‘Business Improvement Zones’ = Property Taxes

‘Business Improvement Zones’ = Property Taxes
February 3, 2014

A Detroit News editorial weighs in with a favorable opinion of a proposed Detroit "Business Improvement Zone" tax, which it denies is a tax and reports will sustain an existing downtown cleanup campaign funded by some property owners.

But it's not hard to see why these so-called "BIZ assessments" are unfair and bad public policy.

Imagine you and six of the other 10 residents in your subdivision own normal three-bedroom ranch homes with assessed market values of around $200,000 each, or $1.4 million combined. The other three subdivision lots are the same size, but on each stands a 7,000-square-foot mansion valued at $700,000 each, or $2.1 million combined. The McMansion group also has some horses, and would like to spend $300,000 to circle the neighborhood with attractive rail fences. They ask you and the other non-horse owners to kick in some money, an invitation you all decline.

Now imagine the McMansion owners go to the state Legislature and get a law passed authorizing an "improvement zone," in which property owners vote for projects (like rail fences) funded by a special assessment.

Property-Weighted Votes

There's a catch, though. Instead of majority rule or even one vote per property owner, the vote of each person in the zone is weighted by the value of his property. The measure passes by $2.1 million to $1.4 million. Although you and the other six ranch house owners voted against paying for the McMansion group’s fence, their three value-weighted votes trumped your seven.

Welcome to the world of "Business Improvement Zones," a policy not (yet) permitted for residential areas but all too real for Michigan businesses, where a few large property owners can force a less propertied majority to pay for amenities the latter may not want or benefit from.

According to The Detroit News, the commercial-property-owning majorities who were outvoted in one of Michigan's "Business Improvement Zones” have no reason to complain, because even though the new levies are authorized under a state law and approved by their city council, they are not a tax hike. They merely are a "private special assessment, with no use of tax dollars."

Can Levy Liens, Penalties

Tell that to the taxman when he slaps a lien on your property for failing to pay your private BIZ assessment, complete with interest, fees, and costs.

"Business Improvement Zones" have existed in Michigan law since 1961. Last year, the current legislature voted to expand the concept by reducing obstacles to creating a zone, increasing the potential penalties for not paying these undemocratic assessments, and more.

Importantly, there is nothing these zones, districts, or authorities can do that a local city council cannot do by itself without them. That means these entities exist for just one purpose: To allow local politicians to tax and spend more in a manner that avoids democratic accountability and transparency.

Jack McHugh (mchugh@mackinac.org) is senior legislative analyst at the Mackinac Center for Public Policy.