Tuesday, March 13, 2007

State budget crisis heats up
Actually, it's worse than that for the state of Michigan and its local governments. It's no wonder they are building condos in Kalamazoo (see below). When local governments are strapped for cash, condos and HOAs are the preferred form of real estate development because of the double taxation benefits--fewer services to provide, but a full share of property tax paid by all owners:

LANSING -- Wall Street is turning up the heat on Gov. Jennifer Granholm and the Legislature to find a quick solution to Michigan's deepening fiscal crisis or face a credit downgrade -- which would make it more expensive for the state and some local governments to borrow money. "From a credit perspective, this is probably the most important legislative session in more than a decade," James Wiemken, managing director of Standard & Poor's Ratings Services, said in a report released Monday.

3 comments:

Anonymous said...

Could you say more about how condos and HOAs result in double taxation? The density of properties is clearly much higher, leading to higher tax revenues per acre. It seems to me that services are mostly the same. Have I missed something?

Evan McKenzie said...

The term "double taxation" means that people who live in HOAs or condos pay property taxes at the same rates as everybody else, and also pay assessments to their association. Often a good part of that assessment pays for things that would otherwise be provided by local government through property tax payments. For example, street cleaning, leaf and snow removal, and street lighting are typically paid for by property tax. But in associations with private streets, this is paid for by the residents. Do they get a deduction from their property tax? No. Should they? Maybe. You can say the same for maintaining private parks, which takes a burden off the municipal park system. In New Jersey, the Municipal Services Act equalizes some of these costs. Cities have to rebate to associations the cost of services they are collecting taxes for but not providing to asssociations. No other state does this, but some local governments do.

Anonymous said...

Ah, I see, thanks for the information. Given that the State of California and apparently every local government here is running a deficit, I doubt such a rebate program would ever be enacted.