Opinion | Special assessments are a tax by another name
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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