The Consequences of Diminishing Property Values

Nearly 50% of East Lansing’s General Fund revenue comes from property taxes, which is typical for Michigan cities. During the Great Recession, between FY2010 and FY2013, East Lansing lost nearly $115 million of taxable value. That’s over 11% of our tax base that simply evaporated! As a result, East Lansing is now collecting roughly $670,000 less annually in property tax revenue than prior to the housing market downturn. Notably, that figure includes two modest increases in the millage rate that were approved in FY11 and FY12 to compensate for the significant taxable value loss and protect essential services. Without those adjustments, the annual loss would be even greater.

Michigan’s municipal finance system is fundamentally broken and badly in need of reform. Question: “Why are Michigan cities facing budget challenges today?” Answer: Because of taxable value loss during the Great Recession and the corresponding reduction in property tax revenue, which is the single largest source of revenue for a city. And because of a decade of short-sighted, discretionary cuts to statutory revenue sharing made by the state legislature. More on that second issue in a future post.

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