MIDLAND — Michigan’s Department of Natural Resources (DNR) stunned legislators and local officials two weeks ago by announcing that it will not pay counties and townships millions of dollars in property taxes owed on some 4.5 million acres of state land. The Mackinac Center for Public Policy has determined that although DNR officials knew last year that the agency was unlikely to fulfill its summer 2003 tax obligations, they nonetheless approved acquisition of $16 million worth of new land to further expand the state’s vast property inventory.

“Any private landowner unable to pay his or her taxes would be forced either to sell the property or face forfeiture,” said Diane Katz, director of science, environment, and technology policy for the Mackinac Center, a Midland-based research and educational institute. “But it is the unparalleled power of the state to ignore its debt while at the same time increase spending,” she added.

Katz said 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,” Katz said. “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,” said Katz. “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?”

Katz pointed out that 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, and from 18 of the 24 mills of the school tax. Technically, then, the DNR makes “payments in lieu of taxes,” Katz said.

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 an average 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,” Katz said. “Under the Granholm formula, for example, counties and townships would forgo some $7 million in state payments each year.”

Katz pointed out that with the DNR unable to pay its property tax bill, the time has never been better to consider selling state land. She believes Michigan could generate millions of dollars by divesting just a fraction of its holdings.

“Since taking office in January, Gov. 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,” Katz said.

Additional comment from Katz is available at www.mackinac.org/5375.