Killing the Pop Up Tax?!

This came in my email today. I searched high and low (on Google) to find the source of the article, but I cannot. I would have linked to it if I had found it.
I’ve spoken before about the problems with Proposal A. As a matter of fact, I think I have ranted about it in the last few days. Basically, the tax is keeping people from moving because their taxes will increase considerably when they buy a new home. Here is a glimpse

If lawmakers chose to delay the pop-up in property taxes, experienced when a home is sold, it could have staggering effects on how well municipalities fund services. But if they don’t implement a change, thousands of homes across the state may not sell anytime soon – a Catch-22 of the discussion circulating around the House Commerce Committee on Wednesday.

While there was no bill officially on the committee’s agenda, the 18-month moratorium on the pop-up tax proposed by now-House Speaker Andy Dillon (D-Redford) last session (See Gongwer Michigan Report, June 8, 2006) was discussed.

Rep. Martin Griffin (D-Jackson), a former Realtor who has introduced HJR B and HB 4049 that phases in the increase in property tax on a principal residence, said in his district there recently was a home sold that hadn’t been sold since 1915 (with increases in taxable value limited since 1994) and what the old homeowners paid in taxes every year was the amount the new homeowners were paying every month.

While Proposal A adopted in 1994 may have allowed people to afford the taxes on their homesteads, it has now forced them to stay put. Empty nesters looking to downsize often find that they will pay more in taxes on a smaller home than if they just stayed in their current one, Mr. Griffin said.

As a former mayor, Rep. Robert Jones (D-Kalamazoo) said older communities such as his tend to have a higher millage rate than the surrounding rural and suburban areas, which combined with the pop-up factor, provide a disincentive for people to purchase homes within the city. Dale Krajniak, city manager for Grosse Pointe Park, added that the disincentive pushes people away from the city and contributes to urban sprawl.

“It keeps new families from coming in. New families mean new children in the schools and new revenue in the community,” Mr. Jones said.

Don Wotruba, director of legislative affairs for the Michigan Association of School Boards, warned that anything dealing with changing the pop-up would ultimately have an effect on schools and the School Aid fund is already not seeing much growth as it is. Commerce Chair Rep. Andy Meisner (D-Ferndale) said that under Mr. Dillon’s plan last year, the school fund would have gotten a cut from an increase in the transfer tax.

Mike LeVan from Grosse Pointe Park, who is a member of the Michigan Association of Realtors, said an 18-month moratorium would mean he would sell a lot of homes during that time, but that ultimately he didn’t think that was good public policy for the long haul.

If there are two identical homes on the market and the taxes are frozen, as they would be in a moratorium, then the homeowner with the higher taxes would have to cut their price in order to be competitive, Mr. LeVan said. But for people living in a home for only a few years they have not built up equity in their home to provide that much relief on the sticker price, he said.

Mr. Krajniak said his community raised taxes last year by 3 percent but out of 4,200 homes sold, 200 new homeowners essentially paid for that increase because of the pop-up – which shows the disparity in how the taxes are shouldered by different residents.

He said that while he doesn’t have a solution to the problem, he appreciated that lawmakers were looking at the issue.

“The value of our community is not based on homes that don’t sell,” he said.

Summer Minnick, director of state affairs for the Michigan Municipal League, said the organization does believe that the municipal finance system is broken and that communities that have reached their Headlee cap can only generate revenue above the rate of inflation when homes are sold – and that’s just to keep the local government’s head above water.

She said while the organization welcomes a review of the system they are skeptical of any short-term attempts, such as an 18-month moratorium or delay in the pop-up, will help communities or homebuyers in the long run because it doesn’t allow the taxable values to be “reset” at the time of purchase.

“That gap is just going to grow when that homeowner sells it,” she said, adding that if such a moratorium were put into place, a cliff effect would take over because people would miss the deadline and want an extension. There should be incentives for people to move into established communities, she said.

Rep. Andy Coulouris (D-Saginaw) asked Ms. Minnick whether her organization would welcome a policy that includes special provisions for older communities when it comes to the pop-up, to which she said they had not taken a formal position on that but it had been discussed.

Bill Anderson, legislative liaison for the Michigan Townships Association, said that when lawmakers were debating Proposal A more than a decade ago, they essentially decided it was more important to guarantee what people would pay in property taxes when they got into the home than what that would mean in disparity of taxes amongst residents in the long run.

He warned that any delay in the pop-up would ultimately change the market for selling homes and could likely decimate new homes being built if the moratorium was installed permanently, as well as effect how items such as municipal bonds are funded by residents of a community.

Kenneth Rhodes, city clerk and treasurer for Sturgis, said that his community has been able to keep their tax rate one mill below their Headlee cap, but that a delay in the pop-up would cost his area’s small budget more than $50,000.

Brad Ward, director of policy and legal affairs for the Michigan Association of Realtors, said within his organization there has been disagreement on whether the pop-up is an issue at all because, for example, Realtors on the west side of the state say that money from Chicago pours in and no one shows concern about the pop-up there. He added that on the same day the Commerce panel was meeting, his organization’s task force on the pop-up was also convening to discuss options.

[tags]proposal a, michigan property taxes, pop up tax[/tags]