If DNR Can’t Pay Its Property Taxes, It Should Sell Some Land

The Department of Natural Resources (DNR) stunned legislators and local officials two weeks ago in announcing it will not pay counties and townships millions of dollars in property taxes owed on some 4.5 million acres of state land. But in spite of being unable to pay its tax bill, DNR officials authorized at least $16 million worth of new land acquisitions.

Any private landowner unable to pay his or her taxes would be forced either to sell the property or face forfeiture. But it is the unparalleled power of the state to ignore debt while at the same time increase spending.

As long ago as March 2002, DNR officials knew they were unlikely to fulfill their summer 2003 tax obligations under the existing assessment formula, according to minutes of the Natural Resources Commission, which sets DNR policy. Yet seven months later, on Oct. 22, 2002, officials of the Natural Resources Trust Fund voted to add tens of thousands of acres to the state’s already vast land inventory.

The loss of tax revenue to locals, coupled with cuts in state revenue sharing, will likely cripple the budgets of counties and townships where the DNR ranks as the single largest landholder. The agency controls nearly 60 percent of the property in Roscommon County, for example, and between 30 percent and 50 percent in at least nine others. Overall, some 12.5 percent of Michigan’s land area is owned by the agency.

Taxpayers will have to shoulder at least some of the DNR’s tax debt to sustain operations and meet bond payments. Moreover, local officials will continue to be called upon to provide police, fire and emergency medical services to the millions of visitors to state parks and wilderness areas.

DNR officials say the agency is short some $1.5 million for summer taxes, one of two annual payments that total about $16 million statewide. A shortfall of $540,000 on last winter’s taxes was made up by transferring funds from other DNR programs.

Suspension of the summer payments appears to be less a financial decision than a political calculation, since the DNR could pay at least a portion of its tax bill. But agency officials have long lobbied locals and the Legislature for tax relief – despite continued land acquisitions. How better, then, to win concessions than simply to suspend payments?

Unlike the property taxes levied on private landowners, the DNR’s liability is based on how the agency obtained the land. By statute, all lands purchased, gifted or tax-reverted to the state prior to 1933 are assessed at a nominal $2 an acre. Those acquired after 1933 are assessed as agricultural land – regardless of location or use – by the State Tax Commission. The DNR is also exempt from all special assessments as well as 18 of the 24 mills of the school tax. Technically, then, the DNR makes “payments in lieu of taxes.”

Funds for the payments – which now average $9 an acre – are drawn from four sources: the state’s General Fund, the Natural Resources Trust Fund, the Game and Fish Protection Fund and the Michigan Waterways Fund.

Gov. Jennifer Granholm is advocating a 77-percent reduction in DNR payments to counties and townships. She has proposed a flat $2 per acre assessment on all DNR land – irrespective of the actual land value – to be paid from the General Fund.

Such a major reduction in DNR payments would effectively constitute a tax hike on private landowners. Under the Granholm formula, for example, counties and townships would forgo some $7 million in state payments each year.

With the DNR unable to pay its property tax bill, the time has never been better to consider selling state land. As noted in a 1999 article in Michigan Privatization Report, Michigan could generate millions of dollars by divesting just a fraction of its holdings. Economist and Nobel laureate Vernon Smith also has proposed privatizing public lands.

Since taking office in January, Ms. Granholm has emphasized the need for the state to curb its profligacy. The same objective should apply as well to the Department of Natural Resources. Rather than continue to acquire land it cannot afford, the agency should cease all land purchases. Moreover, the DNR should be compelled to sell property at least equal to its outstanding tax liabilities. After all, any private citizen would be forced to do no less.

Diane Katz is director of science, environment, and technology policy for the Mackinac Center for Public Policy, a Midland-based research and educational institute. Her most recent major study assesses the performance of Michigan’s largest environmental spending program, the Clean Michigan Initiative.