CHICAGO -- Michigan lawmakers this week passed legislation to ensure future funding for outstanding tax increment financing debt and approved the last pieces of the state's fiscal 1995 budget.
After months of shuffling competing bills between the Senate and House, the legishture reached a compromise that would allow existing TIF districts-and new districts that were being planned as of last August to access property taxes collected by the state and school districts to pay off debt.
In addition, the TIF districts would continue to receive property tax revenues collected by other municipalities. If those revenue sources are not sufficient to pay debt service, the legislation calls .for the state to make annual appropriations to cover the shortfall.
"For the large part, most of the districts will not look to the state for reimbursement," said Jay Rising an attorney at Miller, Canfield, Paddock and Stone, who is representing a Michigan TIF association. "Some TIFs will need [the reimbursement]. But a lot of those have a "full faith and credit pledge" on their debt.
Rising said the Michigan Development and Financing Association, which represents TIF districts throughout the state, supports the legislation.
Gov. John Engler is expected to sign the TIF bills into law, according to his spokesman, John Truscott.
Funding for TIF debt was one of the last elements left unresolved in the wake of the state's new school funding system, which was approved by voters in March. The system eliminated $6 billion of school property taxes used for operating purposes and replaced the money with an increase in the state sales tax and other revenue measures.
Although the new system allows school districts to levy property taxes to obtain annual per pupil grants from the state, the mount of school property taxes available to TIF districts is greatly diminished. But, Rising said, :the state appropriation should make up for any resulting shortfall.
In February, Standard & Poor's Corp. said that some TIF districts could lose 70% of their revenue streams under the system because no provision was made for capturing any state or local property taxes.
Last November, following the elimination of school property taxes in July, the rating agency placed on CreditWatch with negative implications the A-minus rating for $85.8 million if TIF bonds issued by the Detroit Downtown Development Authority and the BBB-minus rating for $6 million TIF bonds issued by the Lapeer Tax Increment Financing Authority.
The debt, issued by Lapeer is supported solely by its TIF revenue stream, while the debt issued by the Detroit authority is backed by Detroit's general obligation pledge but is rated higher than the city's BBB rating.
Steve Murphy, a director at Standard & Poor's, said yesterday that the agency will have to examine the TIF legislation to see how it affects not only the debt currently on Creditwatch, but also other outstanding TIF debt that is backed with limited tax pledges of local governments.
Meanwhile, the Michigan legislature completed passage of the state's $7.8 billion general fund budget for the fiscal year that begins Oct. 1.
Donna Arduin, the state's deputy budget director, said the governor has already signed some of the budget bills into law and is expected to sign the remainder passed this week with minimal line-item vetoes.
The budget continues to build up the state's rainy day fund, which is expeaed to contain $500 million by the end of the current fiscal year. Mark Murray, a deputy, budget director, said another $100 million is expected to be placed in the fund at the end of fiscal 1995. In addition, $200 million of the proceeds from the upcoming sale of the state's accident fund is also slated for the fund.
Murray said by by the end of next fiscal year, Michiagan would have the most money in the fund since the state placed a record $419 million in the fund in the mid-1980s.
The state's general obligation debt is rated AA by Standard & Poor's and Fitch Investors Service and A1 by Moody's Investeta Service.