By JIM ANDERSON

News Editor

IRON MOUNTAIN - Michigan's Proposal A will create a puzzling situation for many homeowners this year: property taxes will rise, even as market values decline.

Homeowners, understandably, might expect taxes to fall in concert with market value, but Michigan distinguishes between taxable value and assessed value, said Larry Swartout, Dickinson County equalization director.

Prior to 1994, property taxes were based on a home's assessed value, which is 50 percent of the fair market value. Since the adoption of Proposal A, property taxes can be levied only on taxable value.

Under Proposal A, increases in taxable value are capped each year for those who continue to own the same home. The cap is the rate of inflation or 5 percent, whichever is less.

The cap in 2009 is 4.4 percent - the highest inflationary increase in property taxes since Proposal A was created.

Since market values have generally risen faster than inflation in past years, the taxable value of many homes is below the full market value, Swartout said.

Most Dickinson homeowners can expect an increase in taxable value in 2009, even if the assessed value is down.

"The majority will see a 4.4 percent increase," Swartout said.

According to a Michigan Department of Treasury analysis, home values statewide have increased 98.4 percent since Proposal A went into effect in 1995. Average property taxes, meanwhile, have increased 42.9 percent.

Because of falling home prices, some parts of Michigan will see tax collections decline this year for the first time in decades, according to the Michigan Township Association.

In areas such as Dickinson County, where the housing market has seen greater historical stability, there will likely be some growth in property tax revenue.

Overall, local property values remain "stable," Swartout said.

That's in contrast to some downstate areas where a housing boom of the late 1990s and early 2000s led to annual increases in home prices in the double digits. With that housing bubble now bursting, some state lawmakers are proposing a constitutional amendment to change the way homes are taxed.

Under the proposal, if the market value of a home declines, an owner's taxes would immediately decline.

Opponents, however, say that in a time of falling sales, the market value will eventually decline to the level of the capped taxable value. In the meantime, local governments are offered protection against plummeting revenues.

Homeowners who file a Board of Review appeal should be aware that a successful appeal may not necessarily lower their taxes, Swartout said.

"The Board of Review can't change the taxable value - they only act on the assessment," he said.

If the taxable value is well below the assessed value, the assessed value could be lowered without immediately affecting the taxable value, he explained.

According to figures from the National Association of Realtors and the Michigan Association of Realtors, average house prices have fallen 16 percent in Michigan in the past year. Those figures, however, include foreclosures, family sales, sales done under duress and estate sales, which assessors can't use. Assessors can only base their assessments on sales done freely in the open market.

Under Proposal A, when a home is sold the property is uncapped and the assessed value becomes the taxable value.

Jim Anderson's e-mail address is janderson@ironmountaindailynews.com.