Tax Revenue Sharing Agreements in Michigan

By Beach, William | Government Finance Review, December 2000 | Go to article overview

Tax Revenue Sharing Agreements in Michigan

Beach, William, Government Finance Review

Annexation battles have created an atmosphere of mistrust between local units of government in Michigan. A state supreme court ruling stating that "no governmental authority, individual, or person has any legally protected interest in the boundaries of a city, village or township" [1] has led Michigan municipalities to the brink of boundary wars. If developers even use the "A" word, townships muster petitions for detachment nor only of the area the developer sought to be annexed, but in some cases, half of the territory of the city itself.

For example, Frenchtown Charter Township adopted a petition to detach about a third of the City of Monroe without a developer in sight. Their rationale was the formation of an aggressive defense against any and all loss of territory due to annexation. Likewise, Williamston Township filed a petition to detach all of the City of Williamston north of the Cedar River, which included the city's wastewater treatment plant and its electric utility. The two units of government were forced into court to stop the detachment election after they had resolved their differences.

To address these and other annexation battles and rekindle peaceful coexistence between cities and townships, the state legislature has proposed several innovative solutions. The legislature's main policy tool has been tax and revenue sharing programs. The State Boundary Commission, which controls boundaries between home rule cities and townships, now is required to attempt to persuade local governmental units to enter into tax-revenue-sharing agreements. Some of those attempts have succeeded, and now, tax-revenue-sharing agreements have emerged as the main tool of boundary mediators in Michigan.


Originally, governmental boundaries were changed in Michigan through a process of petition and referendum. Petitions were filed for annexation with the county clerk. If the signatures were verified, the county commission ordered an election to be held. If the electors in the city, the area to be transferred, and the township all voted to approve the annexation, the annexation passed. If any one of the affected areas voted it down, the annexation went down with it.

If a petition for detachment of territory from the city was filed, the signatures verified and the election ordered, it only took a majority of all votes cast to make the detachment occur. The resulting inequities only added to the border war fires and caused emotions to boil. The initial solution of the state legislature was to turn over the jurisdiction of home rule cities boundary changes to a State Boundary Commission. It held public hearings, conducted fact finding and attempted to make an equitable decision on each petition filed. The only time a referendum was held was when the number of residents in the transferred area was more than 100 residents. If they numbered more than 100, those residents could call for a referendum despite the ruling of the State Boundary Commission on the annexation petition. The Boundary Commission's decision could be overturned in that election.

The results of this move did little to slow down the boundary wars. Instead, it breathed new life into the art of gerrymandering. City boundaries began to look like snowflake patterns as boundaries were structured to avoid the 100-resident rule. As more and more of the annexed areas became used for industrial parks and commercial strip malls, the townships felt victimized by having to provide more services with less of a tax base. They continued to lobby the legislature to look for other remedies.

In 1979, the officials at the General Motors (GM) plant in Flint wanted to expand their assembly plant. The only vacant land lay across the border in Genesee Township. GM brought the two local governments together and worked out a contractual arrangement whereby the township would transfer the land to the City of Flint in exchange for a share of the ad valorem property tax revenues collected by the city. …

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