While much of the focus throughout the past week has centered on Gov. Rick Snyder’s 2012 budget proposal, Williamston city officials have been worrying about another piece of legislature.

At the city council meeting on Feb. 14, the council discussed a proposal to amend the general property tax act by eliminating the personal property tax collected from Michigan’s businesses. Sen. Mike Nofs, R-Battle Creek, introduced the bill to the Michigan legislature on Jan. 19.

The city's general fund revenue for the 2011 fiscal year stood at $2,785,650. Without revenue from the personal property tax, the fund will decrease an estimated $70,000, leaving it at $2,715,650.

If passed, City Manager Tim Allard warned that the bill would effect city revenue just as much as the governor’s large-scale reforms, though both remain to be voted upon. However, Nof’s proposal has already been through fiscal analysis and would exempt all personal property from taxation after Dec. 31.

“I heard about it through the Michigan Municipal League, a state association of which Williamston is a member,” Allard said. “They frequently send out newsletters notifying us of legislative issues, and when we got this I knew needed to bring it up.”

The Consequences

If enacted as proposed, Allard and City Treasurer Alan Dolley estimated that the city stood to lose about 2.5 percent, or $70,000, from its general fund. On top of that, the Downtown Development Authority would suffer about a 9.7 percent, or $43,000, loss in funds and the Tax Increment Financing Authority 2-B, a special entity that encourages economic development in Williamston, would lose a significant 26.1 percent, or $79,000.

More generally, the bill would reduce revenue to the state’s School Aid Fund received from the State Education Tax, a part of the personal property tax. An analysis by the Senate Fiscal Agency estimated this loss at about $299.6 million.

However, Allard and Dolley’s concerns of lost revenue were met with a largely silent response from the council, save for a short comment from Council Member Tim Grossman.

“It’s just, what do you do at this point?” Grossman said. “We’ve got to wait to see what comes of the bill and then begin discussion.”

At that point, there will be much to talk about, Allard said. The city has already drawn down on its general fund balance this year and, in response, the Department of Public Works has stalled or completely eliminated some of its planned capital improvements projects.

Allard foresees an even larger decrease to the fund now, and is considering consolidation and sharing of services with other communities.

“As of today, are we paying the bills? Yes, we are,” Allard said. “But if you look two or three years from now, if we don’t have some significant increases in revenue one way or another we’re going to be in a very tough position indeed.”

The Benefits

Despite the bleak outlook foreshadowed by the city’s officials, there may be a bright side. MSU Professor of Economics Steve Haider said that the personal property tax places a burden on small businesses, especially in their beginnings.

“We are one of the only states that taxes business like that, and it’s growth stunting,” he said. “However, you’ve got to be careful because if you distort one market by eliminating a tax, you have to think about the next market you’re going to distort.”

If Senator Nofs doesn’t offer a source of replacement revenue, his proposal merely shifts the burden onto the cities, Haider said.

“Ask any economist and they’re going to tell you, what we need right now is more taxes and less spending,” he said. “The politicians need to find that common ground.”

Senator Nofs declined to comment at this time, but the Michigan Chamber of Commerce has also made it a priority this year to eliminate the personal property tax.

According to the Chamber’s website, Michigan continues to be uncompetitive with its current tax system. For this reason, chamber members advocate for a less cumbersome market for businesses.

The small business response

Downtown Williamston is lined with small shops and restaurants, the audience Senator Nofs and the Chamber of Commerce purport to have in mind with their advocacy for the tax elimination. However, Macey Williams, owner of The Fabric Gallery, said that cutting out the tax could be both beneficial and harmful.

“A business that has a gazillion computers and is replacing them every year is going to have to pay more than I do,” she said, “so I can see how it would be burdensome.

“I have very little equipment like that now, though. In the beginning I had all new equipment, like my shelving and sewing machines, and I was taxed more,” she said. “It’s hard at first but now, I don’t want to say it’s (the personal property tax) phased out, but it’s so minimal that it has no leverage on the rest of my business.”

The Biggest Worries

Despite understanding both sides of the spectrum, Allard still worries about the future of Williamston, he said.

“It’s really just the cumulative effect of all these things, all the tax reduction realities and proposals out there,” he said. “It’s just making it increasingly difficult to maintain quality services under the circumstances.”

Indeed, these issues leave the city wondering where it will stand in the next few years.

“We are legally required to maintain a balanced budget, so one way or another that will happen,” Grossman said. “How we balance the budget is open to question, for which I think there will be a good dialogue coming up.”

Listen to the discussion over the bill at the city council meeting: