News & Information

A March 29, 2010 Opinion of the Attorney General has provided guidance on a key provision of the Downtown Development Authority Act, Act 197 of the Public Acts of Michigan of 1975, as amended (“Act 197”), relating to the ability of “affected taxing jurisdictions” to “opt out” of an established downtown development authority’s district and tax increment capture.

Under Act 197, when a municipality proposes to establish a downtown development authority, designate the boundaries of the authority’s district, and capture taxes levied by other taxing jurisdictions on property located within the authority’s boundaries, affected taxing jurisdictions have an opportunity to “opt out” of the tax increment capture. In order to opt out and exempt an affected taxing jurisdiction’s taxes from capture by the downtown development authority, the legislative body of the affected taxing jurisdiction must adopt a resolution and file the resolution with the clerk of the municipality establishing the downtown development authority. The resolution must be adopted and filed not more than 60 days following the public hearing on the establishment of the authority and designation of the authority’s boundaries.

Once a downtown development authority and its geographic boundaries are established, the authority may capture the property taxes levied by all of the affected taxing jurisdictions that did not opt out on real and personal property in the district, in accordance with the authority’s development plan and tax increment financing plan. The authority’s plan is adopted by the municipality that established the authority after conducting a public hearing on the plan and providing notice of the public hearing in accordance with Act 197.

After an authority’s boundaries are established, the boundaries of the district may be expanded, but only after the authority and the municipality follow the procedures utilized to establish the district originally: the municipality must schedule and conduct a public hearing on the proposed expansion of the authority’s boundaries and provide notice of the hearing to property owners within the district, the expansion area, and affected taxing jurisdictions.

In the case of Village of Holly v Township of Holly, 267 Mich App 461 (2005), the Michigan Court of Appeals held that in order for an affected taxing jurisdiction to opt out of a downtown development authority district, the opt-out resolution must be adopted and filed within 60 days of the municipality’s public hearing on the establishment of the downtown development authority. The court rejected the Village of Holly’s argument that an affected taxing jurisdiction could opt out of the tax capture by adopting a resolution to that effect within 60 days of the approval of the development plan and tax increment financing plan by the establishing municipality. The court did not address, however, whether an affected taxing jurisdiction could opt out of a pre-existing downtown development authority’s district when the authority proposed to expand or reduce the size of the authority’s district.

The Attorney General’s March 29, 2010 opinion clarifies that when an authority proposes to expand the boundaries of an existing downtown development authority district, an affected taxing jurisdiction that did not opt out of the establishment of the original district can only opt out of the proposed expansion. An affected taxing jurisdiction is without legal authority to opt out of the entire downtown development authority district when an establishing municipality proposes only to expand or reduce the boundaries of the district.