In response to a change in state law, East Lansing’s City Council has established new income thresholds below which low-income residents will be eligible for exemptions from property taxes in the city.
At the Tuesday, Feb. 21 City Council meeting, East Lansing Tax Assessor David Lee explained that, previously, people who met certain income and asset thresholds could apply to be exempted from property taxes, with the city’s Board of Review empowered to approve or deny exemptions with some degree of latitude.
The exemptions will still be based on income and asset thresholds. However, a change in state law no longer allows the Board of Review to step outside Council’s guidelines. As a result, Council established new guidelines for exemptions.
Now, people living in a household with an annual income at or below the federal poverty level are eligible for a 100% property tax exemption. People with a household income equalling 100-125% of the federal poverty level are eligible for a 50% exemption, and those with income totalling 125-135% of the poverty level threshold are eligible for a 25% exemption.
Lee explained that the federal poverty thresholds are fluid and typically increase each year. The thresholds depend on the number of people living in each household.
Using a four-person household as an example, a household making less than $27,750 annually would be eligible for a full exemption under East Lansing’s new rules. One making less than $34,688 would be eligible for a 50% exemption and one making less than $37,463 would be eligible for a 25% exemption.
A full summary of the poverty guidelines is available here.
There is also an asset test in the equation. Excluding the value of the residence and one automobile, eligible households may not have assets exceeding $10,000 or they will not qualify.
The Board of Review uses the previous year’s tax returns for the income test.
The new state law does not allow for the Board of Review to allow exceptions for households that have suffered an economically catastrophic event, like a death. This could be problematic because people living above the poverty guidelines may not be financially stable.
“Those federal poverty guidelines are pretty low,” Lee said. “It’s certainly possible for somebody to be in a situation of true need and have income above those guidelines.”
Additionally, Lee said in past years there were examples where the Board of Review would allow exemptions for households that just missed the cutoff. This can no longer happen. This is one reason Lee recommended a tiered system of exemptions.
The new policy is not expected to have a significant impact on the city’s finances. Lee explained there are typically only two to four applicants per year. This past year there was only one application, which was rejected because the household income was well above the guideline.
Lee said the application process has not changed. Those who believe they qualify can apply for an exemption using the directions provided on the city’s website.