Local Government Law Bulletin January 12, 2017 Michael J. Huff

Michigan Legislature Exempts Library Millages from Capture by Most Tax Increment Finance Authorities

In the final days of the “lame duck” session, the Michigan Legislature adopted a package of bills to exempt voter-approved library millages from capture by most tax increment entities. The Senate adopted six separate bills (Senate Bill Nos. 619 through 624) that were previously approved by the House, to amend the Tax Increment Financing Act, Downtown Development Authority Act, Corridor Improvement Authority Act, Local Development Finance Authority Act, Historical Neighborhood Tax Increment Finance Authority Act, and the Water Resource Improvement Tax Increment Finance Authority Act, to exempt from capture library millages adopted by voters after December 31, 2016.

The legislation is expected to be signed by Governor Snyder.

The House did not adopt Senate Bill No. 579, which would have prohibited a brownfield redevelopment authority from capturing library millage after December 31, 2016. As a result, brownfield redevelopment authorities can continue to capture such millages.

As adopted, Senate Bill Nos. 619 through 624 amend the definition of “tax increment revenues” in each of the statutes to exempt a “separate millage for public library purposes approved by the electors after December 31, 2016” from the definition of “tax increment revenues.” The bills further provide that if one of the six tax increment financing entities no longer has any outstanding indebtedness or “other protected obligations,” the entity cannot continue to capture a library millage that was levied before January 1, 2017, unless the library board agrees in a written agreement with the tax increment financing entity to permit the continued capture of the library millage. As a result, if a tax increment financing entity has been capturing library millage and has either paid off the outstanding debt or not issued any debt, the tax increment financing entity is prohibited from capturing the library millage, unless the library board agrees to the continued capture. Authorities that currently capture library millage (other than brownfield redevelopment authorities) will need to revise tax increment revenue projections and plan accordingly, given the enactment of Senate Bill Nos. 619 through 624 and the potential loss of tax increment revenues derived from library millage, or seek to negotiate a tax sharing agreement with the library board for the continued capture of all or a part of such millage.

As in recent years, the 2015-16 Legislative Session featured multiple attempts by the Legislature to enact TIF reform, however, only the library millage exemption legislation was adopted. The Legislature did not adopt two competing packages of legislation considered and adopted by each separate house. Proposed legislation adopted by the house would have consolidated into a single statute, six of Michigan’s existing separate tax increment financing statutes, and imposed greater transparency and reporting rules on tax increment entities. Legislation adopted by the Senate would have similarly imposed greater transparency and reporting rules on tax increment entities and significantly curtailed a tax increment authority’s ability to capture tax increment revenues derived from the levy of new, voter-approved millages.

While the Senate adopted Senate Bill 1026 to consolidate the downtown development authority, tax increment finance authority, local development finance authority, corridor improvement authority, water resource improvement authority, and neighborhood improvement authority statutes into a single “Recodified Tax Increment Finance Authority Act,” the House failed to adopt the bill.

If adopted, the bill would also have repealed the Historic Neighborhood Tax Increment Finance Authority Act, Act 530 of the Public Acts of Michigan of 2004 and the Private Investment Infrastructure Act, Act 250 of the Public Acts of Michigan of 2010, effectively prohibiting the formation of those two types of tax increment authorities by Michigan local governments. The proposed Recodified Tax Increment Finance Authority Act would have imposed new reporting and transparency requirements on the tax increment entities aimed at providing more information on the operation of the authorities to the public. If enacted, an authority would have been required to create or utilize a website to regularly maintain all authority records and documents including authority board meeting minutes; annual budgets, specifying encumbered and unencumbered fund balances; annual audits; currently adopted development and tax increment financing plans; a current listing of authority staff with contact information; a current listing of contracts and other documents related to management of the authority with a description of the contracts and services provided to the authority. Further, an authority would have been required to provide an “updated synopsis” of activities of the authority – including information on the accumulation of tax increment revenues that are not expended within five years of receipt, the reasons for accumulating the funds, the proposed uses for the accumulated funds, and the time frame for the use of those funds. The legislation provided that if any tax increment revenues have not been expended within 10 years of receipt, an authority must disclose the total amount of those funds and a written explanation of why those funds have not been expended.

The TIF reform legislation adopted by the House, but not adopted by the Senate, would have similarly imposed greater transparency and reporting requirements on Michigan’s tax increment finance authority, including brownfield redevelopment authorities, but also would have prohibited tax increment financing entities from capturing tax revenue derived from the levy of new additional millages approved by local voters after December 31, 2016. Under the House package of bills, the prohibition on the capture of tax revenue from newly-approved millages would not apply to millage renewal measures for the renewal of a millage that was previously authorized by local voters before December 31, 2016, and would not apply to ballot measures to restore millages reduced by operation of the Headlee Amendment to the Constitution. Under existing law and with only a few exceptions, if local voters approve a new additional millage, the revenue from that millage is subject to capture by a tax increment financing entity, unless the tax increment financing entity, and the municipality imposing the new additional millage enter into a tax sharing agreement to forgo the capture of that millage by the tax increment financing entity.

The House also failed to concur in Senate-approved legislation to amend the Brownfield Redevelopment Authority Act to permit the establishment of “transformational brownfield redevelopment plans.” Under the Senate legislation, certain communities meeting specified thresholds would be permitted to capture and use sales and use tax revenues to pay eligible costs associated with implementation of a transformational brownfield redevelopment plan. Such a plan would need to provide for a “mixed-use” project that included some combination of retail, office, residential, hotel, recreation, or other functions.

Given that various tax increment financing reform legislation has been adopted in both houses this past legislative session, it is likely that the Legislature will continue to consider and enact similar reform packages in the next legislative session, as well as the “transformational brownfield plan” legislation.

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