MSU Extension Center for Local Government Finance & Policy

Bridge Magazine recently (May 10) published an article titled, Property values roar back in Michigan, but many communities left behind. The article pointed out that while property values (State Equalized Value (SEV) also known as assessed value, is 50% of market value) are increasing at a relatively healthy rate, taxable values (TV) which represents the annual limit on assessed value are lagging behind. This difference is because the constitution (Article 9, Section 3) limits the increase in TV (existing property) to 5% or the rate of inflation, whichever is less. As a result, SEV increased 19% from 2012 (low point for TV) to 2017, while TV increased only 6.2%. The rate of inflation for that period was 6.7%. TV has been increasing at less than the rate of inflation, and there is an additional restriction on the amount of property taxes local units can collect. Article 9, Section 31 of the constitution requires millage rates be rolled back if property tax values increase faster than the rate of inflation. This insures that for many cities property tax collections will increase less than the rate of inflation.

The article points out that many cities have not benefitted from the overall recovery in property values. This is particularly true of older core cities and mature suburban cities as the only way TV can keep up with inflation is if there are new property developments, and in many older cities, there is little room for growth. Our view is that the situation for most cities is even worse than portrayed in the article.

The Bridge article looks at the change in TV from 2014 to 2017. Taxable value for cities increased only 1.8% compared to a 5% increase for statewide TV. During that period, 117 cities lost TV and 27 of those cities suffered double-digit declines. Only 90 cities (32% of 280 cities) recorded an increase in excess of the rate of inflation (4.4%). Twenty-six cities recorded an increase of 10% or more. (See Exhibit 1). Also included in Exhibit 1 is the percent change in property values from 2012 to 2017. This comparison is included because TV hit its low point in 2012. From 2012 to 2017, the TV for all cities increased only 0.4% compared with a 1.8% increase from 2014 to 2017. This occurred because many cities continued to lose TV from 2012 to 2014. During the period, 145 cities lost TV compared with 117 that lost TV from 2014 to 2017.

Townships did considerably better, as TV increased 6.9% from 2014 to 2017. This is largely because townships have more space for new development and lower tax rates. Villages did worse than cities, as TV was unchanged during the period.