If Michigan Eliminated Property Taxes: Where is the Funding?

Could Michigan Eliminate Property Taxes Like Florida?

Florida is exploring the elimination of property taxes a bold move gaining attention across the country. This raises a major question for the Midwest: Should Michigan follow suit? For homeowners and real estate investors, lower property taxes could mean reduced holding costs and improved cash flow.

But the potential consequences go far beyond tax bills.

The Role of Property Taxes in Michigan’s School Funding

Michigan’s total education budget is $21.5 billion, with $2.2 billion subsidized by the U.S. Department of Education. The remaining majority is funded at the state and local level much of it through the School Aid Fund, which receives revenue from:

• Sales Tax

• Cigarette Tax

• Lottery proceeds

• Industrial and Commercial Facilities Tax

• Commercial Forest Tax

• Liquor Excise Tax

Despite these diversified sources, property taxes still play a critical role in local school funding. Eliminating them would leave a significant gap, one that other revenue streams may struggle to fill.

What Was Proposal A Supposed to Fix?

In 1994, Michigan passed Proposal A, a school finance reform designed to reduce the reliance on property taxes for education funding. To compensate, the proposal the proposal raised the state Sales Tax to 6%, increased funding from the Lottery and commercial property taxes.  The purpose was to create a more equitable funding system across the school districts.

While the intention was to lower the burden on homeowners, property taxes remain a key funding source for schools today.

School of Choice: A Hidden Strain on Budgets

Michigan’s School of Choice program allows students to attend public schools outside their home district. While this provides flexibility for families, it creates a funding mismatch:

• The student’s family does not contribute local property taxes to the receiving district

• The receiving school absorbs the full cost of educating the student

• This creates financial strain on districts with high transfer enrollment

For investors evaluating neighborhoods and school systems, this imbalance can affect district quality, reputation, and long-term property values.

Michigan’s National Rankings: A Warning Sign

According to U.S. News & World Report, Michigan currently ranks:

• #42 overall among U.S. states

• #41 in education

• #41 in infrastructure

• #38 in crime and corrections

• #28 in economy

These rankings reflect underlying issues that can impact the long-term desirability of Michigan communities especially if funding for public services is cut further.

Michigan’s Economy and Real Estate Risk

Michigan’s economy is heavily dependent on the automotive industry, a sector undergoing major transformation. As automakers shift toward electric vehicles, automation, and globalized supply chains, the state could face job losses and economic uncertainty.  This will transfer to reduced demand for housing in many areas as the industry goes through restructuring for economic survival.

For real estate investors, this makes diversification and due diligence essential when considering markets within Michigan.

Real Estate Investment Implications

Eliminating property taxes might seem like a win for real estate investors, especially those focused on short-term gains. But without sustainable alternatives, long-term risks include declining school quality, deteriorating infrastructure and lowered property values.

Smart investors look beyond monthly cash flow they assess the health and sustainability of the communities they’re investing in.  Diligent investors look at migration of the area.  For example, is the area just a transitory location for potential tenants?  The idea is for a tenant to stay the next 3-5 years.  High turn over rate increases lost income.

Final Thoughts: Is Cutting Property Taxes Worth It?

As Florida leads the charge in tax reform, Michigan is faced with a critical question: Should it follow the same path?

The answer isn’t simple. While reduced taxes can boost profits, strong schools, reliable infrastructure, and safe neighborhoods are the true foundation of lasting property value.

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