Schools fear property tax cut will be permanent

Like many other Michigan public schools, the River Rouge School District is struggling to stay afloat.

In recent years, it has laid off teachers and eliminated music, art, gym, libraries and athletics -- but it’s still running a deficit. In February, voters turned down a request for a millage increase.

So, if the Legislature and Gov. Rick Snyder repeal the personal property tax on industry and commercial businesses, without fully replacing the revenue, “we’d probably have to lock the doors,” said James Doig, River Rouge’s interim superintendent, who was brought in to straighten out the district’s finances after his predecessor was let go.

“We’re having all kinds of financial difficulties,” Doig said. “Anything that affects our tax rolls negatively would have a terrible impact.”

His is among dozens of Michigan school districts teetering on the edge of financial disaster. River Rouge is particularly vulnerable because it draws a large portion of its tax support from a United Steel plant.

The personal property tax generates $3.6 million of the district’s $15-million-a-year general fund budget. It covers an additional $2.4 million a year for the district’s bond issues.

(CORRECTION: The personal property tax generated $549,000 in operating revenue for the River Rouge School District in fiscal year 2012. The PPT generated $1.06 million in revenue for debt millages, according to the Treasury Department. Figures originally provided to Bridge by the school district were incorrect.)

Under a proposal unveiled this week by the Snyder administration, the personal property tax would be repealed in stages, while a new state fund would be created to compensate local governments and schools for lost revenue. Lt. Gov. Brian Calley testified, for example, that 100 percent of the revenue going toward bond repayments would be covered by the new state fund.

A coalition of local government groups and others, however, say the proposal does not guarantee such funding, with compensation left up to the priorities of each Legislature. They fear PPT repeal will mean real and permanent cuts in revenue.

The possible loss of the personal property tax poses an unusual challenge for school districts because of how bond issues are written. When voters approve a bond issue for a capital project, such as a new school building, they don’t agree to a specific millage limit. Rather, they agree to pay back the loan by a set date.

Repealing the personal property tax on businesses without replacing the revenue would shift a greater share of the burden onto residential property taxpayers -- a $130 million per year tax increase forMichigan’s homeowners, said Don Wotruba, deputy director of the Michigan Association of School Boards.

“Our issue is not whether to repeal the personal property tax or not,” he said. “Our bigger issue is it’s a significant source of revenue. We want to be sure the revenue is replaced.”

Urban districts, such as Highland Park and Muskegon Heights, would be particularly hard hit, Wotruba added.

In 2010, the personal property tax paid $103 million into the state School Aid Fund, $117.7 million for local K-12 operations, $77.4 million for intermediate school districts and $38.8 million for community colleges, the state Senate Fiscal Agency estimated.

The Snyder administration says replacment revenue will come from expiring business tax incentives.

But school leaders have seen similar promises broken.

Even a more-affluent district like Rockford would be forced to make cuts if the personal property tax is repealed without a guarantee of replacement revenues, Superintendent Mike Shibler said.

“For us, to eliminate the personal property tax, we would lose $400,000 a year,” Shibler said. That’s in addition to the $10 million in cuts the district has made in recent years, bringing its $70 million operating budget below its 2006 funding level.

Advocates say repealing the personal property tax will improve Michigan’s business climate and, ultimately, raise more money for schools.

“If you don’t have jobs here, you won’t have kids to go to school,” said Sen. Mike Nofs, R-Battle Creek, sponsor of some of the bills repealing the personal property tax.

Shibler countered that repeated cuts in the state’s support for schools can only hurt the state’s image as a place to live and do business.

“I think we’re going in the wrong direction,” he said. “Who would want to move here as individual families or as businesses when they realize public schools, police, fire and other services are going to be negatively impacted?”

Pat Shellenbarger is a freelance writer based in West Michigan. He previously was a reporter and editor at the Detroit News, the St. Petersburg Times and the Grand Rapids Press.