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July 13, 2022

New Citizens Research Council Report Documents Increasing Property Tax Rates

CONTACT:
Monique Mansfield
mmansfield@crcmich.org
(734) 542-8001

Livonia, MI – The August primary launches the start of the 2022 election season. And while most attention will be on state elective offices, many local governments will be asking voters to approve various millage proposals. In some cases, local officials are asking for voter approval to increase the property tax rate for general government operations or for a dedicated millage to support specific public services. Regardless of the reason, tax rate increases are a common occurrence given the workings of the state’s property tax system.

Today, the Citizens Research Council of Michigan is issuing a new report that documents how property tax rate increases have become a common response to Michigan’s mix of constitutional property tax base limitations contained in the Headlee Amendment and 1994’s Proposal A

Last year the Research Council examined the combined effect of these tax limitations on the growth of local governments’ property tax bases. One takeaway from that report was that constraints placed on the tax base appeared to create additional pressure on local governments to ask voters to increase tax rates. Our latest report, Local Governments Respond to Property Tax Base Limitations by Raising Tax Rates, assesses the frequency and magnitude of tax rate increases over the past 15 years.

The analysis shows an 8.4 percent increase in the statewide average tax rate and most Michigan counties, cities, and townships were levying higher tax rates in 2020 than they were in 2004.

In a nutshell

  • Local government officials have responded to Michigan’s tax limitations, which constrain growth in the property tax base, by seeking, and often receiving, increases in tax rates. From 2004 to 2020, the average county rate increased 17 percent, the average city rate increased 14 percent, and the average township rate increased 19 percent. Most local governments had higher tax rates in 2020 than they did in 2004.
  • Tax rates increased for reasons other than just constraints on the tax base (e.g., some local governments had population increases or needed to expand service provision). Whatever the reason, local governments cannot perpetually increase tax rates; statutory caps and taxpayer tolerance create upper bounds.
  • Policymakers must address the root problem with Michigan’s local finance system – Michigan depends too heavily on the local property tax to fund local government services. A municipal finance system with alternative tax options could ease the burden on the property tax.

“Michigan’s property tax system seems to be working within the confines of the tax limitations until you look at it a little closer,” said Jill Roof, Research Associate for Local Government Affairs. “For instance, tax rate increase proposals must be submitted to the voters, but those millage votes exclude business property owners. Most local governments have capacity to increase tax rates, but that cannot happen indefinitely because Michigan law caps the rates each type of government can levy.”

“We knew that the Great Recession affected urban areas more than rural parts of the state,” said Eric Lupher, President of the Citizens Research Council of Michigan. “Based on that, I expected most of the tax rate increases to be among urban cities and charter townships. Instead, the data show that local governments in all geographic locations and of all sizes have increased their tax rates.”

“For two decades,” Mr. Lupher continued, “The financial health of our local governments has been an afterthought for policymakers in Lansing. The data in our new report shows that policy action will be warranted soon. At some point the financial health of Michigan’s local governments will affect the ability of state and local government officials to engage in economic development and provide quality of life services desired by residents. That policy action could allow property tax revenue growth to better reflect economic growth and it could provide alternative tax options to ease the burden on the property tax.”

Paper copies are available upon request.

New Citizens Research Council Report Documents Increasing Property Tax Rates

CONTACT:
Monique Mansfield
mmansfield@crcmich.org
(734) 542-8001

Livonia, MI – The August primary launches the start of the 2022 election season. And while most attention will be on state elective offices, many local governments will be asking voters to approve various millage proposals. In some cases, local officials are asking for voter approval to increase the property tax rate for general government operations or for a dedicated millage to support specific public services. Regardless of the reason, tax rate increases are a common occurrence given the workings of the state’s property tax system.

Today, the Citizens Research Council of Michigan is issuing a new report that documents how property tax rate increases have become a common response to Michigan’s mix of constitutional property tax base limitations contained in the Headlee Amendment and 1994’s Proposal A

Last year the Research Council examined the combined effect of these tax limitations on the growth of local governments’ property tax bases. One takeaway from that report was that constraints placed on the tax base appeared to create additional pressure on local governments to ask voters to increase tax rates. Our latest report, Local Governments Respond to Property Tax Base Limitations by Raising Tax Rates, assesses the frequency and magnitude of tax rate increases over the past 15 years.

The analysis shows an 8.4 percent increase in the statewide average tax rate and most Michigan counties, cities, and townships were levying higher tax rates in 2020 than they were in 2004.

In a nutshell

  • Local government officials have responded to Michigan’s tax limitations, which constrain growth in the property tax base, by seeking, and often receiving, increases in tax rates. From 2004 to 2020, the average county rate increased 17 percent, the average city rate increased 14 percent, and the average township rate increased 19 percent. Most local governments had higher tax rates in 2020 than they did in 2004.
  • Tax rates increased for reasons other than just constraints on the tax base (e.g., some local governments had population increases or needed to expand service provision). Whatever the reason, local governments cannot perpetually increase tax rates; statutory caps and taxpayer tolerance create upper bounds.
  • Policymakers must address the root problem with Michigan’s local finance system – Michigan depends too heavily on the local property tax to fund local government services. A municipal finance system with alternative tax options could ease the burden on the property tax.

“Michigan’s property tax system seems to be working within the confines of the tax limitations until you look at it a little closer,” said Jill Roof, Research Associate for Local Government Affairs. “For instance, tax rate increase proposals must be submitted to the voters, but those millage votes exclude business property owners. Most local governments have capacity to increase tax rates, but that cannot happen indefinitely because Michigan law caps the rates each type of government can levy.”

“We knew that the Great Recession affected urban areas more than rural parts of the state,” said Eric Lupher, President of the Citizens Research Council of Michigan. “Based on that, I expected most of the tax rate increases to be among urban cities and charter townships. Instead, the data show that local governments in all geographic locations and of all sizes have increased their tax rates.”

“For two decades,” Mr. Lupher continued, “The financial health of our local governments has been an afterthought for policymakers in Lansing. The data in our new report shows that policy action will be warranted soon. At some point the financial health of Michigan’s local governments will affect the ability of state and local government officials to engage in economic development and provide quality of life services desired by residents. That policy action could allow property tax revenue growth to better reflect economic growth and it could provide alternative tax options to ease the burden on the property tax.”

Paper copies are available upon request.

  • Permission to reprint this blog post in whole or in part is hereby granted, provided that the Citizens Research Council of Michigan is properly cited.

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