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Michigan state officials work to outflank property tax ax

Michigan, hit harder by unemployment than any other state in the nation, is having its roughest economic year since the depression. Some 6,500 state government workers have been laid off. Most colleges and school districts around the state have been forced to make sharp budget cuts.

Yet state officials have been working night and day to prod voters to pass a tax reform measure in a special election May 19. The measure will effectively bring the state less revenue than it now gets. The proposal is so important to state officials that they have spent $3.4 million on the election, a sum they readily admit could be put to good use in other ways.

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The reform would cut property taxes in half for most farm owners and homeowners as of July, and it would hold future annual increases to no more than 6 percent. Those paying city income taxes also would have their bills cut in half. The measures are linked in a package with a 1.5 cent increase in the state sales tax, which would recoup a good portion of the lost revenue. Even so , the "reform" would leave Michigan some $250 million poorer.

Gov. William Milliken (R) was busily arguing the case for the tax package at the last minute over the weekend on television and in door-to-door campaigning around the state. Why are state officials so eager to adopt the reform? They are convinced that without it, or even if it doesn't work that well, they may face a far rougher alternative.

Last fall, voters defeated -- but not resoundingly -- a proposal for a constitutional amendment that would have cut the state's $10 billion annual budget by close to $2 billion. Since then, the burden on Michigan property-tax payers has increased markedly. Besides the growing pinch of inflation, assessments have increased sharply under a new law.

"When I say that the property tax issue has reached crisis proportions, I'm not being melodramatic," insists Patrick McCarthy of Michigan's Department of Management and Budget. "There's a deep-seated anger at the size of tax bills and a feeling that there has to be some substantial relief. . . . This proposal is a sincere effort to provide that."

More and more states are shifting a larger share of the burden of total state and local taxes from property to income and sales taxes, according to John Shannon, a public finance expert with the Advisory Committee on Intergovernmental Relations. While the property tax was responsible for half of those revenues in 1942, he says, its share now probably is closer to 29 or 30 percent.

"Milliken is just hurrying history along --it's a more dramatic instance than we usually get," says Mr. Shannon. "But the trend is most pronounced."

While Robert Tisch -- the tax-cut advocate behind last November's ballot proposal in Michigan -- and the Taxpayers United Federation, Inc., in that state have not formally proposed any substitute, they have campaigned hard against the measure. One charge is that some taxpayers actually will pay more as a result of the reform.

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State officials, backed by most newspapers in the state and education groups, except the Michigan Education Association, basically want voters to put all the discussion over inequities in the property tax system behind them by approving what they have dubbed "Proposal A." In his pitch for passage, Governor Milliken has argued that without a "yes" vote, all efforts at economic recovery will ber "diluted" in the continuing debate over equality.

If voters approve the reform package, the state -- rather than cities and their school systems -- will feel the revenue pinch. Michigan has promised to fully reimburse cities for funds lost in the change. And it already has made $ 170 million worth of the $250 million in cuts it will have to make should the reform pass.

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