Michigan Use Tax And Community Stabilization Share, Proposal 1 (August 2014)

Proposal 1 Type State statute Origin Michigan Legislature Topic Taxes on the ballot Status Approved a

2014 measures August 5 Proposal 1 a November 4 Proposal 1 d Proposal 2 d Endorsements Expenditures Local measures

The Michigan Use Tax and Community Stabilization Share, Proposal 1 was on the August 5, 2014, ballot in Michigan as a legislatively referred state statute, where it was approved.

The measure activated a package of legislatively approved bills that was designed to do the following:^[1][2]

• Phase out the Personal Property Tax or PPT on industrial and commercial personal property.
• Levy an Essential Services Assessment millage tax on industrial property that is exempted from the PPT.
• Split the State Use Tax into two taxes, a State Share Tax and a Local Community Stabilization Share Tax.
• Create a Local Community Stabilization Authority to administer the Local Community Stabilization Share Tax.
• Replace the revenue local governments would lose without the PPT with revenue from the Local Community Stabilization Share Tax.
• Replace some of the revenue the state government would lose with revenue from the Essential Services Assessment.

Personal Property Tax

Proposal 1 was developed to exempt commercial and industrial personal property from the "Personal Property Tax" (PPT).^[1] The PPT was described as having a “misleading name” and being "an inaccurately named levy" because the tax was not levied on an individual's personal property, as the tax's name would suggest.^[3][4] The PPT on industrial and commercial property acted as an annual business tax levied by municipalities on property that was not part of a structure, such as machinery, equipment, and furniture. Proposal 1 was designed to phase out the tax on all industrial personal property and a portion of commercial personal property by 2023. Businesses with total personal property valued at or below $80,000 were able to file for exemption from the PPT immediately, rather than waiting for the phase out to be completed.^[1][2]

Some municipalities relied heavily on revenue from the PPT for local school districts, community colleges, public libraries, transit authorities, ambulance services, police and firefighters. Proposal 1 was tailored to replace revenue local governments would lose without the PPT with revenue from a portion of the use tax, known as the Local Community Stabilization Share Tax. Revenue lost by the state government due to reallocating some use tax revenue to local governments was replaced, in part, with revenue from the Essential Services Assessment (ESA).

Essential Services Assessment

The proposal levied an ESA on industrial property that became exempted from the PPT. The tax is calculated by multiplying the property's acquisition cost by a millage rate based on how long the taxpayer has owned the property. The millage rates by years of ownership are:^[1]

Years of ownership	Rate
0 - 5 years	2.40 mills
6 - 10 years	1.25 mills
11 or more years	0.90 mills

The ESA allows for exemptions when a company invests $25 million over 5 years in Michigan.

Those exempted from the ESA may be subject to an Alternative State Essential Services Assessment (ASESA), which is half the millage rates established by the ESA:^[1]

Years of ownership	Rate
0 - 5 years	1.20 mills
6 - 10 years	0.625 mills
11 or more years	0.45 mills

All revenue from the ESA and ASESA are dedicated to the Michigan General Fund.^[1]

Local Community Stabilization Share Tax

The Local Community Stabilization Share Tax was created by reorganizing the state's use tax into two taxes - (1) a Local Community Stabilization Share Tax and (2) a State Share Tax.^[5] The use tax is levied on a person purchasing personal property or services on which sales tax has not been paid. Examples include goods purchased from out-of-state, rental properties, lodging and telecommunication services.^[6] The state use tax is levied at a rate of 6 percent and the two share taxes are levied at a combined rate of 6 percent. Therefore, Proposal 1 did not increase taxes.

The local community stabilization share tax rate is determined annually by the Michigan Department of Treasury. The department calculates the rate based on revenue targets. The following are the revenue targets laid out by Proposal 1:^[2]

Fiscal year	Revenue target
2016	$96,100,000
2017	$380,600,000
2018	$410,500,000
2019	$437,700,000
2020	$465,900,000
2021	$491,500,000
2022	$521,300,000
2023	$548,000,000
2024	$561,700,000
2025	$569,800,000
2026	$571,400,000
2027	$572,000,000
2028	$572,600,000
2029	1 percent growth from prior year

State Share Tax

Since the Local Community Stabilization Share Tax and State Share Tax cannot exceed a combined rate of 6 percent, the state share tax rate follows a simple formula:^[2]

	State Share Tax rate = 6 percent - Local Community Stabilization Share Tax rate.

Local Community Stabilization Authority

The State Share Tax is administered by the state, while the Local Community Stabilization Share Tax is administered by a Local Community Stabilization Authority.^[2] The authority receives revenue from the tax and distributes such to local governments. Revenue is distributed for the purposes of funding school districts, fire protection, police officers and emergency services.^[5]

Proposal 1 was forced onto the ballot by Section 31 of Article IX of the Michigan Constitution, which requires voter approval for any new taxes levied by local governments. The Local Community Stabilization Authority, the body that administers the tax, is classified as a "local unit of government."^[2]

Proposal 1 was designed to take effect on January 1, 2015. If defeated, Proposal 1 would have not taken effect, and the related legislation would have been repealed.^[1]

There was no organized opposition to Proposal 1. Nevertheless, proponents expressed concern that the proposal may be defeated anyway due to “the complexity of the issue” and the ballot measure's "virtually incomprehensible" language.^[7][3] Proposal 1 supporters hoped to clear up confusion through a well-funded campaign. Proponents raised $8,498,328, despite having no organized opponents.^[8]

Election results[edit]

The following are the official elections results:

Michigan Proposal 1
Result		Votes	Percentage
a Yes		863,459	69.29%
No		382,770	30.71%

These results are from the Michigan Secretary of State.

Text of measure[edit]

Ballot title[edit]

The ballot measure’s text was based on the effects of Public Act 80. However, Proposal 1 activated a package of statutes, not just Public Act 80.

The official ballot text read as follows:^[5]

“

APPROVAL OR DISAPPROVAL OF AMENDATORY ACT TO REDUCE STATE USE TAX AND REPLACE WITH A LOCAL COMMUNITY STABILIZATION SHARE TO MODERNIZE THE TAX SYSTEM TO HELP SMALL BUSINESSES GROW AND CREATE JOBS The amendatory act adopted by the Legislature would: 1. Reduce the state use tax and replace with a local community stabilization share of the tax for the purpose of modernizing the tax system to help small businesses grow and create jobs in Michigan. 2. Require Local Community Stabilization Authority to provide revenue to local governments dedicated for local purposes, including police safety, fire protection, and ambulance emergency services. 3. Increase portion of state use tax dedicated for aid to local school districts. 4. Prohibit Authority from increasing taxes. 5. Prohibit total use tax rate from exceeding existing constitutional 6% limitation. Should this law be approved? [ ] YES [ ] NO [9]

”

Background[edit]

Bill package[edit]

Proposal 1 was technically Public Act 80 of 2014. However, Proposal 1 activated 10 other statutes, making the proposal much more than just Public Act 80.^[10] None of the statutes would have gone into effect without the approval of Proposal 1 on August 5, 2014. The following is a summary of the statutes enacted by Proposal 1 provided by Anderson Economic Group:^[11]

Passed in 2012:

• Public Act 401 of 2012: All new manufacturing-related personal property is no longer subject to the PPT starting December 31, 2015. PA 401 was later amended by PA 154.
• Public Act 402 of 2012: All commercial and industrial personal property of a single owner valued at less than $40,000 is exempt from the PPT starting December 31, 2013. PA 402 was later amended by PA 153.

Note: Public Act 402 is the only statute already in effect. If Proposal 1 is defeated, Public Act 402 will be reversed.

• Public Act 403 of 2012: All industrial personal property that is ten years old or older is no longer subject to the PPT starting December 31, 2015.

Passed in 2013:

• Public Act 153 of 2013: Amends PA 402 to exempt all commercial and industrial personal property of a single owner valued at less than $80,000 starting December 31, 2013. Also, amends PA 402 to include deadline for application for the exemption and the penalty for a fraudulent claim.
• Public Act 154 of 2013: Amends PA 401 to include deadline for application for the exemption and outline the penalty for a fraudulent claim.

Passed in 2014:

• Public Act 80 of 2014: Creates the Local Community Stabilization Share Tax by dividing the use tax into a local share tax and a state share tax. The tax is to be administered by the Local Community Stabilization Authority (LCSA).
• Public Act 86 of 2014: Creates the Local Community Stabilization Authority (LCSA). Also, PA 86 establishes the formula for reimbursement of municipalities, sets up a prioritized list for reimbursements to local governments and requires the state to appropriate enough funds to make up for debt loss in FY 2015 and FY 2016.
• Public Act 87 of 2014: Makes minor amendments to 2012 acts in order for them to apply to 2014 statutes.
• Public Act 88 of 2014: Gives the LCSA authority over telecommunications right-of-way oversight.
• Public Act 92 of 2014: Creates the Essential Services Assessment (ESA) beginning on January 1, 2016.
• Public Act 93 of 2014: Creates the Alternative State Essential Services Assessment (ASESA) beginning on January 1, 2016.

If Proposal 1 was defeated, the entire PPT phase out would have been halted.^[12]

Revenue from the PPT[edit]

Some municipalities were heavily dependent on revenue from the PPT.^[13] Approximately two-thirds of municipalities, on the other hand, derived less than one percent of their property tax revenue from the PPT on industrial property.^[11] The Detroit Free Press described these communities as "bedroom communities" or commuter towns where people live, but work somewhere else.^[13] The Anderson Economic Group located the top ten municipalities that relied on the PPT on industrial property:^[11]

Use tax history[edit]

The state's use tax is levied on a person purchasing personal property or services on which sales tax has not been paid. Examples include goods purchased from out-of-state, rental properties, lodging and telecommunication services.^[6] It was adopted in 1937 via Public Act 94 at a rate of 3 percent. The use tax rate was increased by law to 4 percent in 1960. In 1994, voters approved Proposal A, a legislatively referred constitutional amendment which increased the use tax rate to 6 percent. The 2 percent increase was put in Section 8 of Article IX of the Michigan Constitution. Therefore, the use tax, unless the constitution is changed, must be at a rate of at least 2 percent. That 2 percent is deposited into the state school fund. Proposal 1 reorganized the use tax into a State Share Tax and a Local Community Stabilization Share Tax.^[2]

The following graph illustrates use tax revenue in Michigan from 1938 through 2012:^[2]

Support[edit]

Citizens for Strong and Safe Communities led the campaign in support of the measure.^[14] The group raised $8,498,328, despite having no organized opposition. One reason the group raised so much money was because of the ballot measure's confusing language. While Proposal 1 was designed to phase out aspects of the PPT, for example, this was no where mentioned in the measure's language.^[8] Deena Bosworth of the Michigan Association of Counties, an organization that supported Proposal 1, said the measure was “complicated – you can’t explain it in 30 seconds. People don’t understand it.”^[15] Laura Berman, a columnist for The Detroit News, similarly noted the measure's complexity, saying, "What do you do when a ballot question requires a week’s worth of study and analysis to understand..."^[16]

Supporters of Proposal 1 contended that the PPT was putting Michigan at a competitive disadvantage and limiting investment since most states in the region don't have a similar tax. They argued that phasing out the PPT would increase big and small business investment and create new jobs in Michigan. They said that Proposal 1's aim was to help local communities who rely on the PPT for essential services because the measure creates new sources of revenue for these communities without raising taxes. Therefore, Proposal 1 was proposed to help businesses and communities flourish.

Supporters[edit]

Officials[edit]

The following legislators sponsored the amendment in the Michigan Legislature:^[5]

Other officials who supported the measure included:

Former officials[edit]

• Former Attorney General Frank Kelley (D)^[25]
• Tom Watkins, former superintendent of public instruction^[26]

Cities[edit]

Organizations[edit]

Chambers of Commerce[edit]

Businesses[edit]

Arguments[edit]

Citizens for Strong and Safe Communities broke down their argument in support of the proposal into a section on "the problem" and a section on "the solution." The following is an excerpt from their analysis of "the problem:"

“	The problem for local communities: Michigan communities have struggled for years to pay for essential services like police, fire, ambulances, schools, roads and jails. Communities also battle for annual legislative appropriations in Lansing to fund other services, including roads and libraries, through revenue sharing. How it's collected: Currently, the personal property tax is collected by local municipalities according to local millage rates. This means businesses with multiple locations in multiple jurisdictions pay multiple personal property tax bills at varying rates. For some smaller municipalities, the cost of assessing and collecting this tax is almost more than they collect. Double-taxing small businesses: For decades, Michigan has unfairly double-taxed small businesses with a business equipment tax – known as the personal property tax – on all equipment. Most neighboring states don’t tax business equipment at all, which makes Michigan much less competitive when it comes to creating jobs and attracting business investment. A tax that never goes away: Each year, equipment is assessed a taxable value and the owner pays a tax based on the local millage rate. In addition to the 6 percent sales tax paid for most items purchased or sold in Michigan, small businesses pay additional personal property taxes on that equipment every single year just for owning it – that tax never goes away, no matter how old the equipment is. An antiquated, obsolete tax: This antiquated, double-tax has been on the books since the 1800s. Other states in our region have eliminated these antiquated taxes or have dramatically lowered rates, making it difficult for Michigan to compete. This tax limits investment: Only businesses, including small businesses, pay personal property taxes on their equipment. Taxes on business capital are considered by economists to limit investment, making Michigan less competitive than other states. Reforming this tax will create jobs and increase investment: Eliminating the Personal Property Tax will create up to 15,000 jobs and $450 million in additional investment. In fact, no other state in our region taxes business equipment the way Michigan does – and no state except one in our region taxes it at all, which puts Michigan at a competitive disadvantage when it comes to job creation and business investment. [9]	”
—Citizens for Strong and Safe Communities [55]

The following is an excerpt from their analysis of "the solution:"

“	Stabilizing Services In Your Community: Proposal 1 creates a stable, reliable funding system for communities in Michigan to pay for police, fire, ambulances, jails, senior services, schools, libraries, roads and other community services. Local Control Guarantees: Proposal 1 comes with two guarantees: 100 percent of the funding for local community services will be returned directly to your community for police, fire, senior services, ambulances, jails, schools, roads, libraries and other community services. No More Playing Politics With Local Communities: 100 percent of this dedicated funding for local community services is no longer subject to the uncertainty and instability of annual legislative appropriations or political gamesmanship in Lansing. Gives small businesses a fighting chance: Proposal 1 ends the unfair double tax on small businesses to give them a fighting chance and help them create more jobs. It keeps in place the legislature’ work to end this unfair double tax on personal property. No tax increase - for anybody!: Proposal 1 doesn’t raise tax rates. Instead, it is paid for by eliminating special corporate tax loopholes that the legislature has already voted to end, and by establishing a statewide Essential Services Assessment that is only paid for by manufacturers that receive a Personal Property Tax reduction. Small businesses are already seeing benefits: Small businesses stopped paying the double tax on personal property effective January 2014. Manufacturing businesses, large and small, will see this antiquated uncompetitive tax phased out over time, beginning in 2016. Proposal 1 will create jobs and boost investment in Michigan: The U.S. Small Business Administration found that nearly two-thirds of net new jobs over the past 15 years were created by small businesses. Personal Property Tax reform will free up money that can be used for job growth. Eliminating the Personal Property Tax will create up to 15,000 jobs and $450 million in additional investment. Proposal 1 creates an environment for economic growth: Finally, Proposal 1 won’t increase taxes. Instead, it will create an environment that attracts employers to Michigan while ensuring important local services are protected with stable funding sources. [9]	”
—Citizens for Strong and Safe Communities [56]

Maureen Krauss, vice president of economic development for business attraction at the Detroit Regional Chamber, said one primary reason that businesses do not move to Michigan is the PPT. She noted, "I hear it in every state the Detroit Regional Chamber travels to: “Get rid of the personal property tax — then let’s talk.” That’s the reaction from potential investors across the country as they consider moving their operations and jobs to Michigan." Krauss continued, saying:

“	A “yes” vote on Proposal 1 is a game-changer. It removes the outdated tax known as the personal property tax and makes Michigan more competitive in attracting jobs and investment. With Michigan’s reinvention well underway, taking that comeback to the next level requires attracting more investment from outside the state. Unfortunately, when businesses consider locating in Michigan, they have to face paying the PPT on equipment they use to do business, every single year, on the very same piece of equipment. So that advanced manufacturing equipment they purchase to produce high-tech automotive parts or medical devices could cost them the same tax, year after year, for decades. That’s not exactly a welcome mat. The PPT also impacts businesses and communities across Michigan. Businesses here pay that cost, putting them at a tremendous disadvantage when their competitors in neighboring states don’t have to. That’s money that could be used to expand and create jobs. At the same time, Michigan’s local communities have struggled for years with the unpredictable revenue fluctuations the PPT produces. [9]	”
—Maureen Krauss [57]

Sen. Gretchen Whitmer, who originally voted against the bill in the Michigan Senate, came out in support of the measure following analyses of the proposal:

“	Unfortunately, I didn’t have the assurances I needed to answer those questions as the legislation was hurried through without the opportunity for any real debate, leading me to be one of only two senators to vote against it at the time. Since then, however, the analyses done by local government officials and fiscal agencies have answered my questions and addressed my concerns. Now that I have those assurances, I’m confident Proposal 1 is right for Michigan. Michigan communities will be reimbursed for 100 percent of the estimated PPT revenue lost for local services. Essential local services such as police, fire and ambulances, along with schools, libraries, roads and jails, will receive the same level of funding that the PPT provided. Proposal 1 is paid for entirely by eliminating some of the billions of dollars in corporate tax breaks the state hands out and by a statewide Essential Services Assessment paid only by manufacturers receiving a PPT reduction. The resulting revenue stream for local services will be much more reliable than the PPT, which has been notoriously unstable. I am confident Proposal 1 is good for local communities and good for local businesses. [9]	”
—Sen. Gretchen Whitmer [58]

Tom Watkins, who served as the Michigan Superintendent of Public Instruction from 2001 to 2005, deemed Proposal 1 a “win-win-win.” He listed several reasons to support the ballot measure:

“	The current PPT is a drag on small business. By eliminating it, we incentivize companies to invest in spiffing up their businesses, buying new equipment and creating more jobs. Our neighboring states do not have a similar tax; currently, it is actually a dis-incentive to attract new business to Pure Michigan. Eliminating this tax will help Michigan’s effort to recruit new businesses by eliminating a reason for businesses to flee the state. This positively impacts Michigan’s business climate without touching your personal taxes. Proposal 1 does NOT increase taxes for you or for businesses. The proposal creates a more stable funding system for communities by eliminating special corporate tax breaks and re-dedicating existing tax dollars to local governments via reimbursement of lost revenues. Proposal 1 guarantees the reimbursement of 100 percent of any lost revenues for local services including police, fire, ambulances, schools, libraries, jails and other local services. Supporting Proposal 1 helps with Michigan’s fragile turnaround. [9]	”
—Tom Watkins [26]

Other arguments in favor of the proposal include:

• Speaker of the House Jase Bolger (R-63) said, “We are getting rid of a job-killing tax and replacing it with a job-creating solution. For years, our state lost out on jobs to neighboring states that do not punish their employers for investing in new equipment. Well, today those states no longer have that advantage and will have a front-row seat to watch as Michigan attracts new and better careers.”^[18]
• Sen. Rebekah Warren (D-18) stated, "We finally got it right. You will see, I think, a lot of broad bipartisan support. We can both modernize our tax structure and make sure our local communities have a stable revenue stream long into the future."^[24]
• Macomb County Executive Mark Hackel (D) concluded, "A yes vote for Proposal 1 solves two major problems for Michigan and Macomb County without raising taxes. Proposal 1 replaces 100 percent of the estimated revenues lost by eliminating the Personal Property Tax for important services like police, fire, schools, ambulances, roads, jails and libraries. Second, a yes vote on Proposal 1 supports local small businesses and manufacturers by reforming the uncompetitive Personal Property Tax."^[19]
• Amy Clickner, CEO of Lake Superior Community Partnership, said, “As an economic development organization, we see the value in eliminating the cumbersome tax and believe it will be especially positive for small business. However, we were not willing to support the tax elimination if it meant a negative financial impact to our local municipalities, which has been corrected in the passed legislation.”^[51]
• A Pittsfield Township business owner, who remained unidentified, stated, "I paid about $200 for the computers I have and not much more for the furniture. But the assessed value was about $4,000. I pay about $100 a year (in PPT)."^[59]

Campaign contributions[edit]

Total campaign cash as of July 28, 2014
Support:	$8,498,328
Opposition:	$0

Citizens for Strong and Safe Communities committee received $8,498,328 in contributions.^[43]

PAC info:

PAC	Amount raised	Amount spent
Citizens for Strong and Safe Communities	$8,498,328	$6,946,209
Total	$8,498,328	$6,946,209

The following is a list of those who contributed $30,000 or more to Citizens for Strong and Safe Communities:^[43]
Top contributors:

Donor	Amount
Michigan Manufacturers Association	$2,831,384
Ford Motor Company	$2,000,000
Dow Chemical	$1,500,000
General Motors Corp.	$501,031
Dow Corning	$500,000
Alticor Inc.	$250,000
Chrysler Corp.	$250,000
Kellogg Corp.	$200,000
Consumers Energy Company	$50,000
DTE Energy Co.	$50,000
John Kennedy III	$50,000
Haworth Inc.	$50,000
Lear Corporation	$50,000
Herman Miller	$50,000
Michigan Chamber of Commerce	$30,000
Masco Corp.	$30,000

Opposition[edit]

Proposal 1 faced no organized opposition.^[7] However, there were a few individuals, such as Warren Mayor James R. Fouts (I), who opposed the proposal.^[60] James Hohman of the Mackinac Center for Public Policy said many of the question he received from people opposed to the proposal were Tea Party members. He found this strange, saying, "This proposal cuts taxes and pays for it from the state budget. It is a little strange that the main opposition seems to be some Tea Party supporters."^[61]

Opponents argued that Proposal 1's primary problem was a lack of adequate replacement revenue. Timothy J. Bartik, economist at the Upjohn Institute for Employment Research, said that "if Proposal 1 passes, the state’s budget situation will deteriorate and services are likely to suffer." Mayor Fouts agreed, calling Proposal 1 a "large corporate giveaway that will result in service cutbacks and employee lay-offs by cities like Warren." Some opponents said the arguments that businesses aren't investing in Michigan due to the PPT were reductionist. Businesses make investment decisions based on other factors, such as qualified workers, excellent transportation infrastructure and desirable neighborhoods, not just the PPT.^[62][60]

Opponents[edit]

Officials[edit]

The following legislators voted against putting the proposal on the ballot in the Michigan Legislature:^[63]

Note: Sen. Whitmer opposed the bill in the legislature, but came out in support of the proposal in July 2014.^[19]

Other officials who opposed the measure included:

• Warren Mayor James R. Fouts (I)^[60]
• Oakland County Treasurer Andrew Meisner (D)^[16]

Organizations[edit]

• Wayne County Taxpayer Association^[64]

Individuals[edit]

• Chris Savage, owner of the "progressive" Eclectablog^[65]

Arguments[edit]

James R. Fouts (I), Mayor of Warren, called the ballot measure a "large corporate giveaway." He criticized the argument that phasing out the PPT would create jobs. The following is an excerpt from his argument:

“	As the mayor of Warren, the state’s third-largest city in population, I oppose Proposal 1 because it is unfair and burdensome to cities like Warren… The argument claiming that personal property tax increases the overhead for the municipality and is a bureaucratic nightmare is not valid either. In fact, this proposal increases the paperwork, monitoring, verifying and reporting of both exempt and nonexempt personal property for the municipality. It should be left up to the local jurisdiction to determine whether it can afford to exempt personal property for a manufacturer. A jurisdiction already has the right to exempt personal property to industries on a per parcel basis. Proposal 1 takes that local control away. It has been our experience that businesses choose to locate and invest in communities for a variety of reasons, only one of which is low taxes. Qualified workers, excellent transportation, reliable infrastructure, dependable public services, quality schools and desirable neighborhoods are all important ingredients. I view Proposal 1 on the August ballot as another large corporate giveaway that will result in service cutbacks and employee lay-offs by cities like Warren. So much for the argument that the proposal will create new jobs. This is a very confusing propaganda proposal, primarily benefiting industrial manufactures. For that reason, I call it a hoax on taxpayers and urge voters to vote against Proposal 1. [9]	”
—Mayor James R. Fouts (I) [60]

Timothy J. Bartik, senior economist at the Upjohn Institute for Employment Research, offered critical commentary of Proposal 1. Bartik said the proposal may exacerbate the state's budget issues:

“	The main problem with Proposal 1 is the lack of adequate replacement revenue. The $600 million in funds for local governments are provided in part by a new, smaller statewide tax on business personal property, which would eventually provide about $100 million annually. The remaining $500 million that would eventually be needed for local governments is not financed by new revenue, but rather would be diverted from the state’s general fund, which supports health care programs, the criminal justice system, higher education, and human services programs. Some Proposal 1 proponents argue that the remaining $500 million is financed by expiring business tax credits. However, these expiring business tax credits were already scheduled to expire, and should not be counted as “new revenue”. Michigan faces a long-run budget problem. The state’s tax revenue grows slower than the state economy, while spending pressures grow faster than the state economy. Proposal 1 worsens this problem by about $500 million per year. This loss in revenue could reduce state services, which could worsen the state’s economic competitiveness, even with lower personal property taxes. Voters face this choice: if Proposal 1 passes, the state’s budget situation will deteriorate and services are likely to suffer. If Proposal 1 is voted down, it is possible that the state legislature will re-enact personal property tax elimination without replacement revenue for local governments… Regardless of what happens to Proposal 1, Michigan faces significant long-run budget challenges. The news media, outside public interest groups, and state policymakers need to focus more on the long-term budget issues facing the state, and possible tax and budget reforms to deal with these issues. We can’t keep kicking the can down the (pothole-strewn) road. [9]	”
—Timothy J. Bartik [62]

Chris Savage, owner of the "progressive" Eclectablog, said he voted no on Proposal 1 and offered a critique of the measure. The following is an excerpt from his critique:

“	At the end of the day, voters need to decide (a) if the shift in tax revenues to give businesses – small businesses and large corporations alike – a(nother) tax break is a smart move that will improve our state business climate and (b) if the state legislature can be trusted not to change things at a later date in a way that harms local municipalities. Given their track record with things like reneging state revenue sharing – tax revenues that are returned to local communities – many are concerned that they can NOT be trusted. How that would play out is largely dependent on who we elect to the state legislature in the future... As I have said, I am voting NO on Proposal 1. If lawmakers want to get rid of the PPT, that’s fine. But to do so requires a much more comprehensive tax reform plan than this haphazard one. And, at the end of the day, businesses in Michigan are already enjoying massive tax breaks thanks to Republicans in charge of our government and we’ve seen very little to show for it. In fact, we still have the third highest unemployment rate in the USA. It’s hard to see how even more tax breaks are going to have a discernible impact. [9]	”
—Chris Savage [65]

Other arguments against the ballot measure include:

• Andrew Meisner (D), treasurer of Oakland County, argued that Proposal 1's suggested benefits were based on a theory and not evidence. He stated, "I’d like to see the data. Local governments are being asked to make a sacrifice based on an unproven theory."^[16]
• The Wayne County Taxpayer Association said the association opposed the PPT, but also rejected the Local Community Stabilization Authority. The organization argued, "This Authority would be granted an enormous responsibility. That cannot be good for taxpayers. The line in the proposal that limits the used/sales tax [sic] to 6% does not address the expansion of the sales tax to, for example, internet purchases or fines or penalties for failure to comply. It does not address other things that they may choose to include as taxable by the sales tax which they seem to think they have the authority to adjust."^[64]

Media editorial positions[edit]

See also: Endorsements of Michigan ballot measures, 2014

Support[edit]

• Crain's Detroit Business said, "The PPT has been unpopular for a long time. Businesses don't like it because it's hard to figure out and it's not charged by most nearby states. Local governments haven't liked it because the assessments are constantly under appeal by businesses. The current proposal addresses the concerns of both businesses and municipalities and doesn't raise anyone's taxes."^[66]
• Detroit Free Press said, "Ultimately, if voters don’t approve Prop 1, the personal property tax will go back into effect, along with the bureaucratic mess it causes businesses and cities... We haven’t always agreed with [Gov. Snyder's] decisions, but on this one, we’re all in. Municipalities need steady funding; both businesses and municipalities need less overhead in the taxation process. Take the time to read the ballot language, and information about the tax replacement, and vote yes on Aug. 5."^[67]
• The Detroit News said, "Everybody wins if Prop 1 passes. Voters should not get caught up in the awkwardly worded language of the proposal, nor in suspicions that it’s a backdoor business tax break. It isn’t."^[68]
• Escanaba Daily Press said, "A proposal that helps Michigan businesses without hurting local governments and schools is a good deal for everyone, including homeowners."^[69]
• Gannett Company, owner of Observer & Eccentric, Battle Creek Enquirer, Port Huron Times Herald and Livingston Daily, said, "A proposal that helps Michigan businesses without hurting local governments and schools is a good deal for everyone, including homeowners. That’s why voters should support Proposal 1 during the Aug. 5 state primary."^[70][71]
• The Herald-Palladium said, "There really isn't much to dislike about the proposal, other than the cockeyed ballot language. We hope voters educate themselves about the proposal and understand its benefits. A "yes" vote really would help move Michigan forward."^[72]
• Holland Sentinel said, "Proposal 1 may sound like a technical, inside-government issue, but it’s important to everyone in Michigan. It is a rare and gratifying example of legislators addressing a real problem and working together to fix it."^[73]
• Huron Daily Tribune said, "Unlike many prior state proposals, there is no measured opposition to this proposal. That’s because it’s a win for businesses and a win for Michigan."^[74]
• Lansing State Journal said, "It is a rare occurrence in Michigan when a reform effort wins broad support from a coalition that draws large and small business, labor, government, Democrats and Republicans. Yet that’s what has happened with Proposal 1, a statewide question that will appear on the Aug. 5 primary ballot."^[75]
• The Michigan Daily said, "Prop. 1 includes an effective method to regain tax money. Allowing arbitrary and outdated business tax to expire is a commendable initiative."^[76]
• Midland Daily News said, "Everyone under the sun is saying that citizens should vote yes on Proposal 1, which would eliminate the state personal property tax, described by Lt. Gov. Brian Calley when he was in town last week as antiquated, outdated, burdensome and anti-investment. Yes, it is all those things."^[77]
• MLive Media Group said, "The fact that there is no organized opposition to the proposal is rare and telling. In fact, the greatest threat to the proposal is voter skepticism and mistrust of government. We think skepticism is healthy, but we also believe this is the best solution available right now."^[78]
• Petoskey News-Review said, "With no tax increases included, we see this as a fairness issue that makes perfect sense. Government officials and economic leaders in Northern Michigan say they are working hard to attract good jobs to the region. How can we expect them to succeed if they’re saddled with this personal property tax disadvantage?"^[79]
• Toledo Blade said, "Virtually everyone in public life has endorsed Proposal 1, from liberals to conservatives, from the AARP to various chambers of commerce."^[80]
• WXYZ 7 said, "It would help create jobs, grow small businesses, and provide dedicated revenue to local police, fire, EMS and school districts."^[81]

Polls[edit]

See also: Polls, 2014 ballot measures

In July 2014, Denno Research, on behalf of Public Sector Consultants, conducted a survey on the views of those likely to vote in the general election, but not necessarily the primary election. They asked the following question regarding Proposal 1:^[82]

“

This August, Proposal 1 asks whether Michigan should create a local community stabilization fund with proceeds from the state’s Use Tax. This move is part of a package of legislation aimed at repealing the Personal Property Tax, which is paid by businesses on equipment such as office furniture and machine tools. Based on what you know now, how likely are you to vote “yes” on Proposal 1?[9]

”

Conducted one month before the August 5 vote on Proposal 1, 42.2 percent of voters were still undecided or felt neutral about the proposal.

Michigan Proposal 1 (2014)
Poll	Support	Oppose	Undecided or Neutral	Margin of error	Sample size
Denno Research 7/9/2014 - 7/9/2014	30.8%	27.0%	42.2%	+/-4	600
Note: The polls above may not reflect all polls that have been conducted in this race. Those displayed are a random sampling chosen by Ballotpedia staff. If you would like to nominate another poll for inclusion in the table, send an email to editor@ballotpedia.org.

Reports and analyses[edit]

Anderson Economic Group[edit]

Anderson Economic Group (AEG), commissioned by the Small Business Association of Michigan, developed fiscal and economic projections based on the approval of Proposal 1. AEG concluded that the proposal would have a “significant effect” on the state’s economy. The organization broke down their conclusion into five parts:^[11]

1. Motivation for Personal Property Tax Reform: The PPT raises the costs of locating business equipment in the state, thus influencing where businesses locate their factory sites. Also, the tax is “cumbersome to comply with,” since businesses are essentially required to inventory and assess the value of their property, including objects like furniture. Proposal 1 would “sharply reduce” the PPT burden for small businesses immediately. Proposal 1 would increase Michigan’s competitive advantage with Illinois and Indiana.

2. Economic Effects of Proposal 1: Once Proposal 1 is fully phased in by 2025, $203 to $474 million in additional business investment would likely occur, translating to 5,000 to 11,700 new private-sector jobs.

3. Local and State Revenue Changes: Local governments are the primary recipients of revenue from the PPT. By 2017, local governments would be fully reimbursed from new sources of revenue. The state government, however, would lose $407 million by 2020. The legislature has allowed a number of tax credits to expire. The tex credits are estimated to total $526 million in 2013. Furthermore, increased investment by businesses would generate between $40 million and $94 million in state tax revenue.

4. Constitutionality and Taxing Authority: AEG determined that Proposal 1 is within statutory and constitutional tax limits.

5. Additional Policy Considerations: Whether or not the Local Community Stabilization Share Tax is a "local" tax or a "new" tax is debatable. Similarly, the Local Community Stabilization Authority is deemed a "local" authority, but has statewide geographic boundaries. This may invite “future abuses of constitutional separation of powers, tax limitations, and powers of local governments.”

You can read the study here.

Lawsuits[edit]

See also: List of ballot measure lawsuits in 2014

2014 measure lawsuits
By state
Alaska • Arkansas • California Illinois • Michigan • Missouri Montana • Nebraska • New York
By lawsuit type
Ballot text Campaign contributions Constitutionality Motivation of sponsors Petitioner residency Post-certification removal Single-subject rule Signature challenges Initiative process

Fouts lawsuit[edit]

Warren Mayor Jim Fouts (I) filed a lawsuit against Proposal 1 on August 8, 2014, three days after the proposal was approved by voters. Fouts said he would use his own money to overturn the measure. He claimed the ballot language was "blatantly unlawful and fraudulent," "confusing," "one-sided" and "prejudiced."^[83] According to Fouts, Proposal 1 proponents used a "sales pitch" to garner votes. He took issue with phrases like, "helping small business grow and create jobs,” “modernize the tax system,” “police safety, fire protection and ambulance emergency services” and “aid to local school districts.” He said the proposal itself used positive phrases, rather than negative phrases, such as, "tax cuts for large manufacturers."^[84] He continued, "I am defending the taxpayers from being hoodwinked. I think the overall, larger issue here is to protect the honesty and integrity of the ballot process by not allowing misleading or confusing language."^[83]

Kelly Rossman-McKinney, a spokesperson for Citizens for Strong and Safe Communities, replied, "I would say the mayor has the prerogative to take any action he feels is appropriate, but the majority of his own constituents did vote in favor of Proposal 1 on Tuesday."^[83]

Mayor Fouts, in return, argued voters did not understand Proposal 1. He said, "[Voters] thought they were voting for police and fire. They did not know they were voting for a new tier of government. They did not know they were voting for a new tax. They did not know they were voting to take money away from their local government."^[83]

On December 11, 2014, Judge Deborah Servitto of the Michigan Second District Court of Appeals tossed out the lawsuit, arguing:

“	Plaintiff takes issue with the proposal’s references to business growth, job creation and support for public safety and for school districts. However, this Court concludes that these references do not create prejudice and are not defects that would (be) likely to mislead the voters such that the outcome of the election should be nullified.[9]	”
—Judge Deborah Servitto[85]

Path to the ballot[edit]

See also: Legislatively-referred state statutes in Michigan

A simple legislative majority was needed to refer the statute to the ballot. SB 822 was approved by the Michigan House of Representatives on March 25, 2014. The bill was approved by the Michigan Senate on March 27, 2014. The act was signed by the governor on March 28, 2014. SB 822 was enrolled as Public Act 80.^[63]

See also[edit]

• 2014 ballot measures
• Michigan 2014 ballot measures
• Michigan Legislature

External links[edit]

Basic information[edit]

• Senate Bill No. 822
• Summary of Use Tax by Michigan Department of Tresury
• Senate Fiscal Committee's Overview of Proposal 1
• Citizens Research Council of Michigan, "Outline of the Michigan Tax System," April 2014

Support[edit]

• Citizens for Strong & Safe Communities
• Citizens for Strong & Safe Communities Facebook
• Citizens for Strong & Safe Communities Twitter
• Citizens for Strong & Safe Communities Youtube

Additional reading[edit]

Footnotes[edit]

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