The City of Saline and Saline Area Schools District are in talks to organize a townhall to talk to the public about a state iniative to repeal personal property tax.
Michigan is one of 43 states that taxes businesses on equipment and machinery. Businesses have long argued that the tax puts them at a competitive disadvantage. Now, after eliminating the Michigan Business Tax, Republicans in Lansing are considering repealing the personal property tax.
In the City of Saline, personal property tax accounts for $1,688,445, or 17.6 percent of the city’s revenue.
At Monday’s meeting, Saline City Council passed a resolution opposing any effort to repeal personal property tax unless the initiative includes a guarantee to replace the revenue.
Mayor Gretchen Driskell said repealing would force the city to make devestating cuts.
"It would be a debilitating blow to our government and governments across the state," Driskell said.
She said local governments have learned their lesson from Proposal A and that if the tax is repealed, replacement revenue must be constitutionally guaranteed.
“Proposal A was presented to our community with the promise that it would replace (revenue it took away). We’ve had a shortfall of three mills so far. We’ve had to raise our millage locally because of that legislative action,” Driskell said.
Driskell said repealing the personal property tax without replacing the revenue would force city residents to shoulder more of the burden.
“Businesses in this state just got a $1 billion tax cut, and now we are talking about another huge tax cut,” Driskell said.
City Manager Todd Campbell said one of the proposals is to repeal the tax in phases.
“In Ohio, the state repealed the tax in 2005 and promised to replace the revenue until 2018. They’ve already run out of money. So we know what can happen,” Campbell said.
Councilor Brian Marl told council that Senate Majority Leader Randy Richardville has made it clear that the state is moving fast on the issue.
“Time is of the essence. It’s not only important that we pass a resolution tonight, it’s also important those of you in the audience or listening at home contact your legislators to let them know how devastating it would be,” Marl said. “Although personal property tax is far from perfect, I have an inclination to believe that cities in bankruptcy—that can’t fund basic services like police and fire—would be more of a deterrent to setting up shop than personal property taxes would.”
Driskell said one of the options floated is to let each municipality decide whether or not it wishes to levy personal property tax.
“3 mills. That’s what we’re talking about. We’re going to tell our residents to vote on that? It’s passing the buck,” Driskell said.
Repealing personal property taxes wouldn’t have quite the same impact on schools. Industrial businesses are already exempt from the six-mill state education tax. And both industrial and commercial businesses can be exempted on local operating millages.
Saline Area Schools Superintendent Scot Graden estimated that repealing the tax would cost Saline $2.5 million in foundation funds.
“The state would have to make that up some how and our cash flow would have to account for another $2 million during the year instead of getting the majority of the funds during the summer,” Graden said. “Most likely we would have to borrow an additional $1.5 million during the summer months.”
The other issue is debt. Personally property taxes contribute $974,469 toward paying school district debt last year. If businesses stop paying personal property taxes, residential taxpayers are still on the hook for the money. That could result in a higher property tax or extending the debt payments three or four years.
In addition, the school district’s sinking fund and CARES millages would raise $118,571 fewer dollars, adding more strain to a district that has recently closed two schools, restructured, laid off 18 teachers and drained its fund balance to less than five percent of spending.
Rep. Mark Ouimet, R-Scio Twp., said he appreciated Saline City Council taking action on the issue because he has been asking local elected officials for input.
“I plan to give a copy of the resolution to my House Tax Policy Committee colleagues once we start our discussions. I can't answer how I would vote on this issue right now because there are too many unanswered questions. For example, I haven't been given a definitive answer as to whether we even can repeal the personal property tax, and if so, how it could be done,’ Ouimet said. “It has always been my intention to find some type of replacement revenue if, in fact, the Legislature votes to repeal the personal property tax.”
Ouimet said initiative is just now moving with hearings in the Senate and that he will continue to seek input from local elected officials as this bill moves through the legislative process.