CHICAGO — Gov. Rick Snyder is pushing a measure to eliminate or trim Michigan’s personal property tax, which could pressure localities that rely on the money for operating costs and debt repayment, according to the Senate Fiscal Agency and local government proponents.

Personal property tax is applied to equipment and machinery owned by commercial, industrial and utility businesses. It is distinct from the real property tax, which applies to land and generates most property tax revenue.

The personal property tax generated $1.3 billion in fiscal 2010, according to the agency. Of that, $180 million was used for debt payments, mostly by school districts

SB 34 and 142 would either eliminate the tax or decrease the number of businesses that must pay it. The Snyder administration is expected to unveil its own legislation targeting the tax this month.

Ten states currently exempt personal property from taxes. In Michigan, all local government units receive personal property tax revenue, as does the state and tax increment financing districts.

The impact of the tax varies widely. Some cities, like Ecorse, which is already under emergency financial management, rely heavily on the levy for both general fund and debt payments.

Local government proponents like the Michigan Municipal League are pushing for legislation to have a revenue-replacement provision to limit the blow.

For holders of unlimited-tax general obligation bonds, the effect will likely be minimal, since localities will raise millage rates to meet debt service payments.

If the personal property tax is eliminated, it will mean an increase in the real property tax rate, which will shift the burden to homeowners from businesses, according to David Zin, the Senate Fiscal Agency’s chief economist, who released a paper, “The State and Local Impact of Property Taxes Levied on Michigan Personal Property,” last week.

“This will be an issue for a household, which right now is just thinking this is a debate about Michigan businesses taxes,” Zin said. Politically, “the local unit will take the heat for it,” he added.

For limited-tax bonds, local units will be forced to dip into their general funds.

Personal property taxes in 2010 accounted for 41% of the property tax revenue that Ecorse uses to pay debt, the report said.

River Rouge’s personal property taxes make up 57% of property taxes levied to pay debt.

“In terms of the impact on local governments, we’ve got some where it’s unclear how they will ever absorb it,” Zin said.

Smaller, rural localities generally rely less on personal property taxes than larger urban areas, unless there is a power plant or large manufacturer nearby, Zin said.

Some legislators want to copy Ohio, which vowed to hold local governments harmless when it ends the tax. But after years of gutting local revenue, it will be a tough sell, Zin said. “It will be hard for the state to have a credible promise that we’ll make it up to you,” he said.

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