425 Agreement
Encyclopedia
The legislature
of the State
of Michigan
enacted Public Act
425 of 1984 which is also known by the title Intergovernmental Conditional Transfer Of Property By Contract Act. It became effective March 29, 1985 and was subsequently amended in 1998. It is often simply referred to as “Act 425” and contractual agreements entered into pursuant to this statute are frequently called “425 Agreements.”
The purpose of Act 425 is to provide for a means for two local units of government
to share tax revenues resulting from new or expanding development in the areas of their jurisdiction
. Most typically a city
and a nearby township
are the parties to such an agreement. Because of the limited ability for a city in Michigan to annex
adjacent territory, development that takes place outside of the city limits would normally deprive that city of any added revenue benefit. In those cases where the affected township receives its supply of water from the city, the city is given a degree of leverage to negotiate with the township by Act 425.
In the eyes of the Census Bureau
, 425 Agreement lands effectively count as annexations, and are included in any calculations of land area and population. The land and population counts toward the party that initiated the agreement.
.
The agreement creates a temporary transfer of jurisdiction for the affected land rather than an outright annexation. The agreement defines the responsibilities that each party has with respect to the affected area. For example, the city as party to such an agreement might have the right to collect city income tax from residents or employees within the transferred area even though they do not actually live or work within the city itself. The township would still retain policing jurisdiction and provide municipal services to the new development.
425 Agreements can be effective for up to 50 years. At the end of the term of the agreement, the agreement itself defines what should happen to the affected land at the termination of the contract. The law permits for the parties to agree for the land to revert to the original party or permanently attached to the other party.
Act. By becoming a charter township, the township has additional protection from being annexed by an adjacent city and can provide nearly the same services within its territory that it could if it were a city.
During the last half of the 20th century, most of Michigan's cities experienced a decline in population as many residents moved into developing suburbs. Particularly problematic was the phenomenon of "white flight
" whereby more affluent residents who were mainly ethnically white left the cities but certain economically disadvantaged groups remained within the cities. Those who left the cities also took their tax base with them and the governments of these cities were left with having to maintain and support an older infrastructure, housing stock, and economically needy population.
Under Michigan law, only cities can levy an income tax
upon their own residents and upon non-residents who work within the city. To compensate in part for the decline in tax revenues as neighboring townships continue to develop, 425 agreements provide for an alternative to annexation and a mutually agreeable plan for sharing revenues between the two units of government. Also, ideally, the concept of 425 Agreements can be integrated into a regional planning concept allowing for several local units of government to coordinate future development.
The possible 50 year length of an agreement might not adequately account for changing circumstances during such a rather lengthy period of time. Such a term would exceed the tenure in office of numerous local officials and without a mechanism in place for periodic review, subsequent disagreements, misinterpretation and litigation might result when the intentions of the original proposers of an agreement have been forgotten.
Another possible snag is the matter of what happens to the land at the end of an agreement. If the land is to revert to the township, but if the city had invested significantly towards the development of the infrastructure on the land, the city would lose any interest in its investment. If the agreement provides for the land to be annexed to the city, but it is not contiguous to the existing city boundaries at that time, this would conflict with other provisions of Michigan law which prevent a city from annexing non-contiguous territory.
Legislature
A legislature is a kind of deliberative assembly with the power to pass, amend, and repeal laws. The law created by a legislature is called legislation or statutory law. In addition to enacting laws, legislatures usually have exclusive authority to raise or lower taxes and adopt the budget and...
of the State
U.S. state
A U.S. state is any one of the 50 federated states of the United States of America that share sovereignty with the federal government. Because of this shared sovereignty, an American is a citizen both of the federal entity and of his or her state of domicile. Four states use the official title of...
of Michigan
Michigan
Michigan is a U.S. state located in the Great Lakes Region of the United States of America. The name Michigan is the French form of the Ojibwa word mishigamaa, meaning "large water" or "large lake"....
enacted Public Act
Statute
A statute is a formal written enactment of a legislative authority that governs a state, city, or county. Typically, statutes command or prohibit something, or declare policy. The word is often used to distinguish law made by legislative bodies from case law, decided by courts, and regulations...
425 of 1984 which is also known by the title Intergovernmental Conditional Transfer Of Property By Contract Act. It became effective March 29, 1985 and was subsequently amended in 1998. It is often simply referred to as “Act 425” and contractual agreements entered into pursuant to this statute are frequently called “425 Agreements.”
The purpose of Act 425 is to provide for a means for two local units of government
Government
Government refers to the legislators, administrators, and arbitrators in the administrative bureaucracy who control a state at a given time, and to the system of government by which they are organized...
to share tax revenues resulting from new or expanding development in the areas of their jurisdiction
Jurisdiction
Jurisdiction is the practical authority granted to a formally constituted legal body or to a political leader to deal with and make pronouncements on legal matters and, by implication, to administer justice within a defined area of responsibility...
. Most typically a city
City
A city is a relatively large and permanent settlement. Although there is no agreement on how a city is distinguished from a town within general English language meanings, many cities have a particular administrative, legal, or historical status based on local law.For example, in the U.S...
and a nearby township
Civil township
A civil township is a widely used unit of local government in the United States, subordinate to, and geographic divisions of, a county. Specific responsibilities and the degree of autonomy vary based on each state. Civil townships are distinct from survey townships, but in states that have both,...
are the parties to such an agreement. Because of the limited ability for a city in Michigan to annex
Annexation
Annexation is the de jure incorporation of some territory into another geo-political entity . Usually, it is implied that the territory and population being annexed is the smaller, more peripheral, and weaker of the two merging entities, barring physical size...
adjacent territory, development that takes place outside of the city limits would normally deprive that city of any added revenue benefit. In those cases where the affected township receives its supply of water from the city, the city is given a degree of leverage to negotiate with the township by Act 425.
In the eyes of the Census Bureau
United States Census Bureau
The United States Census Bureau is the government agency that is responsible for the United States Census. It also gathers other national demographic and economic data...
, 425 Agreement lands effectively count as annexations, and are included in any calculations of land area and population. The land and population counts toward the party that initiated the agreement.
Procedure
The two units of government proposing to enter into a 425 Agreement negotiate the terms and conditions of the plan. For it to take effect, it must be approved by a majority of the members of the governing body of each respective party. The contract is recorded by the County Clerk and the Secretary of StateSecretary of State (U.S. state government)
Secretary of State is an official in the state governments of 47 of the 50 states of the United States, as well as Puerto Rico and other U.S. possessions. In Massachusetts, Pennsylvania, and Virginia, this official is called the Secretary of the Commonwealth...
.
The agreement creates a temporary transfer of jurisdiction for the affected land rather than an outright annexation. The agreement defines the responsibilities that each party has with respect to the affected area. For example, the city as party to such an agreement might have the right to collect city income tax from residents or employees within the transferred area even though they do not actually live or work within the city itself. The township would still retain policing jurisdiction and provide municipal services to the new development.
425 Agreements can be effective for up to 50 years. At the end of the term of the agreement, the agreement itself defines what should happen to the affected land at the termination of the contract. The law permits for the parties to agree for the land to revert to the original party or permanently attached to the other party.
Proponents
The most significant group to benefit from the law is Michigan's cities. Michigan's laws have made it very difficult for a city to expand its boundaries through annexation. Whereas historically a township served a substantially rural and low-density population with a minimal degree of government-provided services, laws were enacted in the middle of the 20th century that significantly favored townships. One such law, peculiar only to Michigan, is the Charter TownshipCharter township
A charter township is a form of local government in the U.S. state of Michigan. Townships in Michigan are organized governments. A charter township is a township that has been granted a charter, which allows it certain rights and responsibilities of home rule that are generally intermediary in...
Act. By becoming a charter township, the township has additional protection from being annexed by an adjacent city and can provide nearly the same services within its territory that it could if it were a city.
During the last half of the 20th century, most of Michigan's cities experienced a decline in population as many residents moved into developing suburbs. Particularly problematic was the phenomenon of "white flight
White flight
White flight has been a term that originated in the United States, starting in the mid-20th century, and applied to the large-scale migration of whites of various European ancestries from racially mixed urban regions to more racially homogeneous suburban or exurban regions. It was first seen as...
" whereby more affluent residents who were mainly ethnically white left the cities but certain economically disadvantaged groups remained within the cities. Those who left the cities also took their tax base with them and the governments of these cities were left with having to maintain and support an older infrastructure, housing stock, and economically needy population.
Under Michigan law, only cities can levy an income tax
Income tax
An income tax is a tax levied on the income of individuals or businesses . Various income tax systems exist, with varying degrees of tax incidence. Income taxation can be progressive, proportional, or regressive. When the tax is levied on the income of companies, it is often called a corporate...
upon their own residents and upon non-residents who work within the city. To compensate in part for the decline in tax revenues as neighboring townships continue to develop, 425 agreements provide for an alternative to annexation and a mutually agreeable plan for sharing revenues between the two units of government. Also, ideally, the concept of 425 Agreements can be integrated into a regional planning concept allowing for several local units of government to coordinate future development.
Critics
One of the criticisms of the Act 425 provisions is that there is virtually no State oversight in the process. The two local units of government negotiate and approve the agreements on their own and the state merely records the agreement. Also, there is no oversight or review by regional planning organizations or other neighboring cities and townships who are not parties to the agreement yet who might be nevertheless impacted.The possible 50 year length of an agreement might not adequately account for changing circumstances during such a rather lengthy period of time. Such a term would exceed the tenure in office of numerous local officials and without a mechanism in place for periodic review, subsequent disagreements, misinterpretation and litigation might result when the intentions of the original proposers of an agreement have been forgotten.
Another possible snag is the matter of what happens to the land at the end of an agreement. If the land is to revert to the township, but if the city had invested significantly towards the development of the infrastructure on the land, the city would lose any interest in its investment. If the agreement provides for the land to be annexed to the city, but it is not contiguous to the existing city boundaries at that time, this would conflict with other provisions of Michigan law which prevent a city from annexing non-contiguous territory.
See also
- Municipal government
- Municipal servicesMunicipal servicesMunicipal services or city services refer to basic services that residents of a city expect the city government to provide in exchange for the taxes which citizens pay. Basic city services may include sanitation , water, streets, schools, food inspection fire department, police, ambulance, and...
- TownshipCivil townshipA civil township is a widely used unit of local government in the United States, subordinate to, and geographic divisions of, a county. Specific responsibilities and the degree of autonomy vary based on each state. Civil townships are distinct from survey townships, but in states that have both,...
- Charter TownshipCharter townshipA charter township is a form of local government in the U.S. state of Michigan. Townships in Michigan are organized governments. A charter township is a township that has been granted a charter, which allows it certain rights and responsibilities of home rule that are generally intermediary in...
- Local GovernmentLocal governmentLocal government refers collectively to administrative authorities over areas that are smaller than a state.The term is used to contrast with offices at nation-state level, which are referred to as the central government, national government, or federal government...
- Local Government of the United States