SB0164: ANALYSIS AS ENACTED (Date Completed: 7-25-23)

RATIONALE

If private property owners within a defined area of a municipality wish to promote economic development in the area, they may create a business improvement zone (BIZ). A BIZ finances its projects, such as maintaining fountains and street lighting, by levying special assessments. Chapter 2 (Business Improvement Zones) of Public Act (PA) 120 of 1961 describes BIZs. Public Act 91 of 2020 amended Chapter 2 in two major ways. Firstly, it required that assessments be allocated on the basis of benefits to assessable property rather than on taxable or assessed value. Secondly, it removed a requirement that a zone plan use weighted voting based on taxable or assessed value, which allowed small property owners to contribute less than large property owners but still derive benefits. Some people believe that the changes made by PA 91 made Chapter 2 unusable, as small property owners may not have been able to contribute an equal share to the BIZ like large property owners could. Accordingly, with the renewal deadlines for some BIZs looming and several proposed BIZs placed on hold, it was suggested that PA 91’s provisions be deleted.

CONTENT

The bill amends Chapter 2 of PA 120 of 1961, which authorizes the development of principal shopping districts and BIZs, to do the following:

-- Delete a requirement that a zone plan must allocate assessments on the basis of the benefit to assessable property.

-- Allow a zone plan to include assessments if the plan provided for their allocation based on at least one of the factors that the bill prescribes.

-- Specify that if the zone plan for a zone area provides a basis for the allocation of assessments based on assessed value, the majority of all properties within the proposed zone area, by assessed value and square footage, will have to be assessable property.

-- Specify that if the zone plan for a zone area provides a basis for the allocation of assessments on a basis other than assessed value, the majority of all properties within the proposed zone area, by taxable value and square footage, will have to be assessable property.

-- Allow a zone plan to include caps on the assessment amounts paid by an owner of assessable property and caps on the growth of assessment amounts.

-- Delete a requirement that the proposed initial board of directors for the zone include at least one owner of residential real property if that property is determined assessable property.

-- Require a petition for the establishment of a BIZ to include, if proportional voting will apply, a description of the proportional voting mechanism to be used or, if proportional voting will not apply, a statement to that effect.

-- Delete a requirement that any notice required as part of the assessment process include a statement that a residential property owner within a BIZ may seek a homestead deferment for an assessment.

-- Prescribe the allocations for the proportional vote of a property owner if a zone plan provides for proportional voting.

-- Specify that the proportional vote allocated to any one property owner may not exceed 25% and prescribe procedures for reallocating votes over that threshold.

The bill will take effect on the 91st day after the Legislature adjourns sine die.

Establishment of a BIZ

Chapter 2 of the Act specifies the procedures under which a BIZ may be planned, enacted, operated, and dissolved. A BIZ differs from a Business Improvement District or Principal Shopping District in that it is established by a group of private property owners, not by a city, village, or urban township.

Generally, to initiate the establishment of a BIZ, an individual must submit a petition to the clerk of the city or village in which the proposed BIZ is located. The petition must include a variety of items used to identify each assessable property included in the zone area, such as the signatures of property owners of parcels representing at least 30% of the property owners within the zone area. The bill specifies that these property owners must own parcels of assessable property within the zone area. In determining whether this 30% threshold is met, the number of required signatures will have to be determined and the signatures of property owners allocated in the same manner as any proportional vote provided in the proposed zone plan (see below).

(Under the bill, "assessable property" means real property exempt from the collection of taxes under the General Property Tax Act or real property in a zone area other than property classified as residential real property under Section 34c of the General Property Tax Act, i.e., property that is used or will be used for residential or recreational purposes, such as lake lots or hunting lands.)

An individual must submit a zone plan along with the petition, including the proposed initial board of directors for the zone. The bill deletes a requirement that the board include at least one owner of residential real property if residential real property is determined assessable property by the local governing unit.

Under the bill, a zone plan must include, if proportional voting will apply, a description of the proportional voting mechanism to be used or, if proportional voting will not apply, a statement to that effect.

Under the Act, if a petition is delivered to the clerk of the city or village in the appropriate manner, the governing body of the city or village must schedule a public hearing to review the zone plan and any proposed assessment and to receive public comment. At this hearing, the property owners can amend the zone plan through a majority vote. After the public hearing, property owners vote, by mail, on the adoption of the zone plan and the establishment of the BIZ. The zone plan is adopted and the BIZ established upon the approval of more than 60% of the property-owning voters. A BIZ must be dissolved upon a vote of more than 50% of the property owners of assessable property during an annual or special meeting.

Under the bill, property owners, throughout the process, may vote by proportional vote if applicable under the zone plan. The bill deletes a requirement that any notice required as part of the assessment process include a statement that a residential property owner within a BIZ may seek a homestead deferment for an assessment.

Proportional Voting

Proportional representation is an electoral system in which each voting bloc receives a corresponding allotment of the resource in question. For BIZs, assessments are allotted. Under the bill, the use of proportional voting must be specified in a BIZ zone plan. If the zone plan for a zone area provides a basis for allocating assessments based upon taxable value, the votes of property owners will have to be proportionate to the amount that the taxable value of their respective real property for the preceding calendar year bears to the taxable value of all assessable property in the zone area for that calendar year. If the zone plan provides for allocating assessments based upon assessed value, the votes will have to be proportionate to the amount that the assessed value of their respective real property for the preceding calendar year bears to the assessed value of all assessable property in the zone area for that year.

Under the bill, if the zone plan for the zone area provides a basis for allocating assessments other than taxable value or assessed value, the votes of property owners will have to be proportionate to the amount that the assessment for their respective real property for the prior calendar year bears to the total value of assessments for assessable property in the zone area in that year.

The bill specifies that the proportional vote allocated to any one property owner may not exceed 25% of the total vote. If the proportional vote of a single property owner exceeds 25%, the amount in excess of 25% will have to be reallocated among the remaining property owners in proportion to the amount that the assessment of their respective assessable property for the prior calendar year bears to the assessment of all assessable property in the zone area owned by the remaining property owners during that calendar year.

For the bill's purposes, property owners that are affiliates must be treated as a single property owner. "Affiliate" means that term as defined in Section 90l of the Michigan Strategic Fund Act: an entity that, directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with another entity. An entity is controlled by another entity if the controlling entity holds, directly or indirectly, the majority voting or ownership interest in the controlled entity or has control over the day-to-day operations of the controlled entity by contract or law.

Assessment Requirements

The bill deletes a provision stating that the zone plan must allocate assessments on the basis of the benefit to assessable property. It also allows a zone plan to provide for assessments. If a zone plan provides for assessments, the plan will have to include the basis for the allocation of assessments, which may be one or more of the following:

-- Assessed value.

-- Taxable value.

-- Square footage.

-- Street frontage.

-- Any other factor relating to assessable property identified in the zone plan.

If the zone plan for a zone area provides a basis for the allocation of assessments on the basis of assessed value, the majority of all properties within the zone area, both by assessed value and square footage, will have to be assessable property. If the zone plan for a zone area provides a basis for the allocation of assessments on a basis other than assessed value, the majority of all properties within the zone area, both by taxable value and square footage, will have to be assessable property. The bill allows a zone plan to provide for caps on the assessment amounts paid by an owner of assessable property and for caps on the growth of assessment amounts.

MCL 125.990 et al.

PREVIOUS LEGISLATION

(Please note: This section does not provide a comprehensive account of all previous legislative efforts on the relevant subject matter.)

Senate Bill 164 is a reintroduction of Senate Bill 1224 of the 2021-2022 Legislative Session. The bill passed the Senate and was discharged from the House Committee on Tax Policy but received no further action.

ARGUMENTS

(Please note: The arguments contained in this analysis originate from sources outside the Senate Fiscal Agency. The Senate Fiscal Agency neither supports nor opposes legislation.)

Supporting Argument

Reversing the changes made by PA 91, which removed a BIZ's ability to vote proportionally, will make the program workable. A BIZ must include 30% of property owners within a zone area. These property owners may differ significantly in size. For example, the Downtown Detroit BIZ includes large organizations like Rocket Companies as well as small businesses. According to testimony before the Senate Committee on Economic and Community Development, 30 of the largest property owners in the Downtown Detroit BIZ contribute around 75% of the BIZ's assessment, close to $4.0 million per year; however, the median assessment per parcel is about $1,500. Without proportional voting, members of a BIZ must contribute equally to an assessment, which may be unaffordable for several small businesses. The Downtown BIZ must be reauthorized by early 2024 but its renewal vote has been put on hold for this reason. Authorizing BIZs to utilize proportional voting once again will allow members to contribute equitably, based on their usage of the services provided by the BIZ. Small property owners will contribute less than large owners but continue to derive benefits from membership in the BIZ. Without reintroducing proportional voting, BIZs would remain unusable.

Supporting Argument

Allowing BIZ plans to use proportional voting and base assessments on taxable or assessed value will increase local flexibility on how zones are planned and governed. In addition to being able to use proportional or non-proportional voting, the bill will allow a zone plan to include assessments allocated on assessed value, taxable value, square footage, street frontage, or any other factor relating to assessable property, rather than only benefit to assessable property. For example, according to testimony before the Senate Committee on Economic and Community Development, a BIZ centered in downtown Ann Arbor based its weighted assessment allocation on square footage and street frontage, with businesses in need of more snow removal contributing more to assessments. Offering BIZs more options will allow them to customize their plans to make the most out of the program.

Legislative Analyst: Abby Schneider