Michigan Property Tax Proposal Doesn’t Account For Declining Housing Market

The Oakland County Press has an interesting editorial today involving a recently proposed property tax measure. This may be of interest to those who have been struggling to make the Michigan mortgage payments, or are considering taking out a new home loan. See below:

Some Oakland County residents are going to see in their property taxes for 2007 why some aspects of what has become known as Proposal A were not well thought out.

Passed as a tax limitation amendment to the state constitution in 1994, Proposal A limits property tax increases to the rate of inflation or 5 percent, whichever is less, regardless of increases in home values.

The legislation established both a taxable value and an assessment value on a home. The assessed value is half of true cash value, but the taxable value is what is used to determine a homeowner’s taxes.

Over time, for people in Oakland County who have remained in their homes, the gap between the taxable value and assessed value has widened. Because of that, those people will likely see an inflationary increase in property taxes even if their assessed values have gone down.

A home’s assessed value would have to fall below the taxable value for property taxes to decline.

One of the problems with Proposal A is that when it was passed, legislators did not address the situation of a declining Michigan housing market.

So now, while some residents face lower assessments on their homes, the decrease is applied to only the true cash value of the house, not the taxable value, which could be considerably less than the true cash value, but is the figure used to determine a person’s tax liability.

When notices of assessments are sent out to homeowners in February, the county Equalization Division plans to include a pamphlet on Proposal A. Let’s hope it will help explain the situation, but unfortunately, it won’t change it for those currently holding mortgage loans on properties that are now declining in value.

At first, it doesn’t seem fair that while property values in some areas of the county may be dropping, taxes still may go up for those homeowners.

While convoluted and complex, however, Proposal A actually has done what it was meant to do - keep real estate taxes down for people who have lived in their homes for a long time and wish to remain there. Before Proposal A, property values were skyrocketing, and thus taxes were also rapidly increasing.

Many people, particularly those on fixed incomes such as senior citizens, were being forced to move, or consider a reverse mortgage, because they couldn’t afford to pay their taxes.

If you do the math, those who pay higher taxes this year despite a lower overall assessment will most likely still come out ahead if they’ve lived in their home for any length of time.

Meanwhile, be thankful and realize once the economy turns around and assessments again rise, Proposal A should help keep the property tax down and allow residents on fixed incomes to stay in their homes.