NEIGHBORHOOD ENTERPRISE ZONE EXEMPTIONS

Under the Neighborhood Enterprise Zone Act, new or rehabilitated housing in certain specially designated areas in eligible communities can receive property tax reductions. (See Background Information.) The act requires generally that an application for a tax abatement certificate be filed before a building permit is issued for new or rehabilitated housing. There are several exceptions in the statute to cover special cases. A new special case has arisen.

According to testimony provided to the House Tax Policy Committee, 10 of the homeowners in a 40-home development in Detroit called MorningSide Commons, are faced with considerably higher property taxes than anticipated (and than the other homeowners in the development) because the exemption application for those first 10 homes was not filed in a timely manner by the nonprofit housing corporation sponsoring the development. These homeowners qualified for the homes by being at or below 80 percent of median income and below certain asset caps, and the financing of the homes was predicated on the granting of property tax abatements. Homeowners say that in most cases they would not have qualified for their mortgages without the expectation of the lower tax payments. As a result of this "paperwork" mishap, the homeowners, who describe themselves as "pioneers" in the Detroit redevelopment project, face $200 or more in additional monthly payments. Some of them say they face being forced to sell. Legislation has been introduced to address this problem.

THE CONTENT OF THE BILL:

The bill would amend the Neighborhood Enterprise Zone Act to allow an exception to the requirement that an application for a tax abatement certificate under the act be filed before a building permit is issued. The exception would apply in the case of new housing if the area in which it was located had been designated as a neighborhood enterprise zone in July 1997 and if the building permit had been issued for the housing on February 3, 1998. The bill's provisions would be retroactive to December 31, 1999.

If the enactment of the bill resulted in an overpayment of property taxes, a rebate of taxes (including any interest paid by homeowner) would have to be made by the local unit of government or by the county treasurer, depending on who had possession of the tax roll, within 30 days of a taxpayer's request. The local tax collecting unit would not pay interest on the rebate amount for the period of time it had possession of the property taxes.

MCL 207.774

BACKGROUND INFORMATION:

The Neighborhood Enterprise Zone Act was enacted in 1992 as an effort to improve the housing stock in urban areas where little or no new construction was taking place and much housing was in need of rehabilitation. The act offers reduced property taxes to residential property owners in certain zones designated by local units. Generally speaking, owners of new construction pay taxes at the rate of one-half of the statewide average property tax rate and owners of rehabilitated housing pay taxes based on the value of the property prior to rehabilitation. The abatement applies to structures and not to land. Property owners who obtain a neighborhood enterprise zone certificate are exempt from property taxes and pay a specific tax instead. This is similar to the tax abatement program available for manufacturing facilities under Public Act 198 of 1974. Approval of the local unit and the State Tax Commission is required to obtain a certificate, which is good for 12 years. A new facility must be owner-occupied housing of one or two units, and can include an individual condominium unit. Apartments don't qualify. A rehabilitated facility can consist of up to eight units and must meet certain specified rehabilitation expenditure requirements. Nine cities have established zones under this program, including Detroit. (There are 30 communities eligible to participate at present.)

FISCAL IMPLICATIONS:

The House Fiscal Agency notes that there would be some cost to the local unit of government to the extent that excess property tax revenues would have to be rebated. Once the overpayments were returned to the taxpayers, says the HFA, no additional costs would be incurred. (Fiscal note dated 5-1-01)

ARGUMENTS:

For:

The bill would make it possible for ten homeowners in a neighborhood enterprise zone housing development in Detroit to get the property tax abatements they were promised and anticipated when they moved in during the summer of 1999. Although other homeowners in the 40-home development will receive the tax break under the Neighborhood Enterprise Zone Act, these ten homeowners cannot due to what has been described as a mix-up in the processing of paperwork. The problem only affects the first ten homes occupied. It was always intended that these homes receive the tax abatements, so the exception would be made within the spirit of the law. Similar kinds of exceptions have been made in the past, not only for housing tax abatements but also for manufacturers under Public Act 198 of 1974, when certain procedural mistakes were made.

POSITIONS:

The House Tax Policy Committee received letters of support from the U-SNAP-BAC Non-Profit Housing Corporation and the affected homeowners. (5-2-01)

Analyst: C. Couch

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This analysis was prepared by nonpartisan House staff for use by House members in their deliberations, and does not constitute an official statement of legislative intent.