Officials: Removal of personal property tax would cost Berkley $205K annually

By: Jeremy Selweski | Woodward Talk | Published September 27, 2011


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BERKLEY — City officials are disputing the proposed elimination of Michigan’s personal property tax, a change they say would cost Berkley more than $200,000 in revenue each year.

At its Sept. 19 meeting, the Berkley City Council voted 6-1 in favor of a resolution in support of fully replacing, not just erasing, the tax. Councilman Dan Benton cast the lone dissenting vote.

The resolution states that personal property taxes have been “a particularly stable source of needed revenue” for municipalities across Michigan for many years, and its elimination would result in a $205,000 loss in annual tax revenue for Berkley and about $1.2 billion for local governments statewide. The tax comprises about 11 percent of taxable value for average Michigan communities and more than 50 percent in some cities.

According to the resolution, “an additional loss of municipal revenue will compound and exacerbate the financial hardship that this community — its residents and its businesses — is currently experiencing. … Further cuts in vital local services would be unprecedented, unwarranted and destructive to the fabric of the community.”

Personal property taxes are paid by Michigan businesses on property that is not permanently affixed to land, such as furniture, tools and computers. According to the Michigan Municipal League, Michigan is one of 43 states that currently levies some form of personal property tax. As the national recession decimated property values in recent years, Michigan communities’ reliance on these taxes increased significantly, the MML stated.

Councilman Phil O’Dwyer called the potential $205,000 loss “an enormous amount of money” that would translate to the elimination of city services or personnel. “I want to emphasize the importance of protecting what we have and exercising our fiduciary responsibility to the residents who elected us,” he said.

According to Finance Director David Sabuda, the resulting cut in revenue would be the equivalent of the salary and benefits of about two city employees. He noted that state officials are discussing a few alternatives to the personal property tax if it were eliminated, but O’Dwyer was not so sure that they would come through.

“I’m not at all impressed by the notion that (this tax) would be replaced by something else,” he said. “My confidence in the state of Michigan living up to their commitments has been fairly shattered by how they have handled state-shared revenue, which was promised and guaranteed to us in every way possible.”

Not all members of council shared O’Dwyer’s opinion, however. Councilman Dan Benton feels that personal property taxes are a disincentive for business owners to purchase new equipment and upgrade their business.

“I personally believe that eliminating the personal property tax is a job grower and will make Michigan more competitive,” he said. “A tax shift is not going to do that, in my opinion. … Those seven states who don’t have (this tax), I wonder who they are; I wonder how well they’re doing; and I wonder what their jobless rate is.”

Councilman Dan Terbrack countered that while he respects Benton’s desire to spur job growth, he believes that the financial blow to communities like Berkley would simply be too great.

“I don’t want to negatively impact any businesses in the city of Berkley or inhibit their ability to grow or buy new equipment,” he said. “But my issue … is that $205,000. If that were to go, it would have a significant negative impact on our budget and would leave us with having to reduce services somewhere. It would give us a $205,000 hole right away, and we are already in very, very tight economic times right now. If there’s a way that (personal property taxes) can be replaced by the state, then that’s great — as long as those dollars that we are expecting and have had for so long continue to come to the city.”

In a subsequent interview, Councilman Steve Baker stressed that Berkley’s resolution is not specifically arguing that the state of Michigan should continue taxing businesses the same way that it always has.

“We’re saying that we do not approve of shifting even more financial hardships and funding cuts on to the local communities, because it would force us to further reduce our core services or lay off employees,” he explained. “We just want to hold our residents harmless against this proposed tax elimination. If the state wants to stimulate business growth, then we just ask that they don’t shift that burden onto its municipalities and taxpayers.”