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Michigan legislature approves tax cut that could cost local governments in the future

Lester Graham
Michigan Radio
Cities such as Dexter and many other municipalities could face budget cuts in services in coming years. Local governments might lose revenue under a state proposal to exempt more businesses from paying personal property taxes.

Michigan's legislature has sent Gov. Gretchen Whitmer a bill that would make more small businesses exempt from the personal property tax. The bill is part of a package of legislation aimed at attracting more large businesses to the state, but local government leaders said they're not happy about the plan.

Municipal officials said state lawmakers want the tax cut for small businesses, but they worry local governments will have to pay the cost.

Lester Graham
Michigan Radio
The Michigan capitol.

“We support helping small businesses in our communities. We don’t support having that local revenue used to pay for that tax cut,” said Judy Allen, government relations director for the Michigan Townships Association.

Supporters of the legislation said it provides a way for small businesses to also benefit from an economic development package directed mostly at large-scale investment.

Amanda Fisher directs Michigan's chapter of the National Federation of Independent Business.

“All businesses in Michigan matter," she said. "We need small business, so we felt like this was something that wasn’t overly expensive that we could do to help.”

Chris Hackbarth with the Michigan Municipal League said he worries collecting fewer taxes without replacing them in municipalities' income streams will hurt local governments' ability to provide services for residents.

"Without having ongoing replacement revenue in there, it’s going to have long-term impact on local government, on their finances, on the services they offer, and on their ability to pursue economic development," Hackbarth said.

The legislation more than doubles the amount of personal property businesses can hold tax-free.

Allen said the lawmakers estimated what it might cost to reimburse local governments for the lost tax revenue.

“They believe it would be $75 million that would be needed to cover one year to reimburse local units,” she said. But she thinks that estimate is based on bad data.

The legislation only covers reimbursement for the first year, Allen said. There’s no plan to permanently reimburse the revenue loss local governments would face. She estimates for some townships the loss could be between 10 and 15% of their annual budgets.

Allen said that could force local governments to cut services such as fire and police protection in the future.

Lester Graham reports for The Environment Report. He has reported on public policy, politics, and issues regarding race and gender inequity. He was previously with The Environment Report at Michigan Radio from 1998-2010.
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