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Follow CapCon on XAnalysis: Local Governments Wrong to Call Foul On Property Tax Reform
Phase out, elimination of tax credits and improving economy should help communities adjust
Local governments are crying poverty over a proposal that would make the state more attractive for businesses — a plan to phase out the state’s tax on business equipment.
They’re also raising the alarm that they’ll have to raise taxes on local property owners to make up for lost revenue if the bill passes. School districts, counties, cities and townships should be applauding the state’s approach instead of fighting it.
Local governments complain that the revenue from the tax will not be replaced, meaning less revenue for strained their budgets. But the specific proposal actually replaces property tax revenue for local governments by expiring certain tax credit programs. It also mandates adjusted state assistance to compensate for governments that have a high proportion of their revenues from the tax on business equipment.
Further concern about lost revenue is mitigated by a phase-out of the tax instead of instant elimination.
The state estimates that businesses will only have their taxes lowered by $80 million in the first three years of the bill — far less than the increases in state transfers to local governments and schools expected in this year’s budget.
Because of the long phase-out of the tax, the revenue changes from removing this tax will be dwarfed by macroeconomic changes. The state’s economy has been improving over the past year and will be expected to continue to do so.
As to the threat of local units raising overall property taxes if the bill passes, local government boards are already making good on that threat without the bill even passing. For instance, schools are asking to increase local property taxes by $540 million this year alone.
While nearly every government has made some moves to lower expenses in the past decade, most have failed to make substantial reforms to the ever-increasing costs of the compensation packages offered to government employees. Participating in 80-20 reforms, benchmarking retirement packages, and paying attention to paid leave and salary schedules are all worth exploring before raising taxes.
All told, bringing benefits in balance would save governments $5.7 billion — far greater than the fiscal impact of personal property tax elimination.
Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.
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Commentary: Legislators Choose School Employees Over Taxpayers on Retirement Benefit Reform
Imagine that a politician asked you to lend him some money, for which he would give you an IOU with a footnote allowing him to unilaterally cancel or reduce the debt at any time.
If you lent the money anyway, you could hardly claim to be surprised if the politician exercises his option to drop the payment.
This example roughly describes the situation public school employees find themselves in regarding politicians’ promises of post-retirement health benefits.
Michigan’s arrangements in this area are unique. Unlike regular pension checks, nothing in law obligates taxpayers to honor these retiree health benefit promises. The politicians never set aside any money to pre-fund them, and implicitly reserved the right to trim or even eliminate them should the cost become unaffordable. Considering that benefit costs increased by $366 million since 2000, an 85 percent jump, these costs are prohibitive.
Given the growing burden these optional benefits place on taxpayers, plus the fact that few in the private sector receive such benefits (and that everyone is entitled to federal Medicare coverage at age 65) — it’s good news that reform legislation is now being debated in Lansing. Among other things, the bill would eliminate those “politicians’ promises” of retirement health benefits for new school employees, and require current retirees to share more of the cost.
Unfortunately, the school establishment empire has struck back. Almost every day brings new reports of proposed reforms being weakened or gutted. For example, one removed provision would have provided the benefits only when a retiree reaches age 60. This is hardly radical: Why should anyone collect an optional, taxpayer-funded retirement benefit in their 50s?
By giving in, lawmakers are placing school employees and their unions first, and taxpayers second. This despite the fact that Michigan can no longer afford to give a protected class of school and government employees benefits far richer than what their private sector neighbors get.
Legislators should start remembering who deserves their primary loyalty.
Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.
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