Can Dedicated Millages and Tax Increment Financing Coexist in Michigan?
CRC Note 2013-1, January 2013
Since 1975, Michigan cities, villages, and townships have been able to “capture” taxes levied by overlapping jurisdictions to use for economic development purposes in a narrowly defined geographic region of their municipalities. Despite cries of protest from those governmental entities having their tax revenues captured, the number of cities, villages, and townships using this tax increment financing tool has grown and the number of economic development authorities that permit tax increment financing has increased. Now, with a high profile governmental entity receiving less tax revenues than anticipated because of this practice, increased attention could lead policy makers to ask hard questions about the appropriateness of this economic development tool.
A January 21, 2013, Detroit Free Press article documented the Detroit Zoo’s frustration with Wayne County communities skimming a portion of the tax revenues raised by the zoo’s 0.1 mill property tax levy. That article was followed the next day by editorials in both the Detroit Free Press and The Detroit News chiding those Wayne County communities for diverting tax dollars from their intended purposes.
While the current opposition to tax increment financing appears to be on the ability of authorities to capture taxes, or tax increases, enacted after the tax increment financing districts were established (with the Detroit Zoo and in other jurisdictions where the ability to capture new millages has been challenged), this focus misses the larger point of whether tax increment financing is constitutional to begin with, and if it is, whether it is advisable.
What is tax increment financing?
The purpose of tax increment financing authorities (used generically to include all of the authorities authorized to use TIF financing) is to halt declines in property values and attempt to increase property tax valuations by promoting economic growth in the applicable districts. The authorities prepare plans that are designed to stimulate economic growth and revitalize a development area(s) within the boundaries of the authorities. The law permits the municipalities, through these authorities, to acquire a portion of the property tax levy of all the taxing jurisdictions within the boundaries of the authorities (including, but not limited to, county taxes, locally levied school taxes, intermediate school district taxes, community college district taxes, and taxes levied by special authorities for libraries, fire protection, parks, ambulance, etc.).