Will MAMA Be Good to Your Local Government? A Look at Michigan’s Tentative Attempt to Resolve the Personal Property Tax Issue
Foster Swift Municipal Law News
Michigan, like many other states, has been struggling with the issue of how to eliminate the personal property tax without decimating local government budgets. Michigan passed a package of legislation comprised of ten different acts and amendments in late December 2012 in an attempt to partially eliminate the personal property tax. The legislature’s tentative solution is to create a Metropolitan Area Metropolitan Authority ("MAMA")(2012 PA 407). The new Authority is funded by some direct appropriation by the legislature and appropriating a portion of Michigan use tax collections. This is only a tentative solution because it is only enacted if approved by voters in an election that will be held in August 2014.
Overview of the Legislation
The ten pieces of legislation can be divided into two categories. Four of the ten pieces implement mechanisms for replacement funding for local governments ("funding acts"). The other six acts implement the actual personal property exemptions. The funding acts are House Bill 6025, House Bill 6026, House Bill 6024, and House Bill 6022, all of 2012.
House Bill 6025 enacts the Michigan Metropolitan Area Metropolitan Authority and establishes the Metropolitan Areas Council as its governing body. This is the key piece of legislation because if this Act is not approved by the voters in August 2014, then all of the other acts are either repealed or not enacted. It provides for the calculations of loss due to the new exemptions and establishes the criteria for being classified as a "qualified municipality" that would be eligible for a distribution. For purposes of MAMA, a qualified municipality is one that experienced a reduction in taxable value of more than 2.3% due to the new exemptions. A municipality will not receive a MAMA distribution if it has increased its millage rate to replace debt loss or school debt loss.
House Bill 6026 amends several provisions of the Use Tax Act, 1937 PA 94 to fund MAMA. This creates a formula for apportioning part of the use tax collected by calculating two components -- a "state component" and a "metropolitan areas component." The amounts of the components are designed to generate a certain amount of funds for fiscal years between 2015 and 2024. For fiscal years after 2024, the Treasury will apply a "growth factor," but that is not explained or defined in the statute.
Local governments may be able to replace lost revenue by adopting a special assessment district for "essential services." House Bill 6024 enacts the Local Unit of Government Essential Services Special Assessment Act, which would allow local government to pass special assessment districts on commercial and industrial property owners within the boundaries of that local government for funding "essential services" such as police and fire departments. However, a local government may not adopt a special assessment district under this act, if they have increased a millage rate for essential services obligations incurred before 2013 as a result of the exemptions provided in the changes to the General Property Tax Act ("GPTA").
Last, House Bill 6022 amends 2002 PA 48 to transfer the duties and powers of the Metropolitan Extension Telecommunications Rights-of-way Oversight Authority (METRO Authority) to MAMA and abolishes the METRO Authority.
The other six acts encompass the actual personal property tax exemptions by amending the GPTA and several other statutes involving already established tax exemptions for commercial and industrial property.
- SB 1066 amends Technology Park Development Act (1984 PA 385) to maintain technology park facility tax exemptions for those entities that currently enjoy a tax exemption as of 12/31/2012.
- SB 1067 amends GPTA, to exempt new eligible manufacturing personal property, which was exempt as of 12/31/2012.
- SB 1068 amends the Enterprise Zone Act (1985 PA 224), maintaining exemptions for that property located in enterprise zones.
- SB 1069 amends GPTA by adding provisions for exempting "eligible manufacturing personal property" from personal property taxes.
- SB 1070 amends GPTA by adding provisions that exempt personal property taxes when the total combined taxable value of all industrial and commercial personal property under the control of the owner is less than $40,000. This requires the owner to file an annual affidavit attesting to attest to the total combined taxable value of its property.
- SB 1071 amends GPTA by adding provisions that owners of qualified previously existing (in the last 10 years) "eligible manufacturing personal property" is exempt from the collection of personal property taxes and must only file an affidavit in the first year in which an exemption is claimed.
The impact of these exemptions will depend on the individual local government’s mix of commercial and industrial business. While the enactment of these changes will not be determined until August 2014, local governments may want to assess potential shortfalls based on their current mix of industrial and commercial personal property.
Uncertainty for Local Government
The main problem that local governments face with these changes is uncertainty. First, this legislation is dependent on MAMA being approved by voters in August 2014. Second, even if MAMA is passed by the voters, it remains to be seen which local governments will receive distributions from MAMA and to what extent those distributions will replace the loss of personal property tax revenue. Last, there are details in this legislation that have not been clarified. After reviewing the legislation, local governments will likely be left with a host of questions.