The challenge to local governments, including schools, is that they rely on the revenues from these property taxes to provide the services with which they are responsible to provide. While the City of Owosso is not as dependent on these revenues as some local governments, we do receive more than $218,000 annually in personal property taxes. This represents about 3.4% of our estimated revenues of $6.38 million in the coming fiscal year. Of course, in a time when the City is extremely conscious of every dollar in our budget, any six-figure cut is difficult to deal with.
Because of the potential impacts on local government budgets, several organizations have called on the Michigan Legislature to "Replace Don't Erase" the personal property tax (there is even a website with that name that provides background information). Current proposals in the legislature would phase in the elimination of the PPT by starting with only small businesses, and postponing future cuts. If enacted, this would limit Owosso's hit to only $32,000 in 2012-13 (about what the City invested in Bentley Park and Kiwanis Ballfield improvements). Future impacts are hard to gauge because most of the current proposals involve complex calculations and record-keeping (that would impose a burden on the City and/or the State Treasurer to administer), but no clear replacement scheme has yet to be adopted by any legislative body.
What role for local government in economic development? is the bigger question raised by the reforms that the State is pursuing. Traditionally, local governments like Owosso have worked in partnership with the State in promoting specific projects to create new jobs, encourage the expansion of local businesses, or make infrastructure or downtown improvements to boost the attractiveness of a market for new private investment. With Governor Snyder's first budget, several tools used in these economic developments ventures were eliminated (see my earlier post on the loss of tax credits and my post on state budget changes), along with several hundred thousand dollars in revenue sharing the State formerly passed on to Owosso. While both the State and local governments as a whole may likely end up enjoying more economic growth, and accompanying increases in tax revenues, from the total package of tax reforms, the immediate effect was to end lots of local specific projects (such as the rehabilitation of historic structure in downtown Owosso) and put a strain on our ability to deliver services.
The elimination of the personal property tax would take away another local economic development tool: the use of tax abatements on new investments in manufacturing equipment or building renovations. Owosso has long used these provisions in state law to provide incentives to private job providers. In the last two years, we have used this program to assist a major manufacturer in the County expand into a new facility in Owosso, help a software security firm add to its employment, and subsidize a new company to move into an abandoned downtown building and create new jobs. Importantly, the City of Owosso has adopted its own policy in the use of PPT abatements that gives preferences to companies that create higher paying jobs, employ Owosso residents, and/or have been in business in the community for several years or more. State legislation which would end the PPT would negate the effect of this state-local economic development incentive.
Small Places are Important. Recently, we in Owosso were proud when the Director of the Michigan Economic Development Corporation (MEDC) visited our community (see news coverage here). Mike Finney made the case for the State's tilt toward "economic gardening" with cogent arguments, powerful statistics, and specific anecdotes. In response to my question about the role of local government he also gave an effective answer about the State's support for regional economic development efforts, something the City of Owosso has formally chosen to participate in. However, he was not able to identify what region Shiawassee County was part of . "Are you in the Lansing region? Or Genessee County? or with Saginaw?" (In fact, we are part of the five-county I-69 corridor effort which stretches from Shiawassee to St. Clair Counties). I am not critical of the lack of geographic knowledge, but it does feed into my fear that small places like Owosso are easily forgotten by State agencies that are trying to capitalize on research driven growth, save struggling urban centers, and respond to demands from more populated areas.
There have been repeated statements from the Snyder administration and some Republican legislators about their preference to directly invest state dollars, rather than use tax breaks, for specific economic development endeavors, including place-making efforts in downtowns. Again, they make a strong intellectual case for the wisdom of this approach, but we have yet to see any of these limited dollars. In a state with pressing needs, it may be hard for Owosso to make the case that we deserve a share (though I would like to have the chance to try). However, it tough to lose the few local economic development tools we have so that incentives can be directed to large companies and large cities in areas that will not likely directly benefit our local economy.
Local economic development efforts, especially those that involve both the private sector and local government, are unique in their ability to understand the particular needs of local companies, to direct private investments that further public objectives (such as maximizing use of local infrastructure), and to support local entrepreneurial efforts. The State needs to take a large-scale perspective that compares Michigan's tax structure to competing states; local governments need to be involved in the specific development projects where jobs actually are created. While the Legislature and the Governor are attentive to the former, they also need to be cognizant of the important functions that local governments play in economic development.
Replace, and Reward. I support the proposal to eliminate the Personal Property Tax to the degree that it will encourage further private investment and growth. However, I believe two things are necessary to keep local governments like the City of Owosso as partners in economic development efforts. First, we need to have our lost revenue replaced. The proposed first year hit may seem small, but it happens to be just about what we invest annually in the Shiawassee Economic Development Partnership (SEDP), the public-private body that represents us in regional efforts, works with MEDC, and assists local companies grow. In order to accommodate the loss in tax revenues, should Owosso step back from its role of being the largest supporter of SEDP? A larger reduction in local revenue will surely necessitate more painful cuts in services and higher taxes and fees. (Note: the City of Owosso has managed its finances very well. Despite cuts in State support, we have maintained a reserve fund, have no large unfunded pension liabilities, and employees make significant contributions to their health care payments; we cooperate financially with neighboring units of government)
Secondly, if the PPT is done away with or not, I would like the State to reward or encourage local governments to be active in economic development. Because we believe the development of our local community and our regional and state economy go hand-in-hand, the City of Owosso has not only invested in the SEDP, we have hired professionals to assist and promote economic growth. As well, we scratch at our budget annually to find a few dollars to make investments in roads, parks, and other infrastructure necessary for a healthy community. We have managed this level of emphasis for the last several years through difficult budget decisions; further cuts will make it even more difficult to maintain our momentum. As the State takes an appropriate big picture view of the economy, it would be nice if some of the small places and small players be recognized and rewarded for their commitment to Michigan's future.
