Nearly 200 local governments levy these special assessments, partly to make up for lost tax revenue. But property owners don’t enjoy the same checks and balances that taxation carries.
FOR IMMEDIATE RELEASE
Contact: Nancy Derringer, firstname.lastname@example.org, 734-548-0033; or Eric Lupher, email@example.com, 734-542-8001
The Citizens Research Council of Michigan has throughout its history called attention to inconsistencies, inefficiencies and other governmental practices that do not serve the public well. Our latest report, “A Distinction Without a Difference: Ad Valorem Special Assessments and Property Taxes,” continues that tradition in an examination of these very similar, yet still distinct, methods of collecting revenue for local units of government.
Both special assessments and property taxes are used to finance local government. Yet they differ on critical points. Property taxes are used to fund general services — including public safety, parks, and administrative services. Special assessments provide a means of recouping the cost of infrastructure improvements that primarily benefit a group of properties within the local government.
In a nutshell, this is what we found:
Property taxes are used to fund general services, while special assessments exist to finance infrastructure improvements that benefit a limited number of properties. Both financing tools have a proper role; however, in recent years, local governments have increasingly turned to unit-wide ad valorem special assessments to finance general services — specifically police and fire public safety services.
These assessments are based on property value and levied uniformly across the local governments similar to general property taxes, but are treated like an assessment and skirt many of the tax limitations contained in law. While the use of special assessments to finance local government services is technically legal, it undermines the legal and practical distinctions between taxes and special assessments.
In blurring the line between two types of revenue generation, some local governments fund general services with an “assessment” that is not subject to the same restrictions as general property taxes. This is unfair to other local governments that are supporting their services through property taxes. It is also unfair to taxpayers as their use circumvents tax limitations under state law.
Tax policy can be confusing to those whose interest is primarily in paying them on time. And many Michigan residents who find themselves living in places – mainly townships – that are ostensibly low-tax may wonder why, if that is the case, they still seem to be paying quite a bit to their local units of government. The answer may well be that they’re paying these special assessments, which are taxes in almost every sense of the word. To mangle a common expression, if it quacks like a tax, it probably is.
“The distinctions between unit-wide ad valorem special assessments and property taxes may seem minor and insignificant,” said Eric Lupher, President of the Citizens Research Council, “unless you are a property owner in one of the 192 places where these ‘taxes’ are levied. We think those property owners should enjoy the same protections as the rest of us.”
Why is this distinction important? Because our state constitution and state laws place limitations on taxation, to protect property owners and clarify just what they’re paying for. A special assessment has far fewer checks and balances.
It’s easy to see why so many local governments find special assessments appealing. Unlike general property taxes, special assessments are not covered by constitutional millage rate rollback provisions. Nor must they adhere to statutory tax rate limitations — cities and villages generally as much as 20 mills and charter townships up to 10 mills.
Many local units rely heavily on these instruments. Charter townships in particular, many of which are as big as fair-sized cities – Clinton Charter Township in Macomb has a population of almost 100,000; Canton Charter Township in Wayne has more than 90,000 people – have low property tax rates, but high special assessments. Clinton Township, for example, has a property tax levy rate of 5.5 mills and a special assessment of 9 mills, for a total of 14.5 mills. Canton Township levies 2.8 mills and 9.5 mills, respectively, for a total of 12.3 mills.
Some cities use special assessments as well. Harper Woods’ property tax rate is 24.6903 mills, and its special assessment levy (dedicated to public safety) is 20.0 mills. The 44.6903 mills far exceeds the limit other cities live within.
Special assessments are based on the theory that the properties being assessed receive a special benefit above that which the general public enjoys when the local government makes infrastructure improvements. And yet, 90 percent of ad valorem special assessments in Michigan support public safety services, which are provided throughout the jurisdiction to residents, businesses and visitors alike.
Most Michiganders who understand tax policy know what the long recession and real-estate collapse meant for property-tax revenues in Michigan, which fall with property values but only recover at the rate of inflation. Some cities and townships facing fiscal squeezes beyond their ability to manage have used special assessments to take up the slack.
“The increasing use of this funding tool is yet another indictment on the state’s broken municipal financing system,” continued Lupher. “For many local governments, it is the inability of the property tax system to fund basic services that drives the need to raise revenue outside of commonly accepted methods.”
Our analysis suggests unit-wide ad valorem special assessments should not be maintained in their current form. State policymakers should eliminate statutory authorization for all unit-wide ad valorem special assessments and address the broken municipal finance system so that they will no longer be needed.
“State law provides the ability to levy these unit-wide ad valorem special assessments,” Lupher said. “But we think it is a bad law that adversely affects an increasing number of taxpayers.”