If a home loses value in a bad economy or real estate market, is it fair to see its property taxes stay the same, or even increase?

Some state lawmakers say it's not, and they would like to see Michigan voters put changes in place to make sure that if a property's value decreases, its taxes can't be increased. While most homeowners would likely welcome this plan, municipalities oppose it because it could lead to less property tax revenue for them.

Legislation already adopted by the Michigan House of Representatives September 25 would amend Proposal A of the Michigan Constitution to require that if a home's value decreases, its property taxes would be unable to increase. It awaits Senate consideration.

House Joint Resolution III would amend Proposal A in two ways: First, it would mandate that if a property's State Equalized Value (SEV) decreases, its taxable value cannot increase. Second, if a property's SEV increases by an amount that is less than both the current rate of inflation and 5%, its taxable value can only increase by the same amount.

Because of the revenue local governments could potentially lose from decreased property taxes, the Michigan Municipal League and the Michigan Townships Association are both asking state Senators to vote against the amendment.

"Local governments would no longer be able to provide the services - police protection, fire safety, clean water, sewers, etc. - that your constituents have come to expect and need," said Daniel Gilmartin, executive director and CEO of the Michigan Municipal League in an open letter to all state Senators.

Currently under Proposal A, every homeowner's taxable value increases each year either by the rate of inflation or 5%, whichever is lower. Proposal A was enacted to keep property taxes affordable as housing values increase.

Gene Elmer, St. Ignace City assessor, said the state-controlled increase has always been less than 5%, but the 2009 taxable value increase, at 4.4%, will be the highest it's been since Proposal A passed in 1994.

Mr. Elmer said he is in favor of legislation like HJR-III because residents could use some ease for household budgets.

"I'm looking at St. Ignace as a whole and we're bleeding red ink," he said. "I think we need a release."

Dick Oliver, assessor of record for Brevort, Newton, and Portage townships, however, disagrees. He said such legislation would be only a temporary fix.

"I think they need to come up with a better idea," he said. "We don't need a temporary Band-Aid, we need a permanent fix."

Any amendment to the state constitution has to be approved by Michigan voters.

Assessors' offices determine a property's assessed value based on information collected about each property and neighborhood. Mr. Elmer said assessed values - supposedly half of a property's market value - of residential properties in St. Ignace haven't been raised since 2005.

Values assessed by Mr. Oliver have remained steady over the past few years.

Each property - agricultural, commercial, or residential - actually has three separate values: assessed value, set by local assessors; SEV, adjusted assessment value set by the county and approved by the state, and taxable value, which is what property taxes are based on. Improvements made to a home can lead to a spike in its assessed and taxable value. An equation of a property's taxable value, times the local millage rate, determines the taxes to be paid for each property.

Mr. Elmer and his staff is reassessing the 300-plus commercial parcels in St. Ignace. He does not expect their assessed values to rise.

"Commercial will probably be going down," he said.

It is also the case in Mr. Oliver's townships.

Taxable Values Will Continue To Rise to SEV-level;

Local SEVs Could Be

on the Way Down

Taxable values, however, for each parcel will continue to increase until equal to the SEV according to Proposal A, said Mackinac County Equalization Director Jim Fenlon. The Mackinac County 2008 Equalization Report lists the total SEV for the county at about $1.35 billion ($1,344,439,500) and taxable values are $888 million ($887,734,589).

If the state housing market and economy continue spiraling downward, SEVs in the county would start to decrease, Mr. Fenlon said. The surge in housing foreclosures that hit Detroit about two years ago will not hit Mackinac County as hard, if at all, owing to southeast Michigan's dependence on the auto industry, he said.

"We're not experiencing the drop like they are downstate, because the property values here are lower to begin with," Mr. Oliver said.

Of more than 21,000 parcels in Mackinac County, Mr. Fenlon said, as of the first of the year, there are about 40 pending foreclosures. Even if this small percentage of foreclosures increases and assessed values go lower, the language of Proposal A says taxable values for each property will continue to increase until equal to its SEV.

"We're seeing a decrease in [SEVs] based on our studies, more so now than we have been in the past," Mr. Fenlon said. "There's no guarantee how big it will be until everything's finalized, or how long it'll last, but there's more of a potential for a [SEV] decrease this year than there has been."

There is some oversight to assessors' work. Mr. Fenlon's office conducts studies to make sure local assessors are assessing properties adequately, at 50% of their true cash, or market, value.

A property's taxable value can increase if improvements have been made since it was last assessed. Home additions, garage additions, and paving a gravel parking lot are examples of such improvements. For one example, Mr. Elmer said adding on a $10,000 to $12,000 garage will increase a parcel's assessed value about $6,000.

Taxable values also increase when a property changes hands. When sold, a property becomes "uncapped," meaning the taxable value is increased to be equal to the property's SEV.

The assessor's office and county equalization office have records available for public viewing that detail values, improvements, and changes made to each property.

Assessments can be appealed before the Board of Review, which holds open sessions for appeals every March.