REVENUE SHARING PAYMENTS H.B. 5253 (H-1): FLOOR ANALYSIS
House Bill 5253 (Substitute H-1 as reported without amendment)
Sponsor: Representative Daniel Acciavatti
House Committee: Appropriations
Senate Committee: Appropriations
CONTENT
The bill would amend the Glenn Steil State Revenue Sharing Act to alter the distribution of revenue sharing payments in fiscal year (FY) 2005-06, relative to how the distribution will change under current law.
Local units receive a portion of sales tax revenue collected by the State. A portion of the revenue is distributed according to constitutional requirements and the rest is distributed according to statute. Statutory revenue sharing payments are subject to appropriation. Beginning in 2002, changes have been made in the statutory distribution of payments to accompany reductions in the appropriation for revenue sharing.
The bill would enact the Governor's FY 2005-06 recommendation to alter the distribution of revenue sharing payments to cities, villages, and townships. Under the recommendation, in FY 2005-06 each city, village, and township would receive the same combined total of statutory and constitutional revenue sharing payments that the local unit received during FY 2004-05. The bill also would provide for adjustments to the way payments are calculated should sales tax collections fall below the forecasted levels the appropriation is based upon. The adjustments would not increase or reduce the appropriation for statutory revenue sharing payments.
MCL 141.913
FISCAL IMPACT
The bill would have no effect on State expenditures or total local unit revenue in FY 2005-06, although the distribution of local unit revenue would be changed.
Under current law, local units receive sharing payments under both constitutional requirements and statutory provisions. Current law specifies that the City of Detroit is to receive $333.9 million in total revenue sharing payments during FY 2005-06, and a formula based on population factors and taxable value factors determines the distribution of payments to cities, villages, and townships. The bill would change the distribution of revenue sharing payments in FY 2005-06 relative to current law and limit the change in total revenue sharing payments to each city, village, and township to the same percentage change as applied to every other local unit. Under the bill, in FY 2005-06 each city, village, and township would receive the same combined total of statutory and constitutional revenue sharing payments that the local unit received during FY 2004-05. As a result, the City of Detroit would experience no change in revenue sharing payments, compared with a 17.5%
increase under current law. Similarly, most other cities and villages, and a number of townships would experience no change in total revenue sharing payments, compared with potentially significant positive or negative changes under current law.
By attempting to limit the percentage change in total revenue sharing payments to the same level for all local units, the bill would eliminate statutory payments for some local units. Some local units received so little in statutory payments during the previous fiscal year that the increase in their constitutional payments in the current fiscal year exceeds the prior-year statutory payment. In these circumstances, the bill would result in the local units' receiving all of the increase in their constitutional payment but no statutory payment. As a result, because of the relative sizes of the changes in the constitutional and statutory portions of their payments, the local units would receive an increase from the prior year, despite the bill's limiting total revenue sharing for each local unit to the total payment received in the prior fiscal year. In FY 2004-05, provisions similar to this bill eliminated the statutory payment to 517 local units; as a result of the bill, an estimated 847 local units would not receive a statutory payment during FY 2005-06. For those 847 local units, the increase in payments compared with FY 2004-05 would vary from 0% to 3.6%.
The bill also specifies how adjustments would be made if sales tax revenue is below forecasted levels in FY 2005-06. Cities, villages, and townships receive 15% of sales taxes collected at a 4% rate under the Michigan Constitution. Because the bill would set a city's, village's, or township's combined constitutional and statutory revenue payments at a fixed total, if revenue is less than forecasted, more money would be required in statutory payments to reach the same total. As a result, without an adjustment mechanism to lower the required payment if sales taxes are below the level upon which the appropriation is based, the proposed statutory payments would exceed the amount appropriated. However, current law requires that statutory payments not exceed the amount appropriated. The bill thus would establish a distributional mechanism to accomplish any reduction necessary to ensure that statutory payments did not exceed the appropriation.
Date Completed: 10-20-05 Fiscal Analyst: David Zin
Analysis was prepared by nonpartisan Senate staff for use by the Senate in its deliberations and does not constitute an official statement of legislative intent. hb5253/0506