by Gongwer News Service
May 9, 2008

With the shaky real estate market taking its toll on local governments, a top topic among government leaders and interested parties for the last several years — local revenues — is in the forefront again. The locals had already been forced to tighten their belts as state revenue problems led to cuts in state revenue sharing, and now they are seeing local property taxes take a hit.

Local tax officials say real estate troubles combined with the general economic inertia raise alarms that property tax revenue will be falling for the next several years.

A prime example is in Oakland County, the state’s wealthiest and, traditionally, one of the fastest growing. A preliminary estimate by Equalization Director Dave Hieber shows a decline of $8 million in revenues as a result of falling taxable property value.

Balance that kind of trend against slow growth elsewhere, and you get evidence that Senate Fiscal Agency Director Gary Olsen’s forecast two months ago for zero growth is on target. In fact, on Friday he underscored the assessment, saying: “Zero percent in ’09 may be optimistic.”

While others across the state say their situation is not as dramatic as in Southeast Michigan, they nonetheless are expecting smaller growth in taxable values, and that is likely to lead to an even harder push on the legislature to boost revenue sharing. That area is to get an increase this year for the first time in several budget cycles, if the legislature goes along with Governor Jennifer Granholm’s recommendation.

In a rare move, Mr. Olson, chair of the Revenue Estimating Conference that meets next week to set the updated revenue numbers to be used in finalizing the 2008-09 budget, has asked the Department of Treasury to prepare a report on the property tax situation.

The House Fiscal Agency, in a revenue report posted Friday, shows state revenues growing generally — mostly as a result of higher income taxes and the new Michigan Business Tax with its 22 percent surcharge. But strikingly, it shows a far worse picture than had been expected in one aspect of property tax revenue: the real estate transfer tax, paid when homes are sold, is down 17.7 percent for the year, compared to the 11.2 percent that was forecast at the January Revenue Estimating Conference.

The income/MBT side means the state revenue picture has brightened: general fund revenue is up $35 million and School Aid Fund revenue is up $20 million, the House agency says, compared to the earlier revenue target estimates.

But the locals will be looking even more keenly than usual at one of their key indicators which comes with Monday’s preliminary State Tax Commission 2008 equalization report, with expectations of some growth but less than in prior years. A final report is due later in the month, when the full impact of the high rate of home foreclosures and lower average home sales prices will be reflected.

The big questions surrounding the property tax revenue issue in the upcoming year and years ahead are unusual, given that those taxes have been a much more stable, and growing, source of revenue for public finance than have been state taxes.

That has benefited not only local government, but also the state School Aid Fund, which derives a significant — but not dominating — chunk of revenue from a state property tax.

Proposal A’s limit on the growth of taxable values as long as a home remains in the current owner’s hands has dampened revenue growth somewhat over the years, but now in the current recession-driven market, taxable values can continue to grow by the amount of inflation as long as the taxable value is less than 50 percent of true cash value.

“Our inflationary growth in property tax revenues had been keeping our heads above water,” said Summer Minnick of the Michigan Municipal League. If revenues decline then local governments will turn to the state to make up those lost monies, she said, as well as push the state to look at changes in the property tax structure.

Declines in total assessed values for communities are being reported all across the state. Mr. Hiever said all 53 communities in Oakland County, the state’s second largest, reported declining assessments this year. Overall, that will translate into a drop in value of 8–10 percent, and a 3-percent drop in taxable value.

The situation could be even worse to the east in Macomb County, where Equalization Director Steven Mellen said the taxable value for 2008 was up by just 0.24 percent and that taxable values for the county could fall by 5 percent to 7 percent in 2009. The residential sector will plummet by about 20 percent, he said.

And Greg Hill, equalization director in St. Clair County, said the situation there is growing “scary.” In 2005 fewer than 10 percent of the nearly 5,500 deeds recorded were for foreclosures; so far this year, 46 percent of the deeds recorded are sheriff’s deeds for foreclosures, he said.

“We are anticipating a decrease in a couple years in overall taxable value,” he said.

Outside of the southeastern part of the state the situation is less dire in most counties, but some are suffering as badly.

Juli Kolbe, equalization director for Jackson County, said her county is “in a downward spiral.” Foreclosures are up 250 percent from 2005, she said, and have not peaked yet. She is estimating a 5-percent decline in taxable value for the county in 2009.

Declines in other communities’ taxable values are also starting to appear. For example, Walt Schlichting, the Tuscola County equalization director, said the taxable value of Vassar, the county’s one city, declined this year.

Agricultural property seems not to suffer as much as residential, equalization directors in a number of counties said. Tuscola County said it saw an increase in agricultural land for this year but doubted the same increase would occur next year. In Mason County, however, agricultural values were down slightly, and 13 of the 17 communities in the county reported declines in assessed values.

Counties with lots of lakes and water access for houses are holding onto their residential values somewhat better. But, still, in Charlevoix County — one of the state’s summer Meccas — Equalization Director William Wolf said Boyne City, East Jordan and Charlevoix saw their assessed values drop as condominium sales fell. Overall, because 48 percent of the county has water frontage, property values haven’t declined as much, he said.

While local governments that see declines are likely to push for more revenue sharing monies, as well as more money in fire protection grants and other items, Ms. Minnick said local governments also will push the legislature and Ms. Granholm on a broader front. Local governments want state leaders to start work on potential changes in the property tax system to address the gaps between assessed and taxable values, as well as some of the restrictions imposed by the tax-limitation Headlee Amendment.

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