Opinion | Special assessments are a tax by another name

Eric Lupher is president of the Citizens Research Council of Michigan.

Michigan’s city managers, county executives and others entrusted with delivering government services know the lesson all too well: Property tax revenues in our state can fall quickly, and have – the financial crisis and subsequent real-estate collapse of 2008-09 drained dollars from public coffers, leading to cuts in services, layoffs of city workers and urgent pleas for voters to approve Headlee overrides at election time.

It also led to the wider embrace of a local-unit financing tool that most taxpayers have never heard of, although they may well be paying them – the special assessment.

When the Citizens Research Council started looking at this issue in the 1980s, only about 5 percent of the local governments were using this finance tool. Our new paper found that in 2018, 11 percent of local governments - mostly townships, but also a few villages and small

cities - were funding services this way.

Special assessments were originally conceived in British common law. It recognizes that when a city, village or township cuts a new road, builds a dam, installs sidewalks or invests in street

lighting or drains, some properties will benefit from those projects more than others. Special assessments are used as a means of recovering the cost of these infrastructure improvements by apportioning at least a share of the cost among those benefiting properties.

Special assessments differ from traditional property taxes, or should. We are taxed on the value of our land and buildings to provide services to the general public – police and fire, libraries, parks, and garbage collection.

But in 1951, state law changed to allow special assessments to be levied far more broadly, to all properties in a taxing district, and allowed them to be used to pay for the most basic of local government services: police and fire protection.

It’s easy to see why so many local units of government have turned to the special assessment, with that permission granted. Public safety is among the most expensive service provided by government, and the one residents are least likely to agree to cutbacks in. When tax revenues fell, the costs could be made up with special-assessment collections.

Why is this important?

Michigan has restrictions on property taxes, to save owners from being taxed out of their homes. There are limits on the tax rates each type of government may levy. Voter approval is required to levy new ones. The Headlee Amendment to the state constitution requires tax rates

to be “rolled back” if property values increase faster than the rate of inflation. These provisions do not apply to these property value-based special assessments. In fact, many townships and cities are using special assessments to tax at rates higher than they could if they were using the property tax. State law limits charter townships to 10 mills of

taxation, but Canton Township in Wayne County is able to levy 12.3 mills (2.8 mills of property tax and 9.5 mills of special assessment). Carrollton Township in Saginaw County is able to levy 12.8634 mills (0.9134 mills and 11.95 mills). And Kalamazoo Township in Kalamazoo County levies 12.4812 mills (8.9412 mills and 3.54 mills).

We understand the difficulties faced by officials struggling to maintain services, but taxation by a different name is not a solution. We think the legislature should eliminate these unit-wide property value-based special assessments, and go back to their original use and intent – for

infrastructure, not general services, and for discrete areas, not the entire taxing unit.

Public safety, of course, is an essential service that cannot just be eliminated, and many special assessments are currently funding them. Our alternative: The establishment of emergency service authorities. These are multi-jurisdictional governments authorized to levy taxes, but in accordance with constitutional limitations and state law.

Michigan’s municipal finance system is broken. When starved for resources, local governments are left to adopt bad policies. This is in no one’s best interest. Local-option taxes should be considered to supplement and replace property taxes, including sales or excise, income, transportation, “sin,” or other specific taxes. Additionally, the state and local governments should take a serious look at the entire municipal-finance and service-delivery system, which has not changed much since the 1800s. It is now the 21st century; transportation, communication and technology are vastly different now. Our governance should reflect that.

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Comments

Matt
Fri, 06/07/2019 - 8:04am

My community is special assessment heaven. Police, fire, Parks, sidewalks and seniors , put there by small interest groups and then approved in low turnout elections. The city councils should be allowed to veto these handcuffs with a higher threshold vote.

Arjay
Fri, 06/07/2019 - 8:52am

I am always amazed when I ask people what thei

sfeinmane e
Fri, 06/07/2019 - 9:21am

I disagree with the thrust of this argument. The Hedly amendment has turned out to be regressive, based on economic conditions that no longer exist. The legislatures irresponsible actions on funding schools and other force the use of special assessments to provide
levels os service the majority of Michiganders want for their communities. The current
belief in the legislature majority is they stone wall the problem it will go away or be some one
elses problem.

marcia
Fri, 06/07/2019 - 9:53am

Bloomfield Township put a 2.3 mills SAD on the August 6 ballot. All properties not exempt from taxes. Purpose stated: for Police and Fire. Expected collection: over $9 million the first year and to be for 15 years. Currently existing are 4 dedicated millages for Public Safety (Police and Fire) collecting $23 million every year. They are not expiring soon.

Question: the ballot states that the 2.3 will be multiplied by the TAXABLE value. Is that the typical choice or should it be multiplied by the ASSESSED value? This is on residential and commercial properties township wide.

We are a Charter Township. We have been at the 10 mills max for quite some time. One 1.25 mill is expiring at the end of this year and not being renewed (General Fund).

John
Fri, 06/07/2019 - 10:56am

These special assessments are simply a burgeoning of social services. It will be interesting when it reaches the tipping point.

Arjay
Fri, 06/07/2019 - 11:47am

I am always amazed when I ask people what their millage rate is. Very few are able to answer. The property tax is a tax that should be most hated because it is so misunderstood. As another commenter already noted, it is a haven for small special interest groups to raise money in low turnout elections. Just because a person lives in a larger or improperly assessed house, should that person pay more than another for many items that are funded by the property tax? My answer is a capital NO. The library as an example. Each person despite their status in life, can only read one book at a time. Library millages should be non ad-valorem, or based on each person pays the same amount. Fire department, on the other hand, will have a more difficult time putting out a large fire on a larger house than a smaller property. Thus it should be ad-valorem, or based on the value of the property. Parks, regional transportation, and anything external to where a person lives should be non ad-valorem. Schools because they contribute to the value of a person's home should be ad-valorem. Would this be more difficult? Not really. I have lived in places where the tax bill is in two parts, the ad-valorem and the non ad-valorem. And as an aside, you can, within limits, deduct the ad-valorem portion of the tax but not a tax where everyone pays the same. Maybe then we could eliminate the special interests attaching their special assessments in low turnout elections. When you can't use OPM but have to have your skin the game, what you want becomes less appealing.

Matt
Fri, 06/07/2019 - 1:41pm

Property tax on home value is a rubbish system and should be junked. Nothing but a subjective, complicated, expensive to administrate Rube Goldberg system that disincentives home upkeep and encourages spending . Go to rate based on home square footage and make politicians vote to increase rate when they need more, instead of coasting on home inflation!

Jay
Fri, 06/07/2019 - 11:47am

But which communities? Which 11%?

Robert T
Fri, 06/07/2019 - 4:46pm

The real scary part of these "Special Assessments" is that they do not require voter approval. Also, typically the Twp Supervisor and others on a Board who are receiving pensions and other retirement benefits these help fund get to approve these Special Assessments (or SADs). Even if a SAD "earmarked" for "public safety" this frees up more money to pay for administrative benefits. Funds are fungible. WOW.

Paul Jordan
Fri, 06/07/2019 - 11:04pm

The United States--including Michigan--has experienced increasing inequality in wealth for almost the past 40 years. More and more of the wealth of society has been shifted to the wealthiest segment of society. At the same time, government has become more reliant on regressive taxes such as sales and property taxes. The burden of funding has fallen more and more heavily on those of us who have been receiving a smaller and smaller piece of America's economic pie.
The increased reliance on special assessments--and all sorts of band aid funding schemes--is a symptom of our fundamental ailment. Those who benefit most from American society--the very rich--are not paying their fair share for the services of governments that are designed to benefit them most of all.
State government has been in the firm grasp of the economically powerful for the past 40 years. To solve our problems, we first need to tear government away from them to force it to function to better benefit the People.

Matt
Sun, 06/09/2019 - 2:21pm

So exactly when weren't the powerful in charge of or control the government? And if they were't wealthy when they went in, they certainly were when they left (Clintons, Al Gore for easy recent ones and if it's really monetary terms that are important). Not that I'm buying your theory that it's because we've allowed people to make so many choices or the government hasn't spent enough money.

Arnold W.
Sun, 06/09/2019 - 11:52am

While there is no question that local governments have made greater use of special assessments over the last few decades, it correlates directly with the reductions in state revenue sharing during this period of time. It is important to remember that revenue sharing isn’t a gift from the state to locals. It was an agreement made between the state and locals over the use of local taxes. Locals agreed to a system of revenue sharing in return for a prohibition on levying any number of local taxes that were in place at the time. The state has since broken its end of the bargain. Its no wonder local officials have sought other remedies.