Public Act 532 of 1998: The Revenue Sharing Distribution Method
January 1999
by Rebecca Ross, Fiscal Analyst




Public Act (P.A.) 532 of 1998 changed the distribution of revenue sharing payments to local units of government. These changes begin in fiscal year (FY) 1998-99 and extend through June 30, 2007. A detailed description of P.A. 532 follows.
 

Revenue Sharing Distributions for Cities, Villages, & Townships Under P.A. 532

Prior to FY 1998-99, the statutory formulas for cities, villages, and townships included distributions under the relative tax effort (RTE) formula, the inventory reimbursement formula, and a per-capita formula. Public Act 532 freezes the City of Detroit's total revenue sharing payments at $333.9 million from FY 1998-99 through June 30, 2007. The statutory payments to the City of Detroit will be adjusted each fiscal year to ensure the $333.9 million total. Public Act 532 also stipulates that for fiscal years in which sales tax collections decrease from the previous fiscal year, the City of Detroit's statutory payments will be reduced by the same percent as the decline in constitutional revenue sharing payments.

Beginning in FY 1998-99, the current statutory payments to the remaining cities, villages, and townships will be gradually replaced by three underlying formulas: inverse taxable property value per capita, local unit type and population group, and yield equalization. The inverse taxable property value per-capita formula is the statewide taxable property value per capita divided by each local unit's taxable property value per capita. This figure is used as a weight for the population of the local units. The higher (lower) a local unit's taxable property value per person, the lower (higher) the population weight factor. The local unit type and population group formula weights the population, as indicated in Table 1, of local units based on their type of local unit and population. The cities, townships with a population over 20,000, and townships with a population 10,000 to 20,000 that provide certain services are weighted the highest, then the villages, followed by the remaining townships, and within the unit types the higher the population, the higher the weight. The services, townships with a population between 10,000 and 20,000, must provide to qualify for the higher weight include making available fire protection, police protection on a 24-hour basis either through contracting for or directly employing personnel, water to 50% or more of its residents, and sewer to 50% or more of its residents. The third formula is the yield equalization method which equalizes the return for each mill levied, up to a maximum of 20 mills, on a per-capita basis. The three underlying statutory formulas are phased in over 10 years and are each weighted one-third.
 
 


Table 1

Unit Type Population Weight Factors
Unit Type Population Unit Type
Population Weight
Factor
Township <= 5,000 1.0
Township 5,001 - 10,000 1.2
Township1) 10,001 - 20,000 1.44
Township2) 10,001 - 20,000 3.6
Village <= 5,000 1.5
Village 5,001 - 10,000 1.8
Village >= 10,001 2.16
City <= 5,000 2.5
City 5,001 - 10,000 3.0
City 10,001 - 20,000 3.6
City/Township 20,001 - 40,000 4.32
City/Township 40,001 - 80,000 5.18
City/Township 80,001 - 160,000 6.22
City/Township 160,001 - 320,000 7.46
City/Township 320,001 - 640,000 8.96
City/Township >= 640,001 10.75
  1. Townships that do not qualify for the higher weight factor. 
  2. Townships that qualify for the higher weight factor.

The second main part of the formula for cities, villages, and townships, with the exception of the City of Detroit, is an 8% limit on the total revenue sharing annual increase. The amount above the 8% will be redistributed to cities, villages, and townships to ensure a minimum guarantee percentage level or a floor. In addition, P.A. 532 specifies that when the 2000 Federal decennial census figures are implemented, local units that have population increases from the 1990 Federal decennial census figures of over 10% are not subject to the 8% limit.

Language is also included in P.A. 532 that states that in FY 1998-99 total revenue sharing payments for the cities, villages, and townships will not be less than the payments each of these local units received in the previous fiscal year. In FY 1998-99, it is estimated that a minimal amount is needed to ensure this hold harmless language. Each city, village, and township, except for the City of Detroit, that has a FY 1998-99 increase from FY 1997-98, will be reduced by a uniform percentage to implement the hold harmless provision.
 

Revenue Sharing Distribution for Counties Under P.A. 532

Prior to FY 1998-99, statutory formulas for counties included an inventory reimbursement formula and a per-capita formula. Beginning in FY 1998-99, the current inventory reimbursement formula is frozen at the FY 1997-98 level and all growth is distributed under a per-capita formula.
 

Special Census Payments

In addition to the annual restricted revenue sharing payments, which are based on the 1990 Federal decennial census figures, cities, villages, and townships may receive a supplemental or special census payment as a result of population growth. The amount necessary for special census payments is not automatic; rather, a distribution may be appropriated form the State General Fund for this purpose. Public Act 532 changed the growth cities, villages, and townships need to qualify for these payments. To qualify for mid-decade special census payments, cities, villages, and townships must have a population increase of 10% instead of 15% from the previous Federal decennial census.