Property Tax Bills May Spike Due To School Pension Underfunding

Sales pitch varies for May 2 school tax hike votes, but underfunded pension gorilla lurks behind all

Thousands of Michigan home and property owners may be looking at higher property tax bills after May 2, and one reason is that state officials have failed to adequately fund the school pension system over the past 30 years. The cost of catching up on unfunded pension promises is stressing local school budgets and pressuring officials to seek higher property tax rates.

It may be happening already in one Livingston County school district. Hartland Consolidated Schools is one of many districts across the state asking voters to approve a property tax increase next month, with the school district stating that expenses have outpaced revenue.

The Hartland districts’ annual payments to the state-run retirement system have risen from $2.76 million in 2011 to $7.23 million in 2016. That increase represents $4.47 million per year that is no longer available to pay for textbooks, teacher raises or perhaps local property tax reductions instead of increases.

The language in Hartland’s May 2 ballot measure, called a sinking fund tax, says it would generate about $600,000 a year if approved by voters.

Hartland is getting about $1,100 more per student in total state funding this year than it did in the 2011-12 school year. Its total state revenue comes to $42.5 million, but there’s a catch: Part of the amount, $3.6 million this year, must be sent right back to Lansing to cover the district’s share of past pension underfunding. In 2011-12, the district only had to send back $474,000.

“The impact is that it does not help us at all as the money is an in-and-out flow,” said Hartland Superintendent Chuck Hughes in an email. “It actually hurts us if people in the community think that this is added revenue to the budget.”

Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.