| 3 min read | from Citizen’s Research Council of Michigan |
Property taxes are overused in Michigan to handle local needs, from public safety to infrastructure. Another way to spread the pain of paying would ease the burden on property owners.
Debate over “fixing the damn roads” has generally split into two general paths forward – the remedies offered by the governor’s office and the legislature. But a new Citizens Research Council paper on road funding suggests another solution: Local-option taxation.
With over 120,000 miles of roads, most of which are county roads and local streets – and in pretty rough shape, too – the state should consider allowing local units of government to tax residents for repair and maintenance of the roadways they drive on every day.
As it stands, road funding in Michigan involves Lansing collecting state taxes and returning a portion to local governments, what we know as revenue sharing. This is done to ensure and maintain the quality of certain government services across the state. However, the philosophy behind revenue sharing violates a core ethos of good government: the misery of raising taxes should accompany the pleasure of spending them. And the misery of driving on terrible local roads suggests residents might be willing to fund them locally – which would enable property-tax relief as well.
“Rather than moving from one problem to the next,” said Eric Lupher, President of the Citizens Research Council, “We are thinking about addressing multiple issues. While the roads need to be fixed and some of that will be addressed with new revenues, it is also necessary to address Michigan’s overburdened property tax system and the problems inherent in collecting the majority of revenues at the state level and sharing them with local governments.”
Here’s how changing the taxation structure could work to enable property-tax relief: Michigan local governments have limited options to increase road funding; the only choice most have available for addressing road needs with new tax revenues is to increase property taxes. And property taxes are, as we’ve pointed out in the past, overused, regressive and inadequate to support all the services we expect them to.
But transferring road funding to a different local option would enable local governments to collect taxes on income, fuel sales, registration fees or a general sales tax, depending on local preference. This would allow resort communities, to use but one example, to levy taxes on the visitors who use local infrastructure during vacation visits but have no permanent ties, to individual towns, villages or counties.
To enable such taxation, the legislature would need to pass a law authorizing more local options in such collections. Local sales-tax options would require an amendment to the state Constitution. And finally, authorization of local taxation would require voter approval.
“Because every type of local government is left to rely on the property tax as the sole (or majority) source of local revenue, the cumulative tax rates in Michigan are high when compared to other states,” Lupher continued. “Alternative taxes could provide property tax relief, lessen the need for state taxes to yield revenues sufficient for both the state and local road systems, and provide resources to mend the local road systems that are heavily traveled as part of our every day lives.”
What we found:
Michigan’s road funding system, with the state primarily responsible for levying taxes and sharing the revenues with local governments to maintain the roads, violates a core ethos of good government: that the misery of raising taxes should accompany the pleasure of spending the revenues.
As the state has been slow to fulfill its revenue raising responsibilities, local governments have filled the void by levying property taxes, the only option available to most of them. More than 700 local governments levy a road tax and more are likely to follow, thus placing more strain on the already overburdened property tax.
By considering the authorization of local-option motor fuel, vehicle registration, income, or sales taxes, the Michigan legislature would be following the practice of other states, including many of our neighbors, to meet local road funding responsibilities.
Founded in 1916, the Citizens Research Council of Michigan works to improve government in Michigan. The organization provides factual, unbiased, independent information concerning significant issues of state and local government organization, policy, and finance. By delivery of this information to policymakers and citizens, the Citizens Research Council aims to ensure sound and rational public policy formation in Michigan. For more information, visit www.crcmich.org.