A Refresher on Proposal A and Local Property Taxes
Proposal A changed education finance in Michigan, but it also changed the local property tax system.
This is the second in a series of MSU Extension articles on local property taxes. This first article reviewed the Headlee Amendment, this article provides a review of Proposal A of 1994 and the third will discuss some of the impacts of the Headlee Amendment and Proposal A as well as the ballot proposal option called a Headlee Override.
In March of 1994, Michigan voters approved the Michigan education finance amendment, known as Proposal A. Proposal A was a legislatively referred constitutional amendment that had been approved by the Michigan House of Representatives and Michigan Senate in December 1993, sending the proposal before the voters.
The purpose of Proposal A was to reform Michigan’s educational finance system. Searching for a solution to residents’ frustrations over high property taxes and enormous inequities in funding for local school districts across Michigan, the Legislature put forth Proposal A as a means to amend the Michigan Constitution. Proposal A was designed to overhaul Michigan’s educational finance system and provide property tax.
In the context of local property taxation, Proposal A included two key provisions which will be discussed here:
- Growth on taxable value of individual parcels of property is limited to the lesser of inflation or 5 percent, and
- When property was sold/transferred, taxable value is reset to equal state equalized value, which equals half of the property’s cash value.
The process of adjusting taxable value upward to state equalized value is commonly known as “uncapping.” These “uncapped values” were not included in the definition of exempt property for the purpose of a Headlee Amendment roll back calculation when the legislature amended the General Property Tax Act in 1994. The result of this is that communities with substantial market growth in existing property tax values have been penalized by being forced to roll back their millage rates.
In addition, the implementing legislation passed by the Legislature after Proposal A was approved eliminated what were known as Headlee “roll-ups.” Prior to this legislation, local governments were allowed to “roll-up” their millage rates (only as high as the original millage rate) when growth on existing property value was less than inflation. This was a self-correcting mechanism that allowed local units to naturally recapture tax base that had been lost due to forced Headlee rollbacks in prior years.
This is just a brief glimpse at Proposal A by focusing on changes it made to local property taxes in Michigan. For a more in-depth look at Proposal A, take a look at this analysis from the Michigan Department of Treasury.
This article is part two in a three-part series, for parts one and three, see the links below: