For decades, state laws have allowed Michigan cities to apply a small portion of the taxes that are levied by other government entities (like school districts, the county, and the state), on improvements in downtown districts. Called "tax increment financing", the idea is that the city's investments in sidewalks, sewers, traffic signals and other improvements will increase the value of the properties in the downtown district, and this will eventually benefit the land owners and all of the governmental entities who are taxing the property.
A legal debate has recently arisen due to the fact that the state laws that allow tax increment financing do not say what should happen when a new millage is passed, like the recently approved Zoo millage and Detroit Institute of Arts millage in the Detroit metropolitan area. The Michigan Attorney General has written that these new millages may not be "captured" by a City for investment in a downtown project, because the Zoo Authority and the DIA Authority were not around when the tax increment projects were first approved, and they did not have an opportunity to object to these projects at that time.
On the other side of this legal debate, a number of Wayne County cities have argued that, since the state laws do not clearly carve out any exception for these newly approved millages, a portion of them should be captured and invested just like the taxes of the other, existing governmental entities.
Unfortunately, the statutes do not provide a clear answer to this issue, and it will likely have to be decided in court. Only then will we know for sure whether the City can spend a portion of the Zoo millage on a downtown sidewalk.
