitan Detroit tax above the average, including Milford at 3.25 mills, Warren at 2.07 mills, and Grosse Pointe at 2.5 mills.
Unless our state leaders craft a package that is rich in resources for local road agencies to meet their needs (don’t hold your breath), many more communities are likely to ask voters to levy a road millage. Continuing down the path of piling more and more burden on the property tax will return us to the 1970s, ‘80s, and ‘90s, when rising property taxes drove residents from their homes and businesses away from communities. Property tax relief was the driving public policy concern for nearly three decades. Let’s head off the need for that discussion and provide property tax relief as part of the road funding package.
Four tax alternatives stand out as candidates to relieve pressure on the property tax and fund local roads.
Michigan could join 11 other states by authorizing local-option fuel taxes. This would provide funding in relation to traffic volumes and allow Michigan’s business and tourist destinations to benefit from their visitors. The problem is that cars continue to become more fuel efficient, reducing the productivity of this tax.
Michigan could join 33 states that authorize local-option vehicle registration fees. Local taxing jurisdictions could easily piggyback on work done by the Secretary of State and revenues would largely reflect traffic volumes. This tax would do more to benefit urban areas (where more vehicles are registered) than rural areas of the state.
Michigan could join 18 states, many of them our neighbors, by authorizing local-option income taxes. This tax is currently authorized to Michigan cities and, 24 levy the tax. To fund roads, it should be levied at the county or regional level. The tax could produce funding to fix roads at a relatively low rate. It largely is levied on the residents and businesses that use the roads in the county or region; little is exported to visitors from other counties/regions/states.
Finally, Michigan could join 37 states that authorize local-option sales taxes. Like the income tax, it should be levied at the county or regional level and could fund roads at a relatively low tax rate. Like the fuel tax option, it could export part of the tax burden to visitors to the counties/regions. This would benefit Michigan’s urban regions as well as tourist communities upstate and along the lakeshores. The biggest downside to this option is the constitutional provisions that currently limit the tax rate (and therefore who can levy the tax) and dedicate the revenues to specific purposes.
The condition of our roads will continue to deteriorate without new investments. Historically, the state has levied the taxes to fund roads and shared some of the revenue with local governments. The failure to sufficiently fulfill that role is causing more local governments to seek their own funding to mend their roads, and they are placing pressure on the property tax to do so.
The message to our policymakers is clear. Either raise enough money to fix both the state and local road systems or give local governments the ability to take care of their own systems. This ability should not mean placing more strain on the already overburdened property tax.