State Senate passes bill addressing property tax loophole

By: Jessica Strachan | Southfield Sun | Published July 2, 2013

SOUTHFIELD — The Michigan Senate voted last month to pass Senate Bill 114, legislation sponsored by Sen. Vincent Gregory, D-Southfield, that he says aims to eliminate a loophole that allows property taxes to stay at considerably low rates, instead of a fair dollar amount going to local governments.

Gregory, whose 14th District covers Southfield, Farmington, Farmington Hills, Ferndale and Oak Park, sponsored the bill to address what he called the problem of fluctuating property taxes that governments depend on.

“Without the passage of this legislation, some property owners have been able to use this loophole to dramatically reduce their property taxes in lean times — and keep them low when their property values should have gone back up,” Gregory said in a statement. “All building owners deserve a level playing field and should not be paying tax rates that are inconsistent with their competitors.”

For communities like Southfield, which rely heavily on commercial real estate, the bill will help strengthen the tax base and stabilize revenue, he said.

Southfield City Treasurer Irv Lowenberg said he’s been waiting to see a bill like this for quite some time. Using the example of Northland Shopping Center, he illustrated the loss by explaining that if a large tenant that provided a primary source of revenue moves out of the mall, it could take nearly a decade for property taxes to be adjusted properly, even if a new tenant replaces it.

“The values of the property would go down drastically. At that time, the city would go ahead and reduce the property value based on the reduction in value that’s occurred. … But let’s say a high-end retailer, rather than a discount store, replaces that; the value would improve drastically,” he explained. “The most a city can raise property value in one year is 5 percent or the rate of inflation, whichever is lower. So it would take more than 10 years to return to the level we were at previously, all because of a change in occupancy.”

Since two-thirds of Southfield’s tax base is from commercial properties — with a grand total of more than 26 million square feet of office space in the city — he added, the fluctuation and dependence on inflation puts the city at a disadvantage.

“I’m all for giving a temporary reduction for the year in which the place is vacant, but the problem is, we get burdened down; once reduced, always reduced,” he said. “Everyone should be paying their fair share for what an office building is worth.”

Gregory’s ultimate goal with the bill is to make sure local services, like police and fire, are being equally funded by citizens and business owners.

“Property taxes are a vital source of funding for our local governments, and this loophole has been allowing property owners to withhold funding that they are expected to pay for police officers, firefighters, infrastructure and other universal community services,” he said in his statement.

Even for smaller cities with less dependence on property tax revenue from office buildings and commercial parks, addressing the loophole could mean helping to balance the budget, city officials said.

April Lynch, new city manager for Ferndale, said she is in support of Gregory’s bill and has high hopes for how it can positively impact their community, too — especially as they prepare for the 2016 budget.

“We’ve been given a tax structure that we have been working with for a long time that is tough, and the state of Michigan, the Legislature, they are trying to find a healthy balance between getting businesses to stay in Michigan and the municipalities losing so much taxable value. Anything they can do to address our declining revenue as a municipality is something we are very interested in,” she said.

“Even in 2016, our taxable values are not climbing as fast as our expenditures are. Continuing to bring in revenue is important to us because we still have police officers and firefighters we have to pay. If a building is empty, there is still money from the city going into it, so we need the property tax if it is occupied or not.”

Southfield Assessor David Tijerina said the need for the bill grew out of a previous Michigan Supreme Court case that left an imbalance for adjusting taxable value on properties.

“Values could go down when the occupancy went down, but when assessors wanted to increase values as occupancy improved, we were not able to do that. We’ve been fighting this since 2002,” he said, adding that the stumbling block was that the court decided the city did not have the right to add value back to the property when the occupancy increased. “This legislation makes sure that neither additions nor losses can be taken into account for taxable value.”

Tijerina added that he believes the bill, which now goes on to the House of Representatives, will pass, since most opposition is gone now. Providing the bill passes, properties that are already owned will still be tied to the rate of inflation, he added, and properties being sold will be assessed at fair market value in the year after the sale.

“The economy has pretty much brought values way down. There isn’t much more that anyone could lose,” he explained. “All we are doing is evening out the inequalities in the way the law is written.”

For more information on Senate Bill 114, visit www.legislature. Staff Writer Josh Gordon contributed to this report.