Business Tax Revolt In Michigan Poses Threat to Schools
Following the lead of the Ford Motor Company, a number of other Fortune 500 companies have challenged their tax assessments in Michigan in a move that could cost the state's school districts millions of dollars.
The list includes some of the most familiar names in American business: Amway, Chrysler Corporation, Dow Chemical, Du Pont, General Motors, Steelcase, Strohs, Uniroyal, Unisys, UpJohn, and Warner-Lambert. And their actions have prompted scores of smaller companies throughout the state to follow suit, observers say.
The Michigan Tax Information Council, a nonprofit research group, reports that more than 1,400 property-tax appeals had been filed with the state tax tribunal as of March 31. General Motors alone has filed nearly 30 such appeals, disputing a total of $460 million in property assessments in 14 communities.
According to school and business officials, the recession that ravaged the state's economy in the late 1970's and early 1980's, combined with increased competition in the world market, forced Michigan's leading businesses to take a closer look at ways to cut costs. And with increasing frequency, those officials say, the companies are casting a critical eye on their local property-tax bills.
"We aren't out to trash these communities,'' David Hudgens, a spokesman for General Motors, said last week. "We live in them and our kids go to school in them.''
"We believe in public education and the need for strong schools,'' he continued. "But at the same time, we're saying that we're under no obligation to pay more in taxes than the law requires.''
Public schools stand to be the biggest losers if a majority of the appeals are decided in the corporations' favor. Local property taxes generate more revenue than any other tax in the state--more than the income and sales taxes combined--and some 70 percent of all property-tax revenues in Michigan are earmarked for precollegiate education.
Successful tax appeals by businesses would also have a drastic effect on Michigan's school-finance system, education officials warn. To offset lost local revenues, the state government would have to substantially increase aid to districts that currently qualify for state support. In addition, several districts that are now self-supporting would become eligible for such aid if businesses win appeals in their communties.
The Michigan Department of Management and Budget estimates that the G.M. appeals alone, if successful, would require the state to pay an additional $25.5 million yearly to districts that now qualify for state assistance, and $10.2 million yearly to newly eligible districts.
High Tax Burden
The corporate property-assessment revolt appears to be concentrated in Michigan, whose property-tax burden is relatively high, according to Wendy Patton, who studies tax issues for the American Federation of State, County, and Municipal Employees.
But, she noted, steel companies in northern Ohio and in Pennsylvania's Monongahela Valley, and at least one public utility in New York State, have also won major tax concessions in their communities in recent years.
A recent report by the Michigan Senate's citizens' property-tax commission found that in 1984, property taxes represented 5.2 percent of personal income in the state--nearly 50 percent above the national average and the sixth-highest proportion for such taxes among the states.
Michigan's businesses, however, are actually bearing a smaller share of the tax burden now than they were in 1975, in large part because communities have granted them substantial tax abatements to foster economic development.
A study released in February by the Senate Fiscal Agency indicates that commercial and industrial property accounted for 29.6 percent of total taxable property in 1982, down from 39.6 percent seven years earlier.
'Outearned' by Ford
Despite such concessions, the state's businesses continue to argue that their property assessments--and thus, their taxes--are far too high.
Mr. Hudgens of General Motors said his company's sole motivation in filing the tax appeals was to cut its costs during a period of intense competition in the automotive industry.
"Look, last year Ford outearned us for the first time in more than 60 years,'' he pointed out. "There are a lot of people here who don't want to see that happen ever again.''
Added Peter Maas, a spokesman for the UpJohn pharmaceutical company: "We recognize that we have an obligation to pay our fair share of taxes. But at the same time, we have an obligation to our shareholders not to pay more than our fair share.'' Last October, officials in Portage agreed to an out-of-court settlement that lowered the assessed value of UpJohn's main plant from $100 million to $75 million. The company had asked the tax tribunal to set the assessment at $50- million.
The wave of corporate tax appeals began in 1983, when Ford Motor Company challenged the assessment of the company's massive Rouge steel plant in Dearborn. The state tax tribunal ruled in favor of the company, and the city, Wayne County, and the Dearborn school district agreed in 1984 to a settlement totaling $30 million, more than half of which was borne by the district.
Mary Kay Ashmore, a spokesman for the district, said the Dearborn school board earmarked $2 million in its 1984-85 budget for the settlement and financed the rest by winning voter approval for a $15-million bond issue.
But the financial impact on the affluent Detroit suburb was in some respects less severe than the psychological effects of the dispute, according to Ms. Ashmore.
"Obviously we had a very tight budget,'' she said. "But the psychological impact, the sense of uncertainty in the organization, was greater--can we go ahead with new programs, do we commit money to new equipment and textbooks?''
In addition, she said, the dispute left many Dearborn residents "feeling not really angry, but deeply hurt, with Ford.''
"Ford has an almost paternal influence in the city,'' Ms. Ashmore noted. "The general sense of the community was, 'This is something Ford shouldn't have done to us.'''
In less affluent districts, the threatened loss of a major portion of the local tax base is causing a great deal of financial uncertainty.
In 1983, for example, G.M. asked for and received a 10 percent reduction in the assessed valuation of a plant in Grand Blanc. A year later, the corporation requested that the assessment be lowered again, and officials in the Flint suburb responded with a 5 percent reduction.
But Grand Blanc tax assessors balked in 1985 when the industrial giant, as part of a major cost-cutting move, insisted that the assessment be lowered even further--this time by nearly 70 percent.
If the dispute, now before the tax tribunal, is resolved in G.M.'s favor, the city's public schools would be forced to pay the corporation almost $2 million in tax refunds and interest. Moreover, officials said, the state would have to make up about $900,000 annually in lost school-tax revenues in the years ahead.
"The loss could be very severe,'' said Andrew Linell, a spokesman for the 5,500-student district. "G.M. may have a valid point in arguing that their taxes are too high. But we're worried about maintaining the integrity of the tax system for homeowners and all other taxpayers.''
"If the big guy can throw his weight around,'' he said, "what does that mean for the rest of the persons in the system?''
Last September, the state tax tribunal ruled that the Waverly school district in suburban Lansing owed General Motors nearly $1 million because the value of a major parts-distribution facility had been overassessed.
Last month, however, voters in the 3,300-student district rejected a proposal to raise school taxes by 2.7 mills to finance the refund and replace the share of taxes that G.M. will no longer have to pay.
"The money is going to have to be repaid,'' said John H. Reynolds, the district's superintendent. "The question is, 'How are we going to do it?'''
Mr. Reynolds noted that, because the district does not qualify for state aid even with the expense of the settlement, the cost "rides entirely on the backs of the local community.''
Now that the voters have rejected the tax increase, he added, "I don't know what we'll do.''
"The thing that concerns me most is that the loss is such a devastating one [and that] no one had any regard for the environmental impact,'' he added. "It was as if G.M. and the tribunal went into this with blinders on, without regard for the potential effects of the decision.''
In Flint, meanwhile, G.M. has asked the tax tribunal to lower the assessment on its "Buick City'' plant from $302 million to $128 million. According to Joseph Pollack, the city's school superintendent, his district could lose more than $17 million in refunds, interest, and lost revenue if the corporation is successful.
Mr. Pollack said the state, in theory, would make up the loss, because the district is already eligible for state aid. But, he predicted, if the tax tribunal decides all of the company's appeals at or near the same time, the state would be unlikely to have the resources to cover the entire amount of Flint's losses and those of other districts.
He also noted that the district would be entirely liable for the estimated $2.5 million in interest costs that would be owed the company on its refund. The district could not raise taxes to cover this cost, he said, because its tax rate is already at its constitutionally imposed limit.
"That means an immediate $2.5-million depletion in the budget for instructional purposes,'' Mr. Pollack said.
Mr. Linell of the Grand Blanc district added: "The person who gets cheated the most in all of this is the individual homeowner. In one fashion or another, they're the ones who pick up the freight, either in terms of reduced services or higher taxes or both.''
"And of all of those in the system, they're probably the ones who can least afford to go this route,'' he said. "That's our major concern.''