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Michigan State Revenue Sharing

The State Revenue Sharing program distributes sales tax collected by the State of Michigan to local governments as unrestricted revenues. The distribution of funds is authorized by the State Revenue Sharing Act, Public Act 140 of 1971, as amended (MCL 141.901).

FUNDING

Funding for the State Revenue Sharing program consists of the following dedicated tax revenues:

  • Constitutional - 15% of the 4% gross collections of the state sales tax;

  • Statutory - 21.3% of the 4% gross collections of the state sales.

In addition, the act authorizes the appropriation and distribution of state General Fund-General Purpose revenues when local governments qualify for certain supplemental payments.

DISTRIBUTIONS TO CITIES, VILLAGES, AND TOWNSHIPS

Sales tax revenues are distributed to municipalities each February, April, June, August, October and December based on statewide tax collections for the two-month period ending the preceding December 31, February 28, April 30, June 30, August 31 and October 31. Constitutional sales is distributed on a per capita basis. Starting with State fiscal year 1999, statutory sales tax is distributed according to four formulae:

Percent Share of FY 98
Taxable Value Per Capita
Population Unit Type
Yield Equalization

Percent share of FY 98 is part of the phase-out of the old formula payments. For FY 02, 60% of the distributions are paid using this formula and phase out occurs in increments of ten percentage points each year. Each City, Village and Township's FY 98 statutory payments (RTE, Per Capita, and Inventory Reimbursement) are divided by the FY 98 Statewide Total Distributed to determine their Percent Share Factor. In each bimonthly distribution,

The Per Capita Taxable Value formula compares the statewide average taxable value per capita to the taxable value per capita for the individual unit. Taxable value per capita is used because it is viewed as a gauge of a community's ability to raise revenue, and is seen as a measure of wealth. A unit with taxable value per capita below the state average receives a weight > than 1 and a unit above the state average receives a weight < than 1.The payment is computed by

The Population Unit Type formula uses a weight factor according to its population and unit type (city, village, or township). Each unit receives an amount equal to its population times the weight factor times the statewide distribution amount. A township that "makes available fire, police on a 24-hour basis either through contracting for or directly employing personnel, AND water to 50% of its residents AND sewer services to 50% of its residents" AND has a population of 10,000 receive a city's weight factors. Presumably, the more complex the local unit of government (city more complex than village more than township), the higher its needs the more services it provides, on average. The Weight Factors are as follows:

Population

Cities Weight Villages Weight
5,000 or less 2.50 Less than 5,000 1.50
More than 5,000 but less than 10,001 3.00 More than 5,000 but less than 10,001 1.80
More than 10,000 but less than 20,001 3.60 More than 10,000 2.16
More than 20,000 but less than 40,001 4.32    
More than 40,000 but less than 80,001 5.18  Townships  
More than 80,000 but less than 160,001 6.22 5,000 or less 1.00
More than 160,000 but less than 320,001 7.46 More than 5,000 but less than 10,001 1.20
More than 320,000 but less than 640,001 8.96 More than 10,000 but less than 20,001 1.44
More than 640,000 10.75 More than 20,000 but less than 40,001 1.73
More than 40,000 but less than 80,001 2.07
More than 80,000 2.49

Population is an indicator of service needs, the level of service to be provided being proportional to the number of people served. For purposes of state revenue sharing, the population of a municipality is determined by the most recent federal decennial census, and is adjusted by subtracting 50% of the number of patients, wards and convicts confined to public tax-supported institutions in that locality. The payment is computed by multiplying the Population Factor of each local unit times the unit's population times the distribution rate.

The Yield Equalization formula purpose is to offset variances in taxable property wealth among local units. The concept of the yield equalization payment guarantees that the total local and state proceeds from each equivalent mill of local tax effort will yield at least a minimum amount. Under this formula, a community receives revenue sharing according to:

  • The amount that its local property value per capita is below the guaranteed tax base, and

  • The amount of local revenue it manages to collect for itself.

The lower a community's taxable value per capita, the more likely it will be below the guaranteed tax base and the times the local units population of 8,919 divided by 3 giving a payment of $181,928.

The local tax effort is equal to total local taxes (general ad valorem property tax; income tax; excise tax; and since July 1987, certain special assessments) divided by its taxable value of property in the municipality. The local tax effort rate, and the taxable value per capita are computed annually in May based on information from the Assessing Officer's Report, and a supplemental special assessment report filed each December with the State Tax Commission. The guaranteed tax base cannot be computed until August of the following year, when the total amount available for revenue sharing distribution is known. State revenue sharing formula payments October 2001 through August 2002 are based on calendar year 2000 tax rates.

8 Percent Cap Payment – The Revenue Sharing Act stipulates that the total revenue sharing payment to any city, village, or township (CVT) cannot increase by more than eight percent of the total payment received in the preceding fiscal year. If a CVT’s population increase between the 1990 and the 2000 decennial census is at least 10 percent, then the eight percent cap does not apply. Local units that are subject to the eight percent cap will have funds in excess of the cap redistributed to those CVTs that realized the smallest percentage of gain (or largest loss) to provide a floor, in their total revenue sharing payments. The floor, which varies from year-to-year, is determined by the total appropriation and the amount of revenue sharing payments in excess of the eight percent cap that was available for distribution.

In state fiscal year 2001, $4.7 million was available to be redistributed and the floor percentage was -.0253 percent. This means each CVT received no more than a .0253 percent decrease in revenue sharing

DISTRIBUTIONS TO COUNTIES

Under the State Revenue Sharing Act, counties receive revenue generated by the sales tax. Of the total amount of sales tax available for distribution to local governments, counties receive 25.06% of the 21.3%. Payments are apportioned among the 83 counties on a per capita basis, and are distributed each February, April, June, August, October, and December.

SUPPLEMENTAL DISTRIBUTIONS

Special Census

A city, village, or township with a minimum 10% population growth confirmed by a special census, and levying at least one mill, is eligible for an annual payment for a portion or all of the growth population. Funds must be appropriated.

INVENTORY REIMBURSEMENT

Public Act 532 of 1998 amended the Revenue Sharing Act in that only counties are annually reimbursed, with a portion of the sales tax, for business inventory personal property that has not been subject to local taxation since  1975. Payment is determined by multiplying the county's 1975 state equalized value of business inventory by its 1996 ad valorem tax rate on real and personal property. The Revenue Sharing Act also provides that special  authorities that have taxes levied for their use receive a pro rata share of the municipality's inventory reimbursement payment. Section 12a (8) provides that the treasurer of any city, village, township, or county who collects money for an authority that levies property taxes shall pay an eligible authority, from the payments received under this act, the amount received by the eligible authority for the 1997-1998 state fiscal year.