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Kicking cities while they're down

[Photo credit: Anne C. Savage, used with permission]

Michigan Republicans passed a budget last year that gives businesses $1.6 billion dollars in tax breaks, paid for by slashing school funding and raising taxes on over half of Michiganders. Now, they are about to hand them another half billion dollars by phasing out the personal property tax (PPT).

It's generally agreed that the PPT is not a particularly smart tax. It forces companies to pay taxes on equipment that they purchase which has the effect of encouraging them NOT to make capital investments that can help them thrive and grow.

However, here's the rub: getting rid of it will take nearly half a billion dollars out of city budgets, many of which are largely dependent upon this tax. If you think the problem with bankrupt cities and Emergency Managers is bad now, this will make it worse.

Have a look at this chart from the Michigan Municipal League (MML) Replace Don't Erase website:

Click for a larger version

These are examples of cities where substantial amounts of their funding comes from the PPT. When I spoke with Dan Gilmartin from the MML about this last year, he put it this way:

Nobody likes the tax, however its elimination without a fully funded, guaranteed replacement would wreak havoc on municipalities throughout the state. Cities, villages, counties, schools —- you name it -— would suffer mightily if the PPT is eliminated without replacement. Bankruptcy would be the only option for literally dozens of local units. That’s why we have started the “Replace Don’t Erase” ( campaign, which is an effort to push for a full guaranteed replacement if the Legislature and governor choose to act.

The argument that the PPT is anti-business has merit, but it is much more anti-business to attempt to attract people and jobs to a state that no longer funds its communities and schools at an adequate level. We will face this situation even more than we do today if a full, guaranteed replacement isn’t enacted. However, if the governor and Legislature enact a full, guaranteed replacement then the change could be win-win.

Eight bills, Senate Bills 1065 through 1072 have been introduced and a Senate hearing on them took place this week. One of the bills, S.B. 1072, has a scheme for replacing the funds through the expiration of other business tax breaks and via a "Personal Property Tax Reimbursement Fund". However, it only replaces part of the lost revenues and puts returning the remainder off to a future legislature. MML's Director of state affairs Summer Minnick calls it "TBD legislation" (To Be Announced.) Given the track record of this legislature with regards to fulfilling commitments made by prior legislatures, it's no wonder they are concerned.

Business groups are, of course, giddy about this, a short-sighted view that doesn't take into account that failing cities will drive businesses away from Michigan no matter how low taxes are here.

But while businesses love it, Michiganders aren't so wild about it at all. An EPIC-MRA survey conducted on behalf of the Replace Don’t Erase coalition showed that:

  • 70% of Michigan voters oppose (43% strongly oppose) eliminating or significantly cutting the personal property tax. In this question, voters were told the PPT pays for local services such as police and fire protection, schools, etc. They were also told that supporters of cutting the PPT say it will encourage businesses to invest more in machinery and equipment and create more jobs.
  • Opposition to eliminating or significantly cutting the personal property tax increased to 78% once voters learned that cuts to local services (police, fire, schools, parks, libraries, and more) would likely result.
  • Opposition to eliminating or significantly cutting the personal property tax also increased to 78% once voters learned that local property taxes would automatically increase in local communities with school districts that are repaying bonds with PPT revenues.
  • 58% of voters said they would support (31% would oppose) a constitutional amendment to require the Legislature to fully replace all of the revenues and guarantee the funds continue to go to local communities and local schools.
  • 59% of voters would be less likely (39% much less likely) to vote for their legislator in November if the legislator votes for a proposal that eliminates all or part of the PPT and fails to replace the funds with revenues that continue to go directly to local communities and schools.

Senate Majority Leader Randy Richardville defended the move saying:

We have to be competitive not only with Ohio, Indiana, Wisconsin, and other Midwest states, we also have
to be competitive with China and Mexico and anybody else we're competing with on a global basis.
This "race to the bottom" competition worries some. Senate Minority Leader Gretchen Whitmer issued a statement saying:
This will amount to a $3 billion, when you add up this year and last year, gift to business' bottom lines. And who's paid for it every single time? Individuals. It's another tax shift from businesses in Michigan onto the individuals. This is another step toward shifting taxes and this will require an increased tax on individuals in the state, one that I would submit we can't afford. We need to know that Michigan is going to be a state where we can and will invest in our people and invest in an educated workforce.
It will be interesting to see where this goes. The fear I have, and it is a legitimate one, is that this will only increase the number of failing, bankrupt cities and further impositions of Emergency Managers around the state. If that happens, it will be an entirely manufactured crisis, courtesy of the Michigan Republicans. Richardville says he hopes to have it on the Senate floor in 3-4 weeks, before the legislature adjourns for the summer.

Cross-posted from (the new & improved!) Eclectablog (now featuring LOLGOP.)

Originally posted to Eclectablog - eclectic blogging for a better tomorrow on Sat Apr 21, 2012 at 05:41 AM PDT.

Also republished by Your Government at Work and Michigan, My Michigan.

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Comment Preferences

  •  What are the prospects for replacing some of (2+ / 0-)
    Recommended by:
    Larsstephens, alizard

    these goons this fall? It's hard to understand why they were ever elected in the first place. Could they be re-elected?

    Eliminate tax breaks that stimulate the offshoring of jobs.

    by RJDixon74135 on Sat Apr 21, 2012 at 05:52:35 AM PDT

  •  People continue to miss the mean-spiritedness (9+ / 0-)

    of Republicans:

    Business groups are, of course, giddy about this, a short-sighted view that doesn't take into account that failing cities will drive businesses away from Michigan no matter how low taxes are here.
    They DON'T CARE!

    I BELIEVE this is a goal they share. They are so goddamned rich now it just doesn't matter if the 99% fail, go broke, commit suicide or become homeless. They don't care and it doesn't impact them.

    It's their value system at work.

    #occupywallstreet: Although I know the rhythm you'd prefer me dancing to, I'll turn my revolt into style.

    by xxdr zombiexx on Sat Apr 21, 2012 at 05:56:26 AM PDT

  •  And it won't hurt the Sterling Heights or (3+ / 0-)

    Grosse Pointes even a little bit. That's the BEST part of this law.

    *grumble grumble*

    •  Actually, I disagree (3+ / 0-)

      A good friend of mine lives out in St. Clair Shores.  A number of business along the main drags (Mack, Jefferson, and Nine Mile) have gone under in the past several years.

      And Sterling Heights isn't doing all that well either, up along Van Dyke between Fourteen Mile and the I-696.  Simply too many jobs have gone away to sustain all of the businesses that used to be there.  More jobs going away = more businesses closing = more jobs going away....

      Tom Smith Online
      Music In Every Style... Except Dull
      I want a leader who shoots for the moon. The last time we had one, we got to the moon.

      by filkertom on Sat Apr 21, 2012 at 06:37:37 AM PDT

      [ Parent ]

  •  Sadly, nothing shocks me anymore with these guys. (4+ / 0-)

    I can see Canada from my house. No, really, I can.

    by DuzT on Sat Apr 21, 2012 at 06:21:36 AM PDT

  •  I'm not sure (5+ / 0-)

    I buy this:

    It forces companies to pay taxes on equipment that they purchase which has the effect of encouraging them NOT to make capital investments that can help them thrive and grow.
    A company will buy machinery if they can make more money by doing so. A few percentage points in tax are not going to make or break that decision.

    It's like saying, "why bother making a profit, we just get taxed on it. Better to have no earnings and go bankrupt".

    This is the same logic that they use when they claim tax cuts create jobs--it's bullshit. If demand is there, businesses will expand and hire. If there's no demand, forget it. Any extra cash just goes into their pockets. Even Rick Snyder admitted that there was "no guarantee" that the enormous cuts last year would increase employment.

    "A lie is not the other side of a story; it's just a lie."

    by happy camper on Sat Apr 21, 2012 at 07:50:04 AM PDT

    •  Traditionally... (1+ / 0-)
      Recommended by:
      happy camper

      ... having worked on US Manufacturing base issues for awhile, tax credits both State and Federal for investments in "new equipment" are a common component in promoting manufacturing jobs, which have a much higher job 'multiplier' and impact (auto assembly had been in certain studies to be found to provide multipliers in the 5.6 to 7.4 jobs per assembly job) particularly in Michigan.

      In one of the few comparative US to OECD countries tax studies (sorry only have pdf) it is interesting that US taxes in all categories are almost always the lowest (in the world) EXCEPT for manufacturing. The US has no "industrial policy", which actually acts as "a policy", but that's another story.

      In Michigan the personal business related property tax is around $1.28 and breaks down roughly into thirds - property (commercial) - equipment (industrial) - utilities. In one of the best stories anywhere,  in the Bay City Times last October (hat tip to Shannon up there for her mash up of data) we get some figures:

      Personal Property Tax

      The personal property tax is paid by businesses on fixed goods ranging from drill presses to furniture. Here is a look at how much is raised from various sectors based on 2010 numbers.

      Commercial property tax: $415.7 million
      Industrial property tax: $425.1 million
      Utility property tax: $444.8 million
      Total: $1.28 billion

      Source: Michigan Senate Fiscal Agency

      You can bet your bippy that DTE and CMS Energy (Consumers Power) who paid NO federal taxes AT ALL 2008-2012, spent $10.2 million on lobbying, made $4.1 billion in profits, AND got $1.2 billion in tax credits and subsidies on top of that (alt energy in there) will get Snyder to cut the $444 Million utilities portion too.

      The MML should have been in front of this, but like many orgs in the state, they gave Snyder the benefit of the doubt.

      The price tag for additional P "B-related" PT cuts will be for nearly every municipality in Michigan will be devastating, on top of the (according to the MML) $4 BILLION in State (Legislative portion) Revenue Sharing cuts 2001-2010.

      Very important dairy/narrative here, popular or not. This is were the EM issue lives, within the systematic starving of the State's municipalities.

      For the occasional reluctant tweet

      by Hector Solon on Sun Apr 22, 2012 at 05:39:20 AM PDT

      [ Parent ]

  •  and when, lately, has it mattered (4+ / 0-)
    Recommended by:
    Eclectablog, cfk, alizard, Hector Solon

    what the people of Michigan think?

    good post, E...and hope this is okay to mention...Kickoff of the recall drive against Governor Snyder May 5th.  I understand John Nichols will be speaking, really like him.  For more info.


  •  That photo looks as if Anne... (0+ / 0-)

    ...had to do what amounts to fairly risky urban rock climbing to get the shot she had in mind.

    Hope she didn't require any first aid beyond Neosporin.

    When you are right you cannot be too radical; when you are wrong, you cannot be too conservative. --Martin Luther King Jr.

    by Egalitare on Sun Apr 22, 2012 at 06:11:57 AM PDT

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