G.M.'s Tax-Cut Effort Gains in Michigan
As part of a statewide campaign to reduce its tax load by $50 million, the General Motors Corporation has so far persuaded four Michigan communities to lower their assessments on gm plants, reducing local funds available to schools in those areas.
gm's tax-cutting campaign follows a similar effort by the Ford Motor Company to reduce its property taxes in Dearborn. If successful, it could force the state to increase aid to the districts involved or lead to a reduction in aid to other districts and the elimination of programs. An increase in local taxes is a third possibility.
"It's a big threat," said Katherine Strauss, associate executive director for6state/federal relations with the Michigan Association of School Boards. "We face the erosion of our property-tax base if this catches on, if it goes beyond gm, which it already has started to do." She said other firms seeking reduced assessments include the Xerox and Burroughs corporations.
gm, which is headquartered in Detroit, has plants throughout the state.
The auto maker is seeking $800 million in reduced assessments on plants in 17 communities, many of which include more than one school district. That would cut the company's tax load on real property--buildings and grounds--by nearly half, or about $50-million, according to David Hudgens, a gm spokesman. The company paid $215- million in property taxes in Michigan in 1984, about half of it assessed on buildings and grounds.
Communities that have already agreed to reduce their assessments on gm properties include Saginaw, Livonia, Walker, and Coopersville.
In Saginaw, gm had sought an 82 percent reduction, but settled for a 30 percent cut phased in over three years. In the first year, the agreement will cost the Saginaw Public Schools $180,000, according to Ms. Strauss.
A similar arrangement will cost the Livonia Public Schools about $400,000, she said.
"These small communities are in no position to fight gm, so they settle. That's what's happened so far," Ms. Strauss said.
Other areas targeted in gm's campaign include Flint--which according to Ms. Strauss is fighting the gm bid--and Pontiac. Detroit is not among the communities targeted, although several years ago it provided the corporation with tax breaks to entice it to locate a state-of-the-art plant in the center of the city.
gm claims that it is being overtaxed and points to assessment rates on industrial plants in other states as proof. According to Mr. Hudgens, the assessments that gm is contesting average $28.89 per square foot, compared with $9.20 on similar properties in other states.
"Why are we paying more when you look around and the properties aren't worth that much?" he asked.
"In short, Michigan has fairly high taxes," said Michael Lawson, a public-finance analyst with the U.S. Advisory Commission on Intergovernmental Relations, which monitors fiscal matters.
Real property in Michigan is assessed on the basis of fair market value and is taxed on half the assessed valuation, according to Mr. Hudgens. Property taxes in the state are among the highest in the nation, and communities where gm has plants are among the state's wealthiest. Most of them do not qualify for state aid, according to Thomas Farrell, associate state superintendent for public affairs.
Michigan has increased its reliance on property taxes to fund schools in the past five years, according to John Augenblick, a school-finance consultant. Since 1978, state support for education has grown by 22 percent--from $2.2 billion to $2.6 billion--while local property taxes have increased by nearly 35 percent, from $2.3 billion to $3.1 billion.
More than 60 percent of local property taxes in Michigan are spent on schools, according to Mr. Farrell.
gm claims that lowering its assessments will have little or no impact on school finances, because the state will compensate districts for their losses. Under the state's guaranteed-tax-base formula for school aid, districts that levy 30 mills are guaranteed nearly $2,400 per pupil, according to Ms. Strauss; if 30 mills raises less than that, the state pays the difference.
"If we got all that we're asking for, you're looking at maybe $25 million being applied by the state-aid fund out of $2.2 billion. So it would hardly bankrupt the state-aid fund," Mr. Hudgens said.
But since many of the districts in which gm plants are located do not qualify for state aid--one-third of the state's more than 500 districts do not qualify--the loss in assessment valuation would leave them with the choice of raising taxes or cutting programs, Ms. Strauss said.
And, as Mr. Augenblick pointed out, the state sets the level at which it guarantees state aid based on how much money it has available for education, not on the basis of what programs cost. Rather than increase state aid to compensate districts for their losses, the state could just revise downward the amount of aid guaranteed per child, he said.
Mr. Hudgens said gm does not want its campaign to have "catastrophic" effects on the communities in which its plants are located.
"Our notion is not to trash these communities," he said. "Quite the opposite. We live there. But we still feel these properties are overassessed and we want to work on getting them down."
According to Mr. Farrell, the education department is trying to stay neutral in the dispute, but is "tilting toward the districts."
"If gm is successful, you could have other corporations around the country saying, 'We ought to try that,"' he said.