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Information Release


Reprinted from MIRS, February 10, 2011

CONTACT:   Matt Bach
Dir. of Communications
Michigan Municipal League
(734) 669-6317 or mbach@mml.org

PPT Elimination = $1B Revenue Loss

A bill to dump the Personal Property Tax (PPT) for businesses will cost about $1 billion in tax revenue for the School Aid Fund (SAF) and local governments.

Under SB 34, sponsored by Sen. Mike Nofs R-Battle Creek), the SAF would shrink by $299.6 million, according to the Senate Fiscal Agency (SFA). Local governments would lose $783.7 million. The General Fund (GF) would see an increase of $93 million, because of some of the offsets from the Michigan Business Tax (MBT).

"This would be devastating for several communities in the state," Andy Schor of the Michigan Municipal League (MML) said today at a Senate Finance Committee meeting. "This would impact millions of residents and businesses alike."

Nofs said he's fielded a lot of questions about the revenue impact, but stressed it was part of the larger tax discussion. He said he was "not saying we shouldn't find some replacement," and didn't rule out a phase-out. The idea, Nofs said, was to get the discussion going.

"I'd ask folks to take a breath," he said. "Just relax and work with us."

He acknowledged that the PPT goes to funding local police and fire departments, which he said is "one part of government I value."

Surrounding states like Indiana and Ohio don't have a PPT. Nofs said that businesses are investing in equipment and "we send them a tax bill." He added that "no one really likes this tax," referring to local officials and business owners.

"As most of us agree, job creation must be our main focus," Nofs said. ". . . Unfortunately, the Personal Property Tax does just the opposite."

Tricia Kinley of the Michigan Chamber of Commerce agreed that the PPT is "administratively onerous and burdensome" and the group is "in many ways on the same page" as Nofs.

But the Chamber agrees with Lt. Gov. Brian Calleythat this should be handled separately from the MBT.

"It's hard to dismiss the fact that this isn't a significant amount of revenue for local governments," she said, adding that there is room for cost-saving reforms for municipalities.

She said that the state would have to compensate for at least part of the revenue and help wean municipalities off.

Sen. Rebekah Warren (D-Ann Arbor) said she was heartened by Kinley's testimony.

"I think my favorite word of the day is 'replacement,'" she said. ". . . Looking at the agenda and seeing a $4 billion cut in revenue for the state, I wasn't sure if I could make it through the meeting."

Joe Dunigan of Jackson-based Dunigan Brothers testified about the hardships the PPT has caused his sewer and water contracting business, which has been open 61 years. He said the business pays sales tax on equipment and then has to pay the PPT in December. The company hasn't bought new equipment in three years.

Bill Anderson of the Michigan Township Association (MTA) on SB 34 agreed that the PPT is "not a fun tax to deal with in any shape or form." But he said some townships would see a 40-percent revenue loss.

"You can't cut your way out of that," Anderson said.

Sterling Heights Mayor Richard Notte testified that his city has lost $55 million in revenue this decade, including $25 million in revenue sharing since 2003. There's also a $25 million loss in property tax revenue.

Losing the PPT will be another $9.2 million lost -- 15 percent of the city's tax revenue.

"The quality of life will be eliminated," Notte said.

Schor said he didn't know how much MMA members would be affected on average, because the "disparity is so great." He noted that property taxes make up more than half of local governments' funds.

There could be some unintended consequences, Anderson said, with Downtown Development Authorities and Tax Increment Financing Authorities. If the PPT is wiped out, municipalities have lost the revenue to pay for those bonds, he said. That was a concern with Proposal A, but the state stepped in and paid.

Sen. Mark Jansen (R-Gaines Twp.) said eliminating the PPT could be good for municipalities because of the administration headache.

"I know for you the question is: Where's the check going to come from?" Jansen said.

Schor said the MML opposed SB 34 "not because our members like it," noting that it's difficult to administer and it pits communities against one another. Many municipalities have scrapped the PPT for new businesses, Schor said, as an economic development tool.

But he said that the MML would support the bill in exchange for a guaranteed revenue replacement. Schor said the organization hasn't proposed a replacement tax, but the MML "stands ready to work on options."

Sen. Steve Bieda D-Warren) said he worked on phasing out the PPT years ago and he recognizes the "antiquated law" is a problem. He said the state needs to balance that against the fact that locals would see a huge hit.

He said that exempting new property could be a solution.

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Michigan Municipal League advocates on behalf of its member communities in Lansing, Washington D.C., and the courts; provides educational opportunities for elected and appointed municipal officials; and assists municipal leaders in administering services to their communities through League programs and services.

 

 

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