The current monetary crisis and mortgage meltdown are affecting more than just those who failed their financial responsibilities. Homeowners who meet first of the month deadlines not only will be saddled with nearly a trillion dollars of debt to bailout others' faults and defaults, they also are facing rapidly declining home values. Michigan law allows property assessments to rise annually, regardless of declines in home value.

The Mackinac Center's comprehensive guide to education funding, "A Michigan School Money Primer," contains several useful sections that explain in great detail the specific ties between school funding and taxes. Below are four parts of the primer that readers may find helpful in anticipation of receiving winter tax bills.

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Section 1: Assessment of Taxable Property

To assess a property is to determine its value for tax purposes.[xiii] In Michigan, there are three types of value placed on real and personal property: true cash value, state equalized value and taxable value.[27]

The true cash value of a property is meant to represent the property’s market value.[28] The two are not exactly equal, however: If, for instance, real property has been sold in a particular year, the cash value of the property in that year is not necessarily the sale price, but rather the property’s value relative to other real property of the same type in the assessing jurisdiction.[29] The assessment of personal property, in contrast, is based upon depreciation of the property’s acquisition costs.[xiv]

In years in which a parcel of real property remains in the same hands, however, its cash value is determined by a tax assessor working for the city or township in which the property is located.[30] The assessor’s determination of the property’s cash value effectively establishes the property’s state equalized value, which is defined as 50 percent of the property’s cash value.[xv][31] Thus, a property’s SEV increases and decreases with an assessor’s estimate of the property’s cash value.

Taxes are calculated in one of two ways, depending on whether or not the property was recently purchased. If the property was purchased in the previous calendar year, the property’s taxes are based on the property’s current calendar year SEV.[32] If the property was not purchased in the previous calendar year, the property’s taxes are calculated on the lesser of the property’s SEV and its "taxable value."[33] Taxable value, which is defined in the Michigan Constitution, serves as a limitation on how much assessments on property may increase in a given year.[xvi] Taxable value is related to SEV in the following way: If the cash value — and thus the SEV — of a property increases in a given year by more than 5 percent or the rate of inflation, whichever is less, the taxable value of the property is calculated by increasing the previous year’s taxable value by the lower of the two rates (see example calculations in Graphic 2).[xvii][34] Thus, in areas where property values (i.e., cash values) are increasing quickly, a property’s taxable value will frequently lag behind its SEV, effectively lowering the overall taxes that would have been assessed on the property absent the constitutional limitation.[xviii] In areas where property values are falling, the constitutional provision does not apply, and taxable value and SEV will fall and be equal from year to year.

Graphic 2: Taxable Value Example Calculations

Slowly rising property values. Imagine that a property has been assessed at a cash value of $142,000 in one year and a cash value of $144,000 in the next — an increase of approximately 1.4 percent. The SEV during this period thus increased from $71,000 to $72,000 (likewise an increase of 1.4 percent). Also assume for the moment that the property was transferred in the first year, so the SEV and the taxable value were the same ($71,000).

If the inflation rate during the intervening year was 2.6 percent, the rate of increase in the property’s value (and SEV) is less than both 5 percent and the inflation rate, and the constitutional limitation does not cap the growth of the taxable value. Thus, the taxable value of the property in the second year is simply equal to the second year’s SEV: $72,000.

Rapidly rising property values. Imagine that a property has been assessed at a cash value of $142,000 in one year and a cash value of $150,520 in the next — an increase of 6 percent. The SEV during this period thus increased from $71,000 to $75,260 (also an increase of 6 percent). Assume for the moment that the SEV and the taxable value were the same in the first year ($71,000).


If the inflation rate during the intervening year was 3 percent, the 6 percent increase in the property’s cash value (and SEV) exceeds the inflation rate. Since the inflation rate is less than 5 percent, Michigan’s constitutional limitation caps the growth of the taxable value at the 3 percent inflation rate, and the taxable value of the property in the second year is equal to a 3 percent increase in the previous year’s taxable value.[xix] The new taxable value can be calculated by taking the previous year’s taxable value (and SEV) of $71,000 and multiplying it by 1.03. The resulting taxable value in the second year would then be $73,130, while the SEV, based on the cash value in the second year, would be $75,260.


A second year of rapidly rising property values. Now imagine that the cash value of the property in the previous example rises from $150,520 in the second year to $154,000 in the third year — an increase of approximately 2.3 percent. The SEV during this period thus increased from $75,260 to $77,000 (also an increase of about 2.3 percent).


If the inflation rate from the second to the third year was 1.9 percent, the 2.3 percent increase in the property’s cash value (and SEV) exceeds the inflation rate. Since the inflation rate is less than 5 percent, Michigan’s constitutional limitation caps the growth of the taxable value at the 1.9 percent inflation rate, and the taxable value of the property in the third year is equal to a 1.9 percent increase in the previous year’s taxable value. (The taxable value in the second year was not the same as the $75,260 SEV, but was rather $73,130, due to the constitutional constraint on property tax growth.) Thus, the new taxable value can be calculated by taking the previous year’s taxable value of $73,130 and multiplying it by 1.019. The resulting taxable value in the third year would then be approximately $74,519.47.35


Falling Property values. Imagine that a property has been assessed at a cash value of $142,000 in one year and a cash value of $138,000 in the next — a decrease of approximately 2.8 percent. The SEV during this period thus decreased from $71,000 to $69,000 (also a decrease of 2.8 percent). Again assume for the moment that the SEV and the taxable value were the same in the first year ($71,000).


Michigan law limits only increases in the taxable value of a property, not decreases.36 The constitutional cap therefore does not apply, and the taxable value simply declines along with the SEV from $71,000 in the first year to $69,000 in the second.[xx]


Tax Base

The total taxable value of all property under the jurisdiction of a taxing authority (such as a local school district) is called the "tax base."[xxi] This tax base is described annually in a property tax report prepared by a county official known as an "equalization director." The equalization director must file the report with the State Tax Commission every year by the fourth Monday in June, and the report must include the following:

  1. the total taxable value as of the fourth Monday in May of that year;[xxii]

  2. the taxable value for each class of property;

  3. the total taxable value of all property in the county that is categorized as a "principal residence" or as "qualified agricultural property"[xxiii]; and

  4. the total taxable value for all property that is categorized as something other than a "principal residence" or "qualified agricultural property" (also called "nonhomestead property").[37]

An example of the document is pictured in Graphic 3[xxiv].

Graphic 3: School District Valuation and Tax Levies Form, Midland County

Graphic 3 - click to enlarge



Section 2: Determination of Tax Rate

Once a property’s taxable value has been calculated, the appropriate tax rate — or millage — must be determined. This rate will depend on the property’s tax category.

Recall that for personal property, this category is one of five classifications: residential, agricultural, commercial, industrial or utility property.[xxv] Similarly, for real property, the category is one of six classifications: residential, agricultural, industrial, commercial, timber cutover and developmental property.

Real property is classified as either "homestead" or "nonhomestead." A "homestead" property is a residential parcel that is a taxpayer’s primary dwelling within the state;[xxvi] the category does not include Michiganians’ secondary in-state residences or "summer cottages." Homestead property also includes some qualified agricultural properties. "Nonhomestead" properties, in contrast, are those that do not qualify as homesteads.

Tax rates for real property and personal property are measured in units called "mills." One mill equals one-tenth of one cent per dollar of taxable value, or equivalently, one dollar per thousand dollars of taxable value. In decimals, 1 mill would be expressed as 0.001.

For example, nonhomestead property is typically subject to a maximum local school operating property tax of 18 mills.[38] Local millage rates, or the number of mills applied to a property, are determined by property type and the purpose of the tax. The various state and local millage rates are discussed beginning with"Local Property Taxes by Type," and in subsequent sections dealing with state taxes for education.


Section 3: Calculation of an Individual Tax Bill

Taxes on real and personal property are levied annually in either the summer or the winter, though the taxes may be billed to a property owner semiannually (in the summer and winter) if the school board passes a resolution to collect them in this way and if the local tax collection authority agrees.[39] The annual tax bill for a specific piece of property is calculated by multiplying the taxable value of the real (or personal) property by the number of mills of tax to which the property is subject. For example, assume that a taxpayer has just purchased a property that has a cash value of $100,000 and is subject to an 18 mill tax. Since taxable value is set equal to SEV when a property is transferred, and since SEV is one-half the cash value of the property, the property's taxable value would be $50,000. Given that a mill is defined as the decimal 0.001, the 18 mill tax rate is equivalent to the decimal 0.018. Thus, the annual property tax bill would be calculated as follows:

Tax Due = Taxable Value x Millage Rate = $50,000 x 0.018 = $900

Hence, the property owner would be required to pay $900 for this 18 mill tax on his or her $100,000 piece of property.

This calculation is reasonably straightforward. Examples of actual tax bills are reproduced in the two graphics below. In each case, a variety of different tax rates have been applied to the taxable values of the two properties in order to pay for different government activities. In Graphic 4, for instance, a 0.64 mill rate is assessed on the property to pay for city debt, while other millage rates are used to calculate taxes owed for the Midland Public Schools sinking fund, Delta Community College operating expenses and so forth.

Graphic 4: Summer Real Property Tax Bill Example, Midland County

Graphic 4 - click to enlarge

Graphic 5: Winter Personal Property Tax Bill Example, City of Norton Shores

Graphic 5 - click to enlarge

Note that in Graphic 4, the taxable value of the property differs from the property's SEV. As discussed above under "Assessment of Taxable Property", taxable value will diverge from SEV when a property's value increases above the inflation rate or 5 percent, whichever is less (Graphic 2 in that section shows how taxable value is calculated in such instances).[xxvii]

As noted earlier, this property tax cap on taxable value would apply to both real property and personal property. In general, however, the value of personal property tends to decline, rather than increase.

The 'Headlee Rollback[xxviii]

Article 9, Section 31, of the Michigan Constitution stipulates that if the percentage increase in the assessed value of real and personal property in a taxing jurisdiction (excluding new construction) exceeds the inflation rate, the authorized property tax millage must be reduced to a level that would limit the annual increase in property tax revenue to the rate of inflation. This property tax limitation is part of what is popularly known as the "Headlee amendment" to the Michigan Constitution, so this reduction in the millage rate is often referred to as a "Headlee rollback."[xxix] Headlee rollbacks, which are calculated by the county equalization director,[40] are automatic, but a majority of the qualified local electors can override a rollback and hold the tax rate constant in a process known as a "Headlee override."

An alternative form of Headlee "override" can occur as well: In some instances, school districts ask voters to increase the local operating millage beyond the maximum amount that can be levied by law. Although the district cannot collect more than the maximum, all subsequent Headlee rollbacks are calculated on the larger, voter-authorized millage rate. Since the rollbacks calculated on this higher millage are unlikely to fall back to the maximum millage rate for many years, Headlee rollbacks are effectively pre-empted throughout that time.[41]

There are two important points to note about the Headlee rollback. First, the rollback does not apply to the statewide property tax known as the "state education tax".[xxx] Second, the rollback limits the revenue growth districtwide; it does not limit the increase in the property tax bill of an individual property owner. If an owner's assessment jumps well above the inflation rate in a given year, a Headlee rollback might not reduce the millage rate enough to offset the assessment increase and yield a tax increase that is less than the inflation rate for that property owner.

Because of Headlee rollbacks, a local millage rate may vary from year to year. For example, let us say that the taxable value of the properties subject to a particular tax in a school district increases from $150 million in one year to $175 million in the next year with no losses or additions of property.[42] This is a percentage increase of

($175,000,000 − $150,000,000) x 100 percent = $25,000,000 x 100 percent = 16.67 percent,
$150,000,000 $150,000,000

Assume, however, that the rate of inflation during this year is 2 percent – much less than the 16.67 percent increase in taxable value. The millage rate must then be reduced in order to make sure that actual tax revenue from the taxable properties (excluding new construction) does not exceed the inflation rate. The formula for calculating that "rolled-back" millage rate is

MR2 =TV1 x MR1 x (1 + IR),


MR2 is the new, "rolled-back" millage rate;

TV1 is the taxable value in the first year (adjusted to exclude any subsequent property losses);
TV2 is the taxable value in the second year (adjusted to exclude new construction);
MR1 is the millage rate in the first year; and
IR is the inflation rate, expressed as a decimal, from the first year to the second.[xxxi]

Applying this formula to the current example and assuming that last year's rate on the property type in question is 18 mills, the new millage rate would be

MR2 =TV1 x MR1 x (1 + IR) = $150,000,000 × 18 mills × (1 + 0.02) = 15.7371 mills.

TV2 $175,000,000

Note that this new millage does precisely what the Headlee amendment stipulates. When the new millage rate is applied to the new taxable value of $175,000,000, the tax revenue is $175,000,000 ¡Á 0.0157371 = $2,753,992.50. Since the previous tax revenue was $150,000,000 ¡Á 0.018 = $2,700,000, the resulting percentage increase in tax revenue is

($2,753,992.50 − $2,700,000) x 100 percent = $53,992.50 x 100 percent = 2.00 percent,

$2,700,000 $2,700,000

meaning that the increase is, correctly, no more than the 2 percent inflation rate.


Section 4: Local Property Taxes by Type

Property is typically subject to a number of different local property taxes.

Graphic 4, found in Section 3 above, shows the real property tax bill for a resident of Midland. The bill lists eight different taxes; the three prefaced by "MPS" are levied for the public school system.[xxxii]

We will briefly discuss each type of local property tax levied by local school districts.[xxxiii]

Local School Districts

General Property Tax for Operating Purposes[xxxiv]

Local school districts can levy a general property tax on nonhomestead real and personal property to finance school operations. The amount of this levy must be approved by the voters in the district, and the millage rate is limited to the lesser of 18 mills or the number of mills levied by the district for operating purposes in 1993,[xxxv] prior to the passage of Proposal A.[xxxvi]

In other words, up to 18 mills can be levied on commercial, industrial, developmental, personal, certain timber cutover and unqualified agricultural property, though this millage is subject to Headlee rollbacks. Revenues from these sources are primarily intended for "operating" purposes. According to Michigan law, operating expenditures include personnel, "furniture and equipment, for alterations necessary to maintain school facilities in a safe and sanitary condition, for funding the cost of energy conservation improvements in school facilities, for deficiencies in operating expenses for the preceding year. ..."[xxxvii] They do not include a sinking fund (the purchasing of real property for building construction and renovations), financing a current or projected operating deficit through district-issued bonds,[43] operation of certain libraries or operating a community swimming pool.[44]

‘Hold-Harmless’ Millage

An exception to this 18 mill operating tax limit is commonly referred to as a "hold-harmless" provision. This provision is tied to a district’s "foundation allowance" — that is, the number used to calculate state government’s contribution to operating spending in conventional local school districts and charter schools.[xxxviii]

Of the 552 conventional Michigan public school districts, 51 are considered "hold-harmless districts," because they have been able to levy a "hold-harmless" millage at one time or another since 1994, the year that Michigan voters passed Proposal A. These districts have been permitted to levy this millage above the amount that Michigan statute typically allows because the districts had fiscal 1995 per-pupil revenues that were higher than $6,500. The millage must still be approved by a majority of voters in the district[45] and is subject to the rollback provisions of the Headlee amendment.

A hold-harmless millage can be levied on both homestead and nonhomestead property, but the size of hold-harmless millages is limited by certain provisions of Michigan law. The first is that a school board of a hold-harmless district

"may reduce the number of mills from which a principal residence and qualified agricultural property are exempted … by up to the number of mills … required to be levied on a principal residence and qualified agricultural property for the school district’s combined state and local revenue per membership pupil for the school fiscal year ending in 1995 to be equal to the school district’s foundation allowance for the state fiscal year ending in 1995, and the [hold-harmless district’s] board also may levy in 1994 or a succeeding year that number of mills for school operating purposes on a principal residence, qualified agricultural property, and qualified forest property."[46]

This statute means that after 1994, a qualifying district may levy a large enough homestead property tax millage to produce a total state and local revenue equal to the amount available to the district in 1995. The effect is to allow a hold-harmless district to receive at least as much under Proposal A as it did before Proposal A (an additional provision of the State School Aid Act ensures that increases in per-pupil operating revenues are financed by state government).[47]

Second, the number of hold-harmless mills must be reduced if a growth in the district’s taxable value drives the annual per-pupil revenue increase above either the dollar increase in the state’s basic foundation allowance[xxxix] or the percent increase in the consumer price index, whichever is less.[48] This provision prevents any growth in hold-harmless property taxes from exceeding the inflation rate, but the provision also makes sure that hold-harmless districts, which already spend more than the average district, do not move too much further above the average when the taxable value of property in the district rises rapidly.

Third, hold-harmless millage rates cannot be greater than the number certified for each district by the state Treasury Department in fiscal 1995.[49]

As of fiscal 2006, 28 districts levied hold harmless millages.[xl] These districts are listed in Graphic 6.[xli]

Graphic 6: Hold-Harmless Districts Levying Hold-Harmless Millages, Fiscal 2006

District Name


Homestead Second


Ann Arbor Public Schools 5.509



Avondale School District 1.320



Birmingham City School District 8.950



Bloomfield Hills School District 8.116



Center Line Public Schools 15.578



Clarenceville School District 0.727



Dearborn City School District 5.219



East Lansing School District 0.857



Farmington Public School District 9.160



Grosse Ile Township Schools 2.156



Grosse Pointe Public Schools 6.265



Lamphere Public Schools 14.500



Livonia Public Schools 0.600



Midland Public Schools 3.591



Novi Community School District 3.566



Oneida Township S/D #3 6.147



River Rouge School District 18.000 1.437 1.437
Romulus Community Schools 8.990



Saugatuck Public Schools 1.487



School District of the City of Royal Oak 3.503



South Lake Schools 4.853



Southfield Public School District 18.000 1.633 1.633
Trenton Public Schools 3.732



Troy School District 5.739



Walled Lake Consolidated Schools 2.108



Warren Consolidated Schools 6.717



Waverly Community Schools 6.037



West Bloomfield School District 3.716



Source: "LEA Millage Rates," Michigan Department of Education.

Property Taxes for Capital Purposes

Money expended to finance debt and to obtain, build or upgrade physical assets like school buildings and equipment is considered "capital spending," while money spent on day-to-day needs like school supplies and staff for classrooms is considered "operational spending."[xlii] Michigan law requires that local school districts separate their operational and capital expenditures, and different taxes are levied for each purpose. The revenue sources for school districts’ capital expenditures are discussed below.

Building and Site Sinking Fund Millages

According to Michigan law, conventional school districts may levy a tax on the property in a district to create a sinking fund "to be used for the purchase of real estate for sites for, and the construction or repair of, school buildings."[50] A sinking fund is similar to a savings account into which a district makes regular deposits until the district has saved enough to pay for real estate, repairs or construction.[51]

A building-and-site sinking fund millage is limited to 5 mills for no more than 20 years, and these millages are subject to Headlee rollbacks. The millage must be approved by the voters in a school district and must be presented on the ballot in the following terms: "Shall (district name) levy (number not to exceed five) mills to create a sinking fund for the purpose of (projects to be addressed) for a period of (number not to exceed 20) years?"[52]

Compared to the debt millage that will be discussed below, the building-and-site sinking fund millage is little used. In 2002, taxes levied to service debt accounted for more than 92 percent of combined debt and sinking fund levies.[53] Of the 552 conventional school districts, three districts levied 4 mills or more for sinking fund levies in fiscal 2006.[xliii]

Capital Outlay Bonds for Debt Service

In addition to sinking fund levies, local school districts can finance capital projects by issuing bonds. Bonds are bought by investors who are then repaid by the school district over the period stipulated by the terms of the bond. Depending on the bond’s type, the principal (the amount borrowed) and interest (the fee paid to borrow the principal) must then be paid back from the district’s general fund or by revenue raised through a debt service property tax. Such debt service property taxes, unlike general operating millages, are not subject to Headlee rollback provisions.[54]

Local districts can issue three types of bonds,[55] all of which must be approved by the state treasurer, in keeping with Public Act 34 of 2001:[xliv]

  1. "Resolution bonds" are issued by a motion of the local school board and do not require the approval of the district’s voters. Resolution bonds and the district’s other debt cannot total more than 5 percent of the SEV of all property in the district.[xlv] Annual payments on the principal and interest are made from existing school district monies, not from additional property tax levies.

  2. "Nonqualified bonds" can be issued by a school district for a period of one year to 30 years, and the bonds must be approved by a vote of the school district electorate. The board of education must then levy a tax to make principal and interest payments on the bond. Michigan law does not allow nonqualified bonds to exceed 15 percent of the SEV of all property in the district.[56]

  3. State "qualified bonds" are sold by the district but guaranteed by the state of Michigan, meaning that the district may use the state’s — rather than the district’s — credit rating. Since the state’s credit rating is usually better than the district’s, the district is able to obtain a lower interest rate. Still, the district must first seek and gain approval from the state treasurer to sell qualified bonds, and a majority of the district’s voters must approve a property tax levy to finance the bonds. If the property tax revenue is not sufficient to service qualified bond debt — i.e., to make annual payments on the bonds’ principal and interest — the district can borrow from the Michigan School Loan Revolving Fund. Details about the MSLRF and the numerous steps districts must follow to issue qualifed bonds appear in Graphic 7.

Graphic 7: State Restrictions on Qualified Bonds

To receive state approval to issue qualified bonds, the district’s application to the state treasurer must include the following information:[58]

  • the proposed ballot language to appear before voters;

  • a description of the project that will be financed by the bond issue;

  • a projection of the estimated mills the district will levy to pay the bond;

  • evidence that new buildings financed by the bond issue will be used at a rate of 85 percent and that renovated facilities will be used at a rate of 60 percent;[59]

  • evidence that the cost per square foot of the projects to be financed will be reasonable with reference to local economic conditions;

  • the overall utilization rate of all current buildings in the district, excluding special education purposes;

  • the total outstanding bonded debt and total taxable value of property in the district in the year the application is filed;

  • evidence that the district will pay all outstanding qualified loans related to qualified bonds not later than six years (72 months) after the date on which the bonds are due and payable;[60]

  • the average age of the district’s school buildings weighted by square footage;

  • a declaration of environmental or usability problems to be addressed by the projects;

  • an architect’s analysis of the condition of facilities being renovated or replaced; and

  • an amortization schedule showing that the weighted average maturity of the qualified bond issue does not exceed 120 percent of the average reasonably expected useful life of facilities — not including land and site improvements — being financed or refinanced by the sale of qualified bonds.

Before qualifying new bonds, the state treasurer must determine that the additional bond issue will not prevent the district from repaying outstanding qualified loans.[xlvi] After determining that a district’s application for qualified bonds has met the requirements of state law, the treasurer can grant "prequalification," which allows the district to present the request for a bond issue to voters in the district. If the voters approve the qualified bond issue, the district has now met all the conditions necessary to issue the qualified bonds, and the district may levy up to 13 mills of property tax to service its bond debt.

A district need not always levy a property tax large enough to repay all of its qualified bonds. If a district can get voter approval for at least 7 mills of property tax to repay a portion of the bonds, it can borrow from the state government’s Michigan School Loan Revolving Fund any extra money it needs to supplement the millage and make its bond payments on time.[xlvii] Once the bonds are repaid to the bondholders, the district then continues to levy the millage until the proceeds repay the MSLRF for the loan. The loan may not equal more than the difference between revenue from the millage that a district says in its application will be proposed to voters in the school district[xlviii] and the amount required to pay principal and interest on the qualified bonds. The district is also able to borrow to cover projected lost revenue due to some property owners’ failures to pay taxes.[61]

The full MSLRF loan must be repaid by the district within six years of the bond’s maturity date. For example, if a 10 year bond were issued on July 1, 2006, and the district acquired a loan from the MSLRF to repay the bond, the district would have to repay the loan in full by July 1, 2022, since the bond would reach maturity on July 1, 2016.[62]

Sources: Various, including the School Bond Qualification, Approval, and Loan Act of 2005 and "State of Michigan Bond Qualification Process Overview" (Michigan Department of Treasury).

Recreational Millage

Public Act 156 of 1917 authorizes school districts and municipalities to "operate a system of public recreation and playgrounds."[63] The district’s residents may "vote to provide funds for operating"[64] the recreational facilities, and the district may "acquire, equip and maintain land, buildings and other recreational facilities" and "employ a superintendent of recreation and assistants."[xlix] These recreational millages are subject to Headlee rollbacks.

The 12 school districts that levied a recreational millage in fiscal 2006 are shown in the table below.

Graphic 8: Recreational Millages, Fiscal 2006[l]

Local School District Name

Recreational Mills



East Grand Rapids


Forest Hills
















Whitmore Lake




Source: Michigan Department of Treasury

Intermediate School Districts

Under Michigan law, an intermediate school district has some of the powers of local school districts[li] and generally provides certain transportation and special education services to the local districts within its borders. There are currently 57 ISDs, and some of them have boundaries that correspond with county lines. All 552 conventional local school districts fall within the borders of an ISD, and each ISD generally acts as service agency for its constituent districts. (The state’s private schools and approximately 225 charter schools may also receive services from their regional ISD.) Most ISDs are referred to by an area name and an acronym, such as ISD, ESA ("educational service agency"), RESA ("regional educational service agency") and ESD ("educational service district"). Despite the different acronyms, all are ISDs and have the same powers.

ISDs receive revenues from local taxes (discussed below) and state and federal government (discussed later).

Allocated Millage

Before each fiscal year, an ISD’s general fund budget is approved by the ISD’s constituent conventional local school districts. If an ISD is located in one of the 70 Michigan counties without a county tax allocation board, the ISD receives an allocated millage approved by the ISD’s voters at the time the county’s tax allocation board was disbanded.[lii][65] If an ISD is located in one of the 13 counties retaining a county tax allocation board, the ISD submits a general fund operating budget for the coming fiscal year to the clerk of the county in which the ISD is located. The county clerk submits the budget to the county’s tax allocation board,[liii] which then sets a tax rate based on the ISD’s general fund operating budget.[liv] The millage rates for an ISD allocated millage are subject to Headlee rollbacks.

The general fund operating budget includes "revenues from the [ISD’s] share of mills as determined by the tax allocation board or by referendum or state school aid." Expenditures from the general fund operating budget of an ISD include those required for "the operation of all [ISD] programs except cooperative education, special education, and vocational education, [but] … may apply to expenditures from the general fund to assist with the costs of cooperative education, special education, and vocational education."[66]

Information from the Michigan Department of Treasury indicates Clare and Muskegon counties had the state’s highest ISD allocated millage rates in fiscal 2006, each distributing 0.5 mills to their respective ISDs. Oscoda County had the lowest allocated millage rate to an ISD, distributing no millage to the four-county ISD that includes parts of Crawford, Ogemaw, Oscoda and Roscommon counties.

Operating Millage

In addition to the levy discussed in the previous section, an intermediate school district may levy a tax for operating expenses on all real and personal property within the ISD’s boundaries if approved by the ISD’s voters. This tax rate may not exceed 1.5 times the ISD’s allocated millage in 1993[67] and is subject to Headlee rollbacks.

While some intermediate school districts’ boundaries follow county lines, several encompass more than one county. Once a county has collected the revenue from the ISD’s operating millage, the treasurers in the counties encompassed by the ISD disburse the appropriate amount of revenue to the treasurer of the ISD board.[lv][68]

The intermediate district with the highest operating millage is the Branch ISD, which levies 8.0345 mills; the lowest is the Crawford-Oscoda-Ogemaw-Roscommon ISD, which levies 0.6329 mills.

Tax for Vocational-Technical Education Programs

ISDs are given the authority by Michigan law to institute and finance vocational-technical education programs.[69] ISDs may fall into one of two tax limitation categories for financing such programs, but in either case, the tax would be subject to Headlee rollbacks. First, if an ISD levied a tax for a vocational-technical education program in 1993, it may levy additional mills for that program at a rate of up to 1.5 times the number of mills it levied for a vocational-technical education program at that time.[70]

Second, if an ISD did not levy a tax for a vocational-technical education program in 1993, the ISD may establish and finance the program once it has received voter approval to create such a program and to levy a tax up to the limit specified in the ballot question. The highest vocational-technical millage these ISDs can present to voters is 1 mill.[71]

Of the 57 ISDs, 31 levied a vocational-technical education millage in 2006. Of the ISDs that levy such a tax, the Branch ISD has the highest rate, 4.2105 mills, while Oakland ISD has the lowest, 0.6231 mills.

Tax for Special Education Programs

An intermediate school district is required by statute to "develop, establish, and continually evaluate and modify" special education programs for its constituent districts.[72] If an ISD wishes to receive funds from local property taxes specifically for special education programs, it must present to voters in the ISD a ballot question that limits the number of mills that the ISD can levy on all property for operating special education programs.[73] The district may not request a millage rate higher than 1.75 times the number of mills the ISD levied in 1993 for special education operating purposes, and the millage rate is subject to rollbacks under the Headlee amendment.

Every ISD levied a local special education property tax in 2006.Jackson ISD levied the highest tax rate at 5.6229 mills, while Crawford-Oscoda-Ogemaw-Roscommon Intermediate School District levied the lowest at 0.6329 mills.

Property Tax for Regional Enhancement Operating Purposes (Tax-Base Sharing Provision)

Intermediate school districts may levy with the approval of voters a "regional enhancement" property tax. Revenues from the tax are meant to "enhance other state and local funding for local school district operations,"[74] so the revenues are not kept and spent by the ISD itself, but rather passed through to the ISD’s constituent districts. The tax can be levied at the rate of up to 3 mills for up to 20 years and is subject to Headlee rollbacks. The tax can, however, be renewed by a majority of voters in the intermediate school district.[75]

The ISD distributes the revenue to its constituent districts by dividing the total raised under the tax by the number of pupils in the ISD. The per-pupil amount is then multiplied by the number of students enrolled in a particular conventional school district on the most recent pupil count day, and the resulting sum is disbursed to the constituent district within 10 days after the ISD receives the revenue.[76]

The two ISDs that levied this tax in 2006 were the Monroe ISD, whose millage rate is 0.9866 mills, and the Kalamazoo Valley ISD, which has a millage rate for this tax of 1.5 mills.[77]

Borrowing and Bond Issuing

Intermediate school districts may borrow money or issue bonds without the approval of voters[lvi] in the ISD if the total amount of bond indebtedness does not exceed one-ninth of 1 percent of the SEV of the taxable property in the district. Total bond indebtedness does not include bonds issued for vocational-technical education facilities or special education facilities.[lvii][78] The bonds are repaid by revenues from a property tax millage approved the ISD’s voters, but this millage is not subject to rollbacks under the Headlee amendment, which specifically excludes from rollbacks "taxes imposed for the payment of principal and interest on bonds. ..."[79]

Bonds issued under these provisions may be used to purchase building sites, purchase information technology systems and software, or "purchase, erect, complete, remodel, improve, furnish, refurnish, equip or re-equip buildings and facilities the (intermediate school) board is authorized to acquire," including administrative, special education and vocational-technical education facilities.[80]

[xiii] The assessment of real and personal property involves a complex variety of factors. This primer does not explore these factors, but rather focuses on the tax revenues generated to finance public schools. Interested readers can see the broad statutory language in MCL § 211.27(1) and access the state’s assessor manuals on the Michigan Department of Treasury Web site at,1607,7-121-1751_2228---,00.html (accessed on April 3, 2007).

[xiv] For an example of the personal property tax reporting form used by an assessor, see

[xv] The process by which local property values are equalized following an assessor’s determinations of true cash value involves adjustments for inflation and other factors. Readers interested in an overview of the equalization process can consult "Bulletin No. 9 of 2006: Equalization Calendar, Equalization of Assessments," (State Tax Commission, Michigan Department of Treasury, 2006), (accessed April 13, 2007).

[xvi] This is a feature of Proposal A of 1994, appearing in Article IX, Section 3, of the Michigan Constitution of 1963. A number of other taxes on property are not governed by taxable value; see particularly "Certain Properties in Local School Districts," under Property.

[xvii] In instances of general deflation, the rate of increase would still be dependent on the general price level. If the general price level has decreased, taxable value would still be the lesser of SEV or the taxable value in the previous year reduced by the percentage decrease in the general price level.

[xviii] According to a 2006 report, taxable value statewide for real and personal property was $93.9 billion less than SEV: Andrew Lockwood, "The Michigan Property Tax Real and Personal: 2005 Statistical Update," (Tax Analysis Division, Bureau of Tax and Economic Policy, Michigan Department of Treasury, 2006), 1, Report_178063_7.pdf (accessed April 13, 2007). State taxable value was 84.6 percent of SEV in 2000: Citizens Research Council of Michigan, "The Growing Difference between State Equalized Value and Taxable Value in Michigan," (Citizens Research Council, 2001), (accessed January 20, 2006). See Finance and Organization for county comparisons of taxable value and SEV in 1994 and 2000.

[xix] If the inflation rate had exceeded 5 percent, Michigan’s constitutional cap would have allowed the taxable value to increase by no more than 5 percent from the previous year’s cash value. In this case, the new taxable value would then have been calculated by multiplying the old taxable value (and SEV) of $71,000 by 1.05, and the resulting taxable value in the second year would then have been $74,550. The SEV of $75,260 then would have been greater than the taxable value, since the SEV (and cash value) increased by 6 percent, not 5 percent.

[xx] If a property’s value has increased quickly over a number of years, but later decreased, the taxable value would lag the SEV during the years of increase (due to the constitutional amendment), remain constant during the years of decrease until the SEV fell back to the taxable value, and then become equal to (and decline in lockstep with) the SEV. In general, then, the taxable value is the lesser of the capped value and the SEV.

If, on the other hand, a property’s value falls in one year and then increases faster than inflation in the following year, the taxable value is still limited by the rate of inflation in the second year.

[xxi] For a database of taxable value by school district or county, see Users without the appropriate account must click the "Public Access" radio button to enter the database. Districts are searchable only by district code. Users can obtain district codes by searching for a district in the School Code Master database available from the state’s Center for Educational Performance and Information at

[xxii] MCL § 211.27d. The items specified by (2), (3) and (4) also appear to be due on the fourth Monday in May, but the statute specifies the day only for this item (1).

[xxiii] This property is reported separately since it receives a "homestead tax exemption" in many school districts.

[xxiv] This form has been replaced by Form 2849 (, but the new form had not yet been used at the time of this writing. Graphic 3 shows only the second page of the report because the first page contains primarily tax rates and figures that are transferred to Page 2 to make calculations.

[xxv] See Local Government.

[xxvi] Excepting military personnel, if a Michigan property owner has filed an income tax return as a resident in another state, that person — for example, a civilian Michigan summer home owner who does not permanently reside in Michigan — is not eligible for the homestead exemption; see MCL § 211.7cc(3)(d).

[xxvii] For an actual example of a total SEV annual increase as compared to a total taxable value annual increase, see Daryl J. Delabbio and Robert J. White, "2005 Financial Overview, Kent County, Michigan," (Kent County, Michigan, 2005), 6, 2005FinancialOverview.pdf (accessed February 2, 2006).

[xxviii] Headlee rollbacks are a form of property tax limitation. Another is a "Truth in Taxation" rollback (see MCL § 211.24e), which is more strict than a Headlee rollback, but according to the Michigan Department of Treasury, less likely to be invoked. This property tax limitation requires that millage rates be reduced so that property tax revenue does not exceed the previous year’s revenue (unlike the Headlee rollback, this limitation does not allow for inflationary increases in a district’s taxable value).

A district may be exempted from the "Truth in Taxation" rollback in one of two ways. First, it may adopt the "Truth in Taxation" provisions (see MCL § 141.436 and MCL § 211.24e(3)), which require school districts (and other local government authorities) to estimate revenues by source (see MCL § 141.436(3)) and taxes the district will levy — within all other applicable statutory limits and constitutional limits (discussed below) — to fund its projected expenditures (see MCL § 141.436(1) and MCL § 141.436(6)). Second, it may hold a "Truth in Taxation" hearing (see MCL § 141.412) to discuss publicly the additional millage required to maintain millage rates at the authorized limit, and then may adopt a resolution to approve the additional mills required to keep the millage rate at the authorized limit ("Michigan Public School Accounting Manual (Bulletin 1022): Section II, Requirement," (Michigan Department of Education, 1998), 16).

[xxix] MCL § 211.34d. This is referred to by the State Tax Commission as the "Headlee Millage Reduction" or an "L-4029 levy," after the name of the form used to report it.

[xxx] See, for instance, Michigan State Tax Commission, "Bulletin No. 4 of 2006: Millage Requests and Rollbacks," (Michigan Department of Treasury, 2006), 4, (accessed April 3, 2007). The Headlee amendment was passed before the existence of a statewide property tax.

[xxxi] County equalization directors usually calculate this millage reduction using a "Headlee Millage Reduction Fraction." Computations of the Headlee MRF for each taxing jurisdiction are provided annually by the State Tax Commission in a document issued to tax collection officials, such as county clerks, county treasurers, equalization directors, and the boards of local school districts and intermediate school districts.

The MRF formula divides the product of the prior year’s taxable value minus losses and an inflation rate multiplier by the current year’s taxable value minus additions. Generally defined, the inflation rate multiplier is the current year’s general price level divided by the previous year’s general price level. Under Michigan statute, the general price level is the average of the previous year’s monthly consumer price index (CPI) values, which reflect the change in the average urban consumer’s price for certain goods and services.

The general formula is expressed in the following way:

MRF = (Taxable ValuePrevious Year - Losses) x Inflation Rate Multiplier.

(Taxable ValueCurrent Year - Additions)

For 2005, the State Tax Commission’s formula was the following:

2005 MRF = (Taxable Value2004 - Losses) x 1.023.

(Taxable Value2005 - Additions

This product of this fraction and the previous year’s nonhomestead millage rate is then the new millage rate.

[xxxii] The first two of these school taxes are for local schools, while the third is levied for the state’s public schools by state government.

[xxxiii] Later, under this primer’s discussion of state taxes, it will be possible to report the total revenue raised by each state tax. A similar breakdown is not possible for local property taxes, however. Government documents report aggregate local tax revenue in such broad summaries as "extra voted operating" taxes, a category that combines at least five different property tax levies. Furthermore, in state Treasury Department reports, aggregate revenues are given not by school districts, but by counties, each of which can contain numerous school districts. See, for example, "2005 Ad Valorem Property Tax Levy Report: Taxable Valuations, Average Tax Rate Data and Tax Levies for Counties, Townships, Cities, Villages and Schools," (State Tax Commission, Michigan Department of Treasury, 2006), (accessed February 27, 2007).

Two other sources could give the interested reader total locally retained revenue, but again not by property tax type. The fiscal data reported in the electronic module described in Appendix 3 presents total revenue from local sources by district. Readers can also arrive at an unaudited but roughly accurate figure by calculating the revenue from the millage rate for a particular tax — most are listed in this primer — and the taxable value for the appropriate class of property.

[xxxiv] Because this primer focuses on school finance, property taxes levied by counties, cities or municipalities for noneducation purposes will not be discussed.

[xxxv] Certain districts can in fact levy more than 18 mills on nonhomestead property, but they must levy these additional mills through a “hold-harmless” millage, which is discussed below. Michigan education fiscal year runs from July 1 through June 30. Note that this fiscal year is different from the fiscal years of Michigan government and the U.S. government, both of which start on Oct. 1 and end on Sept. 30.

[xxxvi] MCL § 380.1211. According to the statute, a local district, with approval from the electorate, “shall levy not more than 18 mills for school operating purposes or the number of mills levied in 1993 for school operating purposes, whichever is less.”

[xxxvii] MCL § 380.1211(8)(g). Personnel are not directly listed, but are implied.

[xxxviii] This state grant spending is discussed in detail under the section entitled “The Foundation Allowance.”

[xxxix] The basic foundation allowance is the minimum amount of per-pupil state and local tax revenue a school district receives for operating purposes if the district levies the maximum possible nonhomestead property tax millage (either 18 mills or the school property tax millage in 1993). For further details, see the section titled “The Foundation Allowance.”

[xl] Since hold-harmless districts are those that have levied such additional property tax millages at some time since 1995, not all 51 hold-harmless districts continue to levy hold-harmless millages.

[xli] This list is compiled from “LEA Millage Rates,” Michigan Department of Education,

[xlii] The distinction between capital expenses and operating expenses is not always intuitive or clearly defined. For instance, the capital expenses that local school bonds can (and cannot) defray are listed at length and in some detail in MCL § 380.1351a. In the case of sinking fund millages, the Michigan School Business Officials Web site posts a series of letter exchanges between Michigan school districts and Michigan Department of Treasury concerning whether a sinking fund millage can be used for a variety of specific expenses (for example, acoustical insulation, basketball backboards, replacement of water heaters, kitchen dishwasher rooms); see

[xliii] These are Union City Community School District (4.8575 mills), Dearborn Heights School District #7 (4.5909 mills) and Highland Park City Schools (4.9970 mills); see "LEA Millage Rates."

[xliv] Public Act 34 of 2001 is the Revised Municipal Finance Act, MCL §§ 141.2101-2821; for approval provision, see MCL § 141.2303(8).

[xlv] MCL § 380.1351(2). The district’s current debt as a percentage of SEV is often referred to as the "debt-to-assessed-valuation ratio."

[xlvi] Public Act 92 of 2005 added this provision (MCL § 388.1926(a)) to prevent a district from carrying debt longer than the due date on the bonds the state sold to cover the qualified loan it made to finance the district’s own bonds. Previously, a district could postpone repayment of a loan from the state, a practice that could force the state to incur debt service costs. For an explanation, see House Fiscal Agency, “Legislative Analysis: Create School Bond Loan Revolving Fund,” June 27, 2005, 2.

[xlvii] Prior to July 20, 2005, such loans were financed by a similar program known as the “Michigan School Bond Loan Fund,” also run by state government. The MSBLF still exists to finance those loans, but all districts borrowing from the state after July 20, 2005, receive the loans from the School Loan Revolving Fund. See “School Loan Revolving Fund Process,” (School Bond Qualification and Loan Program, Michigan Department of Treasury, 2006), 2, (accessed March 12, 2007).

[xlviii] This is called the “computed millage;” see MCL § 388.1923(a).

[xlix] The latter two provisions apply specifically to “any city, village, county or township” in MCL § 123.51, but MCL § 123.52 extends the same provisions to school districts: “Any school district ... may exercise all other powers enumerated in section 1.”

[l] Data provided to the authors by the Michigan Department of Treasury.

[li] Specifically, the law empowers ISDs to perform two basic functions: (1) educate students in kindergarten through 12th grade, as well as operate programs for “preschool, lifelong education, adult education, community education, training, enrichment, and recreation programs for other persons” (see MCL § 380.601a(1)(a)); (2) provide for the “safety and welfare of pupils while at school or a school sponsored activity or while en route to or from school or a school sponsored activity” (see MCL § 380.601a(1)(b)). The other functions as described in MCL § 380.601a involve self-referential duties that stipulate an ISD may manage its own budget and facilities; see MCL § 380.601a(1)(c)-(e).

[lii] A county tax allocation board is disbanded by a vote of the county electorate, and the ISD’s maximum millage rate is set by the voters during that election. Such elections have been occurring in counties throughout the state since 1964 (Tuscola County), with the most recent occurring in August 2006 (Manistee County, Presque Isle County and Chippewa County).

[liii] MCL § 380.624(1); for details related to tax allocation boards, see MCL § 211.211; for ISDs that contain more than one county vis-à-vis tax allocation boards, see MCL § 211.211a. According to the Bureau of Local Government of the Michigan Treasury Department, 13 counties had only allocation boards to set tax rates for the county, township and ISD in 2006; those counties were Arenac, Barry, Cheboygan, Ionia, Iosco, Iron, Kalkaska, Livingston, Mackinac, Mason, Newaygo, Ottawa and Washtenaw.

[liv] MCL § 211.211(1). If the budget would require a millage rate that exceeds the funds available (county and township governments also have claims on the county millage distributed by the tax allocation board). State law stipulates certain conditions for setting tax rates; see MCL § 211.211(3)-(6).

[lv] ISDs have boards selected by school board members from the ISDs’ constituent districts (MCL § 380.614).

[lvi] MCL § 380.629(2). Approval is not required for bonds issued for energy conservation improvements to school facilities under MCL § 380.1274a or bonds to repay loans from the Michigan Municipal Bond Authority issued in the amount of one-half of the state’s payment to certain districts as resolution to the 1997 Durant v. State of Michigan Supreme Court decision (see MCL §§ 388.1611h, 1611i: see also MCL § 380.629(2)). On Durant-related bonds, see the section titled “Durant-Related Payments” under “State Categorical Grants.”

[lvii] The total bond indebtedness also does not include bonds issued under MCL § 388.1611i, which can be up to one-half of the total payment a district was to receive as settlement of the Durant case regarding special education. These bonds can then be repaid as districts receive settlement payments from the state. For a list of districts and payments involved, see MCL § 388.1611h.