Other Legislative Developments and State Happenings
Governmental Advisor, Fall 2007 / Winter 2008
Mandatory Public Safety Collective Bargaining (also known as Act 312) — For the first time in many years, the subject of potential revisions to Act 312 received attention as part of the budget negotiations. Although the final budget compromise did not include legislation to revise Act 312, progress was made educating some in Lansing of the concerns with how Act 312 is being administered, and of changes that could be made to improve this aspect of collective bargaining. Where it will go from here is difficult to predict.
Housing Market Impact on Property Tax Revenue — Foreclosures, properties on the market for extended periods of time, properties not selling, or selling below market value, and so on. Media reports on the aforementioned topics are plentiful. What will the impact of all of this have on your 2008 tax levies? The answer will vary by community. The answer will depend on how quickly and how much your community’s gap between state equalized value (SEV) and taxable value (TV) are impacted by the above trends, the age of your housing stock and other factors. Because of the difference between SEV and TV, any given decrease in market values (or SEV) will always translate into a smaller decrease in Taxable Value. As a result, some communities will see smaller than normal increases in total TV, and some will see moderate decreases.
What may be even harder to explain to certain constituents is how their taxable value could be increasing when property values are falling. To answer this question you will have to go back to the mechanics of Proposal A, and this is not an easily understood discussion with property owners. In effect, Proposal A held back TV increases in those years when market values were increasing faster than inflation. The converse will now be true: Proposal A will allow inflationary increases even while market values are decreasing, but only so long as the market values have not decreased to the point of twice TV. This type of decrease will certainly occur for many homeowners (those whose TV has been set or re-set recently), so they will see decreases in TV; however, their neighbors whose TV has not been re-set recently will continue to see TV increases.
Cable Franchise Fees — Revisions to cable franchise laws were signed into effect in January 2007. It is probably too soon to judge exactly the impact of the law changes on the franchise fees received by local governments from cable providers. The impact will be more fully measured as phone companies enter the market more significantly in the coming years. There appear to be several areas of conflict after the first twelve months under the revised laws. One of the main points of contention is the funding of public, education and government (PEG) access channels. The revised law allows local governments to receive from providers the costs of the PEG access facilities (not to exceed 2% of gross revenue). There has been some debate over meaning of this language.
911 Surcharge — Many local governments receive monies to support 911 operations (dispatching, etc.). The monies are used to pay for the operating costs (wages, benefits, etc.) and capital outlay of these operations. The monies are received under the Emergency Service Enabling Act which is scheduled to sunset on December 31, 2007. There have been ongoing discussions in Lansing about modifications to the Act prior to December 31, 2007 or the need to extend the Act if local governments are going to continue to receive these monies.
Development Legislation — There are a number of bills pending to provide improved tools to local governments to encourage and promote development. The list includes: reauthorization and improvements to the Brownfield Redevelopment Act; a series of bills originating in the Senate to spur development in downtown areas; fixes to the Corridor Improvement Authority legislation, including making it easier for local governments to establish such entities; modifications to the Commercial Rehabilitation Act to change the type of property that can qualify, and adding certain business types.
Bonding for Retiree Health Care Liability — As we have been publicizing for the last several years, and as you are now aware, Governmental Accounting Standards Board (GASB) Statements No. 43 and 45 — accounting and financial reporting for other post employment benefits like retiree health care — are now being phased in over a three year period. Many local governments are still in the process of working with their actuary to complete or update their valuation of this liability, and to determine the annual contribution if they decide to begin to actuarially fund this liability. An attempt about a year ago to enact legislation allowing local governments, without a vote of its electors, to issue bonds to help pay for the costs of post employment healthcare benefits for public employee retirees failed. Recent attempts have been made to re-introduce this legislation.
User Fees — Several years ago, two developments received a lot of attention and appropriately so. One was the "Bolt Case" in which the Supreme Court determined that a stormwater fee was actually a non-voter approved tax (as required by the Headlee Amendment). The Supreme Court went on in their decision to establish new tests for all fees. Also, following the "Bolt Case," the Legislature adopted changes to the State Construction Code Act which changed how fees are calculated and charged on plumbing, electrical, mechanical and certain other building permits. The revisions to the State Construction Code Act implemented a much more narrow definition of costs to be included in the calculation of building permits covered by the Act. Please remember to consider both the Bolt Case and the revisions to the State Construction Code Act when setting fees.
The State’s Fiscal Distress Indicator Scores
The Michigan Department of Treasury has recently sent communications to all cities regarding the Department’s calculation of the local unit’s fiscal distress indicator score, calculated using a series of nine indicators chosen by the State. This is a follow-up to the calculation performed earlier in the year for counties. Calculations for villages and townships are also now being compiled by the State.
We believe that there are several key indicators of a local unit’s current or future financial distress. Indicators to consider include:
- Declining fund balance
- Fund balance below target
- Deferred capital outlay and maintenance
- Struggling to make required pension contributions
- No plan or ability to fund retiree health care
- Lack of timely financial reports
- Excessive program subsidies
- Borrowing to cover cash flow needs
- No millage capacity/At or near full development
- Declining bond rating
- Over-reliance on a significant taxpayer or customer
- No long-range financial plan
A good exercise for your community is to review all potential indicators to determine which ones are most relevant in determining your government’s overall financial condition.