The MC: The Mackinac Center Blog

February 5, 2016 MichiganVotes Weekly Roll Call Report

Flint water bill rebates, dark skies, tax breaks for developers

Senate Bill 136, Flint water contamination response - rebate water bills: Passed 37 to 0 in the Senate

To appropriate $30 million from state revenue (not federal) to provide water bill refunds to Flint households that were paying for contaminated water.

Who Voted “Yes” and Who Voted “No”

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Senate Bill 673, Extend tax breaks for local developers program: Passed 37 to 0 in the Senate

To extend through 2026 the authority of local governments to grant "Obsolete Property Rehabilitation" property tax breaks to particular developers they select. Under current law this expires at the end of 2016.

Who Voted “Yes” and Who Voted “No”


Senate Bill 501, Require alien drivers have visa or passport while driving: Passed 37 to 0 in the Senate

To require resident aliens who drive a vehicle in Michigan to have both a valid drivers license issued by their native land and a passport or valid visa. Current law only requires a valid drivers license. (A legal alien can also get a Michigan drivers license.)

Who Voted “Yes” and Who Voted “No”


House Bill 4583, Authorize interstate medical licensure compact: Passed 103 to 3 in the House

To authorize Michigan’s participation in an interstate medical licensure compact that would establish “a streamlined process that allows physicians to become licensed in multiple states.” Among other things this would make it easier for residents to access innovative “telemedicine” health care delivery services.

Who Voted “Yes” and Who Voted “No”


House Bill 5023, Establish more “dark sky preserves”: Passed 36 to 0 in the Senate

To designate the Rockport State Recreation Area, Negwegon State Park, and Thompson's Harbor State Park as “dark sky preserves,” which means state authorities must restrict outdoor lighting to only that needed for safety, security or reasonable use and enjoyment.

Who Voted “Yes” and Who Voted “No”


SOURCE: MichiganVotes.org, a free, non-partisan website created by the Mackinac Center for Public Policy, providing concise, non-partisan, plain-English descriptions of every bill and vote in the Michigan House and Senate. Please visit http://www.MichiganVotes.org.

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Poor Decisions, Not Funding System, Fuel Detroit Schools’ Woes

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Poor Decisions, Not Funding System, Fuel Detroit Schools’ Woes

DPS has benefited from state loan program

Finding solutions to help Detroit students not only requires recognizing the problem. It also requires a clear picture of the facts and understanding how the current system works.

In a recent MLive column, Ann Arbor attorney Eli Savit offers a well-intentioned but misdiagnosed policy proposal to address the genuinely disturbing images of mold and vermin found in some Detroit Public Schools buildings. He calls on Lansing leaders to fix the state’s “regressive school-finance system and earmark state funds for school building projects in poorer districts.”

One can make a case that funds designated for building construction and major maintenance projects could be doled out more equitably among districts. But DPS has, in fact, had access to large sums of capital dollars in recent years.

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Detroit’s unique history and the prolonged downward spiral of enrollment and financial health have much to do with its facilities challenges, but previous decisions about resources have contributed a great deal, as well.

Since 2000, with the city suffering from economic woes and many parents opting to leave the district or to enroll in a public charter school, nearly 200 of DPS’ 300 schools have been shut down. Along the way, however, the district reportedly spent more than $100 million to improve buildings that shortly thereafter were demolished, or simply abandoned.

In 2009, Detroit voters approved a $500 million bond proposal for school construction, piled onto growing streams of debt. On January 28, three Republican state senators, including the education committee chair, formally requested the state auditor general to investigate and share information that might explain how a total of $2 billion designated to improve facilities was used.

Even if Detroit faced greater challenges than other districts to collect those dollars, that by no means represents the greatest disparity.

Public charter schools lack access to any local property tax dollars for facility acquisition and construction. Yet Detroit’s charters are not all over the news with issues of mushrooms and mice. One imagines that if any charter were out of compliance with the city of Detroit’s building inspectors, certain news agencies would feature the story prominently.

Sidestepping the disparity faced by charters, Savit instead builds his case on an inapt comparison. He suggests that, since the average home value in Detroit is one-tenth of that in Bloomfield Hills, Detroit’s taxes would have to be raised 10 times higher than Bloomfield Hills to achieve equity.

Strictly speaking, though, the amount of property tax funds available to a district depends not on average home values but on the overall tax base. State data shows the larger Detroit’s beleaguered tax base at $6.3 billion, nearly twice as high as wealthy Bloomfield Hills’ $3.3 billion. Detroit has a higher millage rate, with a far greater share of its local property tax funds dedicated to debt retirement.

Savit also declares that Michigan does not rank among the states providing “at least some aid for school building and maintenance projects.” But the state does not leave poorer school districts and their students’ facilities needs completely out to dry.

The School Bond Qualification and Loan Program exists to help poorer districts by granting access to the state’s credit rating and direct borrowing to finance new construction and remodeling. As of the end of 2014, 136 Michigan school districts participated in the program, owing the state a combined $1.77 billion. Detroit Public Schools carried nearly one-tenth of the total debt, at $161 million.

One can debate whether the state’s loan program provides sufficient aid, but its existence should not be disregarded.

Equitable funding remains a reasonable policy goal both for school operating budgets and for capital projects. Yet failure to address past problems or to acknowledge available resources offers little consolation that today’s problems will be effectively solved.

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Tax Cuts Beat Selective Favors in Economic Growth

Only broad changes will improve the state's economy

People expect the impossible from state politicians on economic matters: “Create jobs.” The demand on politicians to create jobs leads them to throw taxpayer money at business projects, though the effort is counterproductive.

To show that they’ve listened to the call to create more jobs, politicians need examples of businesses that have opened or hired more people. But business owners and managers are not required to report every change in employment to their local politicians, let alone tell them whether the politician’s favored policies have anything to do with it.

For the people who hold office, giving favors to select businesses is the logical political response to the call for more jobs. They can say, “Thanks to this or that program or law, here are how many jobs exist in our community.” So, for example, the press releases from the Michigan Economic Development Corporation — the administrator of the state’s benefits to selected companies — can announce that in the second quarter of 2015, projects receiving state assistance proposed to “create or retain” 4,240 jobs. The announcement heralding these jobs is valuable publicity. But if a project receiving selective help fizzles out without the jobs showing up, that rarely makes the news.

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More importantly, an economy doesn’t grow through press releases, and publicity-driven efforts to help it grow impede what actually works. For as large as government may seem, its ability to move the economy is actually rather small. It is the unheralded business gains and losses that drive the economy. Across the state, businesses are constantly adding and shedding jobs. While the MEDC was announcing 4,420 jobs, Michigan gained 222,000 jobs and lost 187,000, according to the latest data.

jobs

So even if the happy announcements were in fact fully materialized — which is not likely to happen — the jobs would account for 1.9 percent of jobs recently created. (And it is not likely to address any of the reasons for the 187,000 jobs lost.)

Moreover, there is a cost to those awarded favors that also have an economic impact. Those jobs created through the assistance of the state cost taxpayer dollars that could have been used for other purposes or returned to taxpayers.

Instead of distributing money from other taxpayers or bending the rules for select businesses, the better strategy is to change the rules to encourage more expansions and fewer layoffs. For instance, taxing the incomes of Michigan residents — including business owners — less would encourage both more expansions and discourage job loss.

The state has tried both approving select favors and improving the overall business climate. But only broad-based improvements will improve the state’s economic prospects.

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Michigan Competitiveness Stuck on Mediocre

Economic outlook has improved, but could be better

A recent report from the Tax Foundation found Michigan ranked 25th among the states in the tax burden imposed by state and local governments. The mediocre position is mirrored by other indexes that compare the economic competitiveness and performance of different states.

One report called “Rich States, Poor States” is published by the American Legislative Exchange Council, and is based on 15 variables regarded as important to a state’s economic well-being (or lack thereof). Among others, they include state income and business tax rates, minimum wage mandates, the absence or presence of a right-to-work law and the number of public employees per 10,000 citizens. The data is the most recent available but in some cases this means 2012 figures were used.

The report ranks states according to backward-looking measures of economic performance as well as factors that may predict where a state goes in the future. The backward glance looks at each state’s economy between 2003 and 2013. Michigan residents who lived through the “one-state recession” of the 2000s won’t be surprised to find this state ranked dead-last. Thanks to a more favorable policy environment recently, the outlook section paints a brighter picture for Michigan going forward, but the state still underwhelms with a No. 24 ranking.

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Another comparison study comes from the Beacon Hill Institute of Massachusetts. Michigan ranks 28th on an index that combines eight groups of indicators that measure competitiveness, including “Government and Fiscal Policy.” The report adds a wide variety of other information large and small to its calculations, from “cost of labor adjusted for educational attainment” to “mobile phones per 1,000.”

Yet more evidence that Michigan is mediocre is provided by the Fraser Institute of Canada’s 11th annual Economic Freedom of North America index, which ranks U.S., Mexican and Canadian provinces and states based on the degree of economic liberty they permit. The report also tracks several major categories that reflect tax and labor freedom, plus measures of government intrusiveness. The 2015 edition ranked Michigan No. 27 among U.S. states.

These four different sets of scholars examining different but related factors that affect an economy can provide a wealth of insights on what makes different places more or less free and prosperous. Not surprisingly, they reveal a strong relationship between those two values: More economic freedom is strongly associated with greater prosperity — and the reverse.

Such studies can help identify the things that hold back prosperity, and provide roadmaps for policy changes likely to improve economic growth and opportunity for people.

One thread that connects these four reports is the role of tax burdens. Of the factors that are under democratic control, all of these studies identify tax burdens as a factor frequently associated with growth and prosperity (or lack thereof). Unfortunately, Michigan has been stuck in neutral on this one. An 11.5 percent “temporary” personal income tax hike in 2007, from 3.9 percent to 4.35 percent, has been rolled back just 0.1 percent since, to 4.25 percent.

Since 2011 lawmakers have enacted other policies that increased this state’s competitiveness, but with worldwide economic challenges increasing Michigan cannot afford to rest on its legislators’ laurels.

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Nastiest Bumper Sticker Ever

Addressing common misconceptions about capitalism

We’ve all seen a bumper sticker that make us shake our head, and it’s hard to know the intentions of the person who put it on their car, and whether they were misinformed or simply uninformed. The one I spotted the other day, however, jumped out at me as particularly ignorant.

capitalism bumper sticker

While delivering a document to a local YMCA, I parked in front of a Buick sporting a bumper sticker (see photo above) that read:

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Capitalism is the extraordinary belief that the nastiest of men, for the nastiest of reasons, will somehow work for the benefit of us all.”

Several questions immediately came to me, some of them rhetorical.

  1. Was the owner aware that they had placed this bumper sticker on a useful, mass produced and highly profitable product born of capitalism right here in Michigan?

The sticker’s message is directly undermined by the very act of slapping it on a commercial success like a Buick. The Buick brand was born in 1899 and by 1923 had already produced 1 million cars, an achievement suggesting that the company had learned how to benefit many people.

Presumably the owner of this particular car acquired it through a peaceful and mutually beneficial association. The owner assented to the purchase apparently because they saw some benefit in doing so. Capitalists work in the service of others for their own personal gain. As Adam Smith famously said, “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard to their own interest.”

But their pursuit of their self-interest benefits others by providing products consumers (like our Buick owner) want and choose to buy. The business owner and the consumer benefit. Governments benefit, too, by way of additional tax revenues.

The reality is that market capitalists are actually true public servants.

  1. Did the owner realize that the YMCA at which their car was parked was built in part with the donations of current and past business-owner capitalists?

At my local YMCA, a television runs a continuous feed of the names of people, businesses and foundations that helped make its construction possible.

Under market capitalism, successful people may accumulate wealth during and after a lifetime of hard work and sacrifice. Taking financial risks, providing jobs, meeting payrolls and overcoming government hurdles is no easy life. That many successful entrepreneurs then use their surplus for explicit philanthropic purposes is a testament to their generosity, not their nastiness.

  1. If capitalism and capitalists are as nasty as the Buick owner’s sticker contends, what is the alternative?

In case the owner didn’t learn this from the 20th Century, other models for society have been tried (often at the point of a gun) and largely rejected. Music legend Frank Zappa summed up the failure of communism by saying that “people want stuff.” When it comes to providing stuff, there is no better approach than market capitalism. This isn’t just my observation; it is based on empirical evidence.

The following 2011 video does an exceptional job of illustrating that evidence. In countries with greater degrees of economic freedom — the right to enter into contracts, own and dispose of property, start businesses and engage in trade — people live longer, happier and healthier lives. By impugning the economic system that has done more than any other to improve the human condition, the message I spied in the parking lot that day just may qualify for the dubious distinction of nastiest bumper sticker ever.

For more on the Web, see “Why Capitalism is Awesome” by our friends at the Cato Institute and the new 2016 Index of Economic Freedom, produced by The Wall Street Journal and The Heritage Foundation and the Economic Freedom of North America index (2015).

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School Transportation News Features Center Study

Survey of school service privatization

Mackinac Center research was recently featured in the national School Transportation News magazine.

In January, the magazine wrote about a new study by Michael LaFaive and James Hohman that compares the rates of privatization of noninstructional services in schools across five states. The survey examined the use of contractors for services including busing in Pennsylvania, Michigan, Ohio, Georgia and Texas.

As School Transportation News reported, Michigan came in second to Pennsylvania in contracting transportation services.

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Michigan, Mackinac Center’s home state, came in second at privatizing transportation services at 26.6 percent of school districts. Transportation remains the least privatized major non-instructional service, the study found, but contracted school bus service grew by 12 percent from 2014, and from only 3.8 percent or 21 districts in 2005.

Read the full School Transportation News article here.

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Like Taxpayer-Funded Electioneering for Tax Hikes? Here’s a Bill for You

Legislation would gut new taxpayer-friendly restrictions

Update: On Feb. 3 the House Elections Committee voted to advance the problematic provisions described in this article to the full House for consideration. They did so by pasting nearly identical provisions into House Bill 5219, which modifies but does not repeal the current 60 day pre-election ban on tax-funded electioneering communications. The committee then reported the revised text of HB 5219 to the full House.

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If you don’t mind seeing taxpayer dollars used to fund government electioneering for local property tax increases, you will probably like Senate Bill 721 and House Bill 5249. That’s because the identical bills are likely to quickly erode a law passed in December that restricts this particular abuse.

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The new law prohibits school districts and local governments from referencing an upcoming ballot measure in a tax-funded communication within 60 days of the vote. The restriction is unambiguous and therefore is easily enforced. This feature has local government and school officials upset at the prospect of no longer being able to use their deep pockets and extensive political infrastructure to tip the scales in favor of “yes” votes on tax hikes.

The bills were sponsored by Republicans Sen. Ken Horn and Rep. Holley Hughes (with Rep. Tom Barrett co-sponsoring), following weeks of heavy pressure from local officials, tax-funded lobbyists and some in the media. They compromise the new law by adding a Mack truck-sized loophole to its unambiguous prohibition on pre-election electioneering.

Specifically, they would erase the law’s bright-line restriction by allowing communications that “provide a fair presentation of facts” and which don’t imply a yes or no vote recommendation, as determined by a “reasonable interpretation.”

At first blush that may not seem objectionable, but history suggests schools and locals will easily game these exceptions, which would quickly return us to the previous status quo of almost anything goes in tax-funded electioneering communications.

The obvious question the exception raises is, who will make those “reasonable interpretations,” and how will these referees define “fair” and “reasonable?”

The “who” is easy: Government officials in the Secretary of State’s elections bureau. Their judgments could be appealed to a court of law, but such appeals are very rare and unlikely.

The “how” is much harder: When it comes to political matters like ballot issue campaigns, what constitutes “fair” or “reasonable” is strictly in the eye of the beholder. The current elections bureau director has a reputation as a straight shooter, but he won’t be there forever.

And even the straightest of shooters lacks the capacity to prove that claims of “reasonableness” in dodgy political arguments are completely invalid.

For example, in a mailing last fall to promote a property tax increase labeled as related to “public safety,” the city of Rochester Hills claimed: “When a person is suffering a cardiac arrest, or a home is on fire, the goal is to arrive on the scene in less than five minutes. Our Rochester Hills Fire/EMS Department cannot meet that goal often enough.”

Note the political nature of this argument. In addition to opening with an appeal to emotion, it provides no substantive facts that can be confirmed or falsified. (What’s the definition of “not often enough?”)

Given the ambiguities inherent in all political arguments, which like this one usually rely more on symbols than facts, it would be all but impossible for a civil servant or a judge to declare any of them to be “unreasonable.” If they try, they’ll find themselves shooting at a moving target, because the tax hikers will quickly adapt their messaging to slip through the new cracks. And that is what makes Senate Bill 721 and House Bill 5249 a recipe gutting enforceable limits on tax-funded electioneering.

The nonstandard established in the new bills all but guarantees to return us quickly to the taxpayer abuses the new law was crafted to prevent.

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Ballot Proposal Backers Weighing Strategy

Some argue that Michigan needs to become a more attractive place for college graduates in order to grow the state economy. But the past decade suggests that simply targeting people with college degrees is an ineffective strategy. The reason is that people move to places where there are employment opportunities, regardless of whether they have a college degree or not.

Since 2007 more college graduates moved to Texas than to any other state. The Lone Star State attracted 218,178 people with a bachelor’s degree or higher. It also drew in 360,144 people who lacked that level of certification. On the other end of the spectrum, 257,871 degree-holders left New York for greener pastures over the period. And another 518,823 people without degrees left that state too.

This is the case for nearly every state. Those that successfully attract college graduates are also successfully attracting people without college degrees. In other words, attractive places entice people to move there regardless of whether they have college certificates or not. And, on the flip side, both those with degrees and those without tend to leave places where opportunities are scarcer.

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The only state in the union to break the mold seems to be California, which added 33,195 people with degrees, but lost 557,521 people without them.

pension costs

Regardless of these trends, Michigan residents are pelted with proposals to attract college-educated millennials. Yet plans to gentrify a neighborhood or add bike lanes are not likely to turn around the economy. They may still be worth doing — but not for the promise of economic prosperity.

Instead, broad-based improvements to the business climate are a better strategy. Based on the data, the added employment opportunities will attract the educated — as well as everybody else.

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The Tax Foundation recently published its latest ranking of state and local tax burdens. The report placed Michigan in 25th place as of 2012.

This is a substantial improvement, but to make this state a growth and opportunity leader the Michigan Legislature needs to go further by rolling back the personal income tax rate, as was promised when it was increased in 2007.

According to the Tax Foundation, Michigan’s state and local governments extracted 9.4 percent from the personal income of residents in 2012, with a per capita tax burden of $3,631. This placed Michigan in the middle of the pack, but that may not hold as new vehicle registration and gas tax hikes enacted last year kick in.

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New York residents carried the heaviest 2012 state and local tax load at 12.7 percent, while Alaskans had the lightest, paying just 6.5 percent of their personal income

The rankings are based on 26 categories of taxation — everything from property, sales, income and business taxes; transfer and severance taxes; taxes on licenses for amusements and many more. The full list and an explanation of how the rankings were calculated are detailed in the report, “State-Local Tax Burden Rankings FY 2012.”

Since the Tax Foundation began compiling these annual rankings in 1977, Michigan’s “burden rate” has never been lower than the current 9.4 percent. The rate peaked in 1984 at 10.9 percent; fell to 9.5 percent in 2000, but then crept back up to 10.3 percent in 2009.

Despite our progress since then, other states aren’t standing still and to remain competitive Michigan’s Legislature must build on the gains we’ve made — not erode them. There is an urgency to this given that tax reforms are easier to enact when the national economy is still expanding.

There are three primary reasons Michigan citizens and voters should demand quick action on this front:

  • It’s not the government’s money, and the state can spend less with no great sacrifices required. The Mackinac Center has recommended reasonable reforms that could save more than $2 billion annually — dollars that could and should be left in the pockets of those who earned them.
  • Tax cuts are good for the state’s economy. They lead to faster growth and more opportunities for residents. Among other things that means fewer grown children who must leave the state to pursue jobs and careers — and fewer Michigan grandparents who must cross the continent to visit their grandkids.
  • Lastly, the state’s bipartisan political class should keep its promises. In 2007, Gov. Granholm, with the help of the Republican-controlled Senate, “temporarily” raised the state income tax rate by 11.5 percent, from 3.9 percent to 4.35 percent. Written into that tax hike law was a schedule to roll it back starting in 2011. Under Gov. Rick Snyder, the roll-back was delayed and then halted after a puny 0.1 reduction to 4.25 percent.

Taxes matter. They shape whole nations, and can ruin them too. This state has made gains but state and local tax burdens are not static: during any given period they are either rising or falling. Michigan’s burden was falling as of 2012, but without a proactive Legislature that trend can easily reverse.

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Government’s Free Pass to Trespass

Some homeowners find property assessor guidelines objectionable

Most people think of trespassing as the crime of going on someone’s property without permission. Yet, government views trespassing differently, particularly when it involves tax assessments. Consider this phone exchange with a city official on what would happen if an assessor came to your house and you weren’t home:

“The assessor would get the information they need and leave a card,” said Linda Gosselin, Assessor, city of Livonia.

“Would that include walking around the property, to the backyard?”

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“They would review the property,” she said.

“Does that include walking around the property?”

“I think I answered your question,” said Gosselin.

In Michigan, tax assessors claim they must walk on property to get accurate tax rolls. But there are examples of tax assessors pushing the limits of civil liberties, walking on property when no one is home or even demanding to come inside a home.

The Michigan State Tax Commission guides assessors with rules that have been upheld in court.

If you ask an assessor to leave your property, they must honor that. Assessors are not to peer into your windows. If you say no to an inspection, they are not allowed to penalize you by jacking up your assessment. An advisory issued in 2014 states that all assessments must be based on supporting evidence.

The rules, however, don’t take into account all scenarios. Take the example of Jeff Stout of Cannon Township in Kent County. Not only did he post a “No Trespassing” sign on his property, he called his township to say he did not want the tax assessor walking on his property. Months later, he discovered pictures of his backyard on the township’s website.

Municipalities defend these actions by stating that Michigan law requires such documentation to be part of the public record and that making those records available in a broad way is a good thing.

“Appraisers, realtors, real estate attorneys, developers, and journalists benefit from having public tax assessment information readily available on the Internet. It also allows citizens assurance that property taxes are being assessed equally, consistently and fairly. And it makes government more efficient by reducing staffing demands to fulfill requests for public information,” said Cannon Township Attorney Jim Scales.

It’s one thing to grant access for measurements and to establish a public record. It’s another to broadcast satellite images of your home or property. In some of the photos, furnishings are visible as well as windows and cars.

Tax assessors can push the limits of their authority in other ways. As a member of the Mackinac Center’s Board of Scholars, Ted Bolema has a full appreciation for the importance of property rights but he also happens to be an attorney. Soon after his assessment case was placed on the docket of the Michigan Tax Tribunal, his township sent him a letter “requesting” an appointment to review the inside and outside of his house. Bolema declined.

“The request was on Meridian Township letterhead and the language in the letter seemed to imply that compliance was required by the Tax Tribunal. My concern is that nonattorneys receiving such letters from a government office might not realize this was a request for information from an agent of an opposing party, two months before a scheduled court hearing, and could easily believe this was a requirement from the Tax Tribunal as part of the appeals process,” said Bolema.

Bolema lost his case at the Tribunal and Jeff Stout’s appraisal went up after he complained publicly about the Internet pictures. There may be not enough information to determine if that was more than coincidence, but it makes taxpayers wonder who government is really working for.

Why can’t assessors find ways to protect privacy if they feel a need to post photos on the Internet? Blacking out windows, furnishings and cars would be a good start. Better, why not find a less costly and cumbersome way to assess the value of property? Some have argued that government needs to make the assessment process more understandable, like basing assessments strictly on square footage and “comps,” what the real estate market uses to determine home values. Real market data comes along more rapidly than many people realize. According to the most recent data from the National Association of Realtors, 58 percent of owners sell their home within 10 years.

By simplifying the assessment process and restricting the use of real estate photos on the Internet, government could not only save money but also win more goodwill with the public.

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