KEEGO HARBOR PROPERTY TAX OVERVIEW AND OUTLOOK PREPARED FOR CITY OF KEEGO HARBOR DAVID HIEBER, EQUALIZATION OFFICER

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1 KEEGO HARBOR PROPERTY TAX OVERVIEW AND OUTLOOK PREPARED FOR CITY OF KEEGO HARBOR DAVID HIEBER, EQUALIZATION OFFICER 1

2 Oakland County Equalization does not take positions on local tax matters. All information included in this presentation is intended to be informational only. 2

3 OUTLINE TAXABLE VALUE / REVENUE FOR CONSTITUTIONAL AMENDMENTS HEADLEE 1978 REQUIRES MILLAGE ROLLBACKS PROPOSAL A 1994 LIMITS TAXABLE VALUE INCREASES ESTIMATE FOR TAXABLE VALUE RESTORATION REAL LIFE EXAMPLES PERSONAL PROPERTY EXEMPTION (VOTED 2012) SMALL PARCELS < $80, TAX RATE COMPARISON 3

4 GROWTH IN TAXABLE VALUE IS INTENTIONALLY LIMITED BY STATE LAW CHANGE IN COUNTY-WIDE PROPERTY VALUE 40.0% 35.7% 30.0% 20.0% 11.1% 10.0% 0.0% -10.0% -20.0% -23.9% -30.0% -40.0% -34.3% % CHANGE IN SEV (STATE EQUALIZED VALUE) % CHANGE IN TV (TAXABLE VALUE) 4

5 KEEGO HARBOR: CHANGE IN SEV & TV VALUES GROWTH IN TAXABLE VALUE IS INTENTIONALLY LIMITED BY STATE LAW 48.20% 50.00% 40.00% 30.00% 20.00% 15.30% 10.00% 0.00% % % % % % % % % CHANGE IN SEV (STATE EQUALIZED VALUE) % CHANGE IN TV (TAXABLE VALUE) 5

6 CRC AND THE TAX REVOLT THE SUCCESSFUL PROPOSAL PROPOSAL A AND HEADLEE ROLLBACK CITIZENS RESEARCH COUNCIL OF MICHIGAN Proposal A was a legislative proposal that provided for a dramatic shift of funding of school operations from the property tax to an increased sales tax, a modified acquisition value system for determining taxable property values, and differential taxation of business and homestead property. The Headlee Amendment, as CRC later pointed out, was adopted at the peak of state revenue as a proportion of state personal income. That proportion then began a long decline, so the Headlee Amendment had no effect on total state revenues. Its requirement for state funding of mandates to local units has been a continuing source of contention between the state and its local units. Its provision requiring a rollback of property tax rates in a jurisdiction when the growth of state equalized value exceeded the growth of the General Price Level (interpreted as the Consumer Price Index) probably had the greatest effect, especially after the adoption of Proposal A. Proposal A resulted in a reduction in the funding gap between the highest and lowest school districts and an immediate reduction in property taxes. But it also created significant inequities in taxable value of similarly situated properties, depending on the timing of their acquisition. It also controlled the growth of taxable values, but did not control their decline, meaning that local units would lose value during downturns that would take decades to restore during recoveries. Property tax limitation was magnified by the interplay between the Headlee Amendment, which limited property tax growth of an entire jurisdiction and Proposal A, which limited growth of individual parcels of property. Nicole Bradshaw Blog, Taxation Over CRC s 100 year history, it has made an outsized impact for such a small organization. This is the sixth in a series of blog posts highlighting CRC s top projects and reports since its inception in Citizens Research Council of Michigan 6

7 HEADLEE ROLLBACK Introduction The term Headlee Rollback became part of municipal finance lexicon in 1978 with the passage of the Headlee Amendment to the Constitution of the State of Michigan of In a nutshell, Headlee requires a local unit of government to reduce its millage when annual growth on existing property is greater than the rate of inflation. As a consequence, the local unit s millage rate is rolled back so that the resulting growth in property tax revenue, community-wide, is no more than the rate of inflation. A Headlee override is a vote by the electors to return the millage to the amount originally authorized via charter, state statute, or a vote of the people, and is necessary to counteract the effects of the Headlee Rollback. Impact of Headlee Amendment Since the passage of the Headlee Amendment, units of government are required to annually calculate a Headlee rollback factor. The annual factor is then added to Headlee rollback factors determined in prior years resulting in a cumulative Headlee rollback factor sometimes referred to as the millage reduction fraction. This total millage reduction fraction is then applied to the millage originally authorized by charter, state statute, or a vote of the people. In summary, the actual mills available to be levied by a unit of local government is the product of the authorized millage rate times the total millage reduction fraction. This is known as the Headlee maximum allowable millage. Impact of Proposal A Prior to Proposal A legislation passed in 1994, local governments were allowed to roll up their millage rates when growth on existing property was less than inflation. Roll ups were a self-correcting mechanism that allowed local governments to naturally recapture taxing authority lost due to Headlee rollbacks in prior years. A local government could only roll up its millage rate to the amount originally authorized by charter, state statute, or a vote of the people. Additions to taxable value (such as newly constructed property) are typically excluded (or exempt) from the Headlee roll back calculation. The 1994 General Property Tax Act changes did not specifically define uncapped values (increases resulting primarily from property transfers) as exempt. Result Although it might appear that a community with an annual increase in uncapped property values would benefit monetarily, uncapped values are treated as growth on existing property and trigger Headlee rollbacks. For local governments levying at their Headlee maximum authorized millage, rolling back the maximum authorized millage rate reduces the revenue that would have been generated from these increased property values. The increase in the taxable value of property not transferred is capped at the lesser of inflation or 5 percent. Even though the taxable value of a particular piece of property increases at the rate of inflation, the millage rate for the entire community is rolled back as a result of the increase in the total taxable value of the community. The net result a less than inflationary increase in the actual dollars received from property taxes. Consequently, the 1994 change to the General Property Tax Act has prevented local governments from being able to share the benefits of any substantial market growth in existing property values. Based on System Failure: Michigan s Broken Municipal Finance Model. Prepared for the Michigan Municipal League by Frank W. Audia, Partner and Denise A. Buckley, Associate, Plante and Moran, PLLC, March,

8 KEEGO HARBOR TAXABLE VALUE / REVENUE (HIGH LOW TODAY-FUTURE ) MILLION DOLLAR AMOUNTS ESTIMATED TAX $1,535,000 TV x MILLS MILLION TV TV x MILLS 80 MILLION TV ESTIMATED TAX $1,070,000 TV x MILLS 92.3 MILLION TV ESTIMATED TAX $1,207,000 TV x MILLS MILLION TV ESTIMATED TAX $1,437,000 TV x MILLS MILLION TV ESTIMATED TAX $1,566, EXCLUDES TIFA, IFT, SPECIAL ACT PARCELS 2024 & 2027 ARE ESTIMATED USING THE AVERAGE SINCE PROPOSAL A (1994) 8

9 KEEGO HARBOR TAXABLE VALUE / REVENUE (HIGH LOW TODAY-FUTURE ) MILLION DOLLAR AMOUNTS ESTIMATED TAX $1,535,000 TV x MILLS MILLION TV TV x MILLS 80 MILLION TV ESTIMATED TAX $1,070,000 TV x MILLS 92.3 MILLION TV ESTIMATED TAX $1,207,000 TV x MILLS MILLION TV ESTIMATED TAX $1,437, PROJECTION TAXABLE VALUE: 95.5 MILLION ESTIMATED TAX: 1.5 MILLION Additional Levy of 4 Mills TV x MILLS MILLION TV ESTIMATED TAX $1,566, EXCLUDES TIFA, IFT, SPECIAL ACT PARCELS 2024 & 2027 ARE ESTIMATED USING THE AVERAGE SINCE PROPOSAL A (1994) 9

10 KEEGO HARBOR TAXABLE VALUE 2017 ASSESSMENT YEAR PERSONAL PROPERTY 3.30% REAL COMMERCIAL 22.30% PERSONAL PROPERTY REAL OTHER REAL INDUSTRIAL REAL COMMERCIAL REAL RESIDENTIAL REAL RESIDENTIAL 74.40% 2017 TV AMOUNT PERSONAL PROPERTY $3,038, % REAL OTHER $0 0% REAL INDUSTRIAL $0 0% REAL COMMERCIAL $20,597, % REAL RESIDENTIAL $68,640, % $92,276,520 10

11 RESIDENTIAL SINGLE FAMILY DWELLING KEEGO HARBOR, MICHIGAN 1492 SQ. FT Year Built PROPERTY TAX COMPARISONS Taxable Value Change Due to Proposal A HIGH 2007 SEV $77, TV $75,470 X MIL ( ) CITY TAXES = $1, LOW 2012 SEV $38, TV $38,140 X MIL ( ) CITY TAXES = $ TODAY 2017 SEV $58, TV $40,780 X MIL ( ) CITY TAXES = $ PROJECTION 2018 SEV $58, TV $40,780 X MIL ( ) CITY TAXES = $ TAX REDUCTION = -$ % REDUCTION IN CITY TAXES 11

12 RESIDENTIAL SINGLE FAMILY DWELLING KEEGO HARBOR, MICHIGAN 2129 SQ. FT Year Built PROPERTY TAX COMPARISONS Taxable Value Change Due to Proposal A 2016 UNCAPPING EXAMPLE HIGH 2007 SEV $141, TV $137,230 X MIL ( ) CITY TAXES = $1, LOW 2012 SEV $66, TV $66,830 X MIL ( ) CITY TAXES = $ TODAY 2017 SEV $115, TV $115,910 X MIL ( ) CITY TAXES = $1, PROJECTION 2018 SEV $115, TV $115,910 X MIL ( ) CITY TAXES = $1, PROPERTY SOLD 5/31/16 FOR $235,000. TAX INCREASE= $ % INCREASE IN CITY TAXES 12

13 RESIDENTIAL SINGLE FAMILY DWELLING DETACHED CONDO KEEGO HARBOR, MICHIGAN 2568 SQ. FT Year Built PROPERTY TAX COMPARISONS Taxable Value Change Due to Proposal A HIGH 2007 SEV $113, TV $113,620 X MIL ( ) CITY TAXES = $1, LOW 2012 SEV $71, TV $71,390 X MIL ( ) CITY TAXES = $ TODAY 2017 SEV $125, TV $77,110 X MIL ( ) CITY TAXES = $1, PROJECTION 2018 SEV $125, TV $77,110 X MIL ( ) CITY TAXES = $ TAX REDUCTION= -$ % DECREASE IN CITY TAXES 13

14 COMMERCIAL RESTAURANT KEEGO HARBOR, MICHIGAN 2477 SQ. FT Year Built PROPERTY TAX COMPARISONS Taxable Value Change Due to Proposal A HIGH 2008 SEV $209, TV $209,320 X MIL ( ) CITY TAXES = $2, LOW 2013 SEV $145, TV $145,090 X MIL ( ) CITY TAXES = $1, TODAY 2017 SEV $160, TV $149,520 X MIL ( ) CITY TAXES = $1, PROJECTION 2018 SEV $160, TV $149,520 X MIL ( ) CITY TAXES = $2, TAX REDUCTION = -$ % REDUCTION IN CITY TAXES 14

15 COMMERCIAL RETAIL STORE KEEGO HARBOR, MICHIGAN 1316 SQ. FT Year Built PROPERTY TAX COMPARISONS Taxable Value Change Due to Proposal A HIGH 2008 SEV $152, TV $152,530 X MIL ( ) CITY TAXES = $2, LOW 2013 SEV $95, TV $95,640 X MIL ( ) CITY TAXES = $1, TODAY 2017 SEV $99, TV $98,520 X MIL ( ) CITY TAXES = $1, PROJECTION 2018 SEV $99, TV $98,520 X MIL ( ) CITY TAXES = $ TAX REDUCTION = -$ % REDUCTION IN CITY TAXES 15

16 KEEGO HARBOR PERSONAL PROPERTY TAX ANALYSIS Michigan Personal Property Tax Reform Voters Approved Proposal 1 On Aug. 5, 2014, Michigan voters voted in favor of Proposal 1, approving Michigan personal property tax reform. Personal Property Tax for KEEGO HARBOR: 2017 SMALL BUSINESS TAXPAYER EXEMPTION ACCEPTED: 127 DENIED: 2 LATE: 6 TOTAL: 135 In 2014, $80,000 or less was exempt. 16

17 OAKLAND COUNTY CITIES CERTIFIED RATES - LOW TO HIGH CITIES CERTIFIED RATE ORCHARD LAKE NOVI TROY FENTON LAKE ANGELUS ROCHESTER HILLS BLOOMFIELD HILLS AUBURN HILLS ROCHESTER KEEGO HARBOR BIRMINGHAM WIXOM BERKLEY FARMINGTON HILLS SOUTH LYON NORTHVILLE FARMINGTON PONTIAC ROYAL OAK CLARKSTON VILLAGE WALLED LAKE SYLVAN LAKE PLEASANT RIDGE HUNTINGTON WOODS LATHRUP VILLAGE MADISON HEIGHTS SOUTHFIELD FERNDALE CLAWSON OAK PARK HAZEL PARK KEEGO HARBOR RATE IS AT

18 2007 VS MILLAGE RATES FOR OAKLAND COUNTY CITIES 2007 VS 2016 RATES CVT Levy S/A Total Levy S/A TOTAL Inc or Dec Reason for Inc or Dec Auburn Hills Inc Fire Berkley Headlee Override Birmingham General Inc Bloomfield Hills General Inc & Library Clarkston General Inc & Library Clawson Headlee Override and P&R Farmington General Inc Farmington Hills Inc Public Safety Fenton Gen Dec Ferndale Headlee Override & SA Hazel Park SMORSA & Police SA Huntington Woods General Inc Keego Harbor General Dec Lake Angelus Headlee Override Lathrup Village Headlee Override Madison Heights Headlee Override Northville General Inc Novi General Dec Oak Park Headlee Override, Public Safety & P&R Orchard Lake General Dec Pleasant Ridge Headlee Override, New P&R, New Lib Pontiac No Change Rochester General Dec Rochester Hills Inc Police & Fire Royal Oak Inc Police, Fire, Roads South Lyon Inc Library Southfield Inc Police, Fire, Streets, Library, P&R Sylvan Lake Headlee Override & Public Safety Troy General Inc & Library Walled Lake Inc Public Safety Wixom Inc Operating Millage 1816

19 SUMMARY As a result of Headlee and Proposal A, it is estimated that Oakland County will not return to 2007 Tax Revenue levels until the year of Variables include: Market conditions Annual IRM Property Transfers New Construction Future statute changes (example: Property Tax Exemptions) Questions? 19

20 GLOSSARY APPENDIX A REAL PROPERTY PERSONAL PROPERTY S.E.V T.V. I.R.M. M.R.F. Building and Land Machinery and Equipment State Equalized Value 50% True Cash Value Taxable Value - What Taxes are Levied Inflation Rate Multiplier Millage Reduction Fraction PROPOSAL A Limits Taxable Value increase by I.R.M or 5% (whichever is less.) Exclusions: transfer of ownership and new construction. HEADLEE Constitutional amendment from 1978 that requires a local unit of Government to reduce its millage when annual growth on existing property is greater than the rate of inflation. (As a consequence, the local unit s millage rate is rolled back so that resulting growth in property tax revenue, community- wide, is no more than the rate of inflation. 20

21 APPENDIX B

22 APPENDIX B

23 APPENDIX B

24 HEADLEE ROLLBACK CALCULATION APPENDIX C HEADLEE MILLAGE REDUCTION FRACTION FORMULA (MCL d): Prior Year TV Current Year TV Minus Losses Minus Additions X (IRM) Inflation Rate Multiplier = Millage Reduction Fraction (MRF) The IRM for 2017 Levy is 0.9% 24

25 PROPOSAL A BROCHURE APPENDIX D 25

26 IRM 2017 INFLATION RATE MULTIPLIER OR 0.9% Also Known As: Consumer Price Index (CPI) APPENDIX E BULLETIN 11 OF 2016 INFLATION RATE MULTIPLIER OCTOBER 18,

27 APPENDIX F MICHIGAN TAX TRIBUNAL STATISTICS TAX TRIBUNAL CASE STATISTICS CASES MICHIGAN OAKLAND COUNTY KEEGO HARBOR MICHIGAN OAKLAND COUNTY KEEGO HARBOR OAKLAND COUNTY VALUES, ONLY REPRESENTS THE 32 MUNICIPALITIES CONTRACTED WITH OAKLAND COUNTY EQUALIZATION. 27

28 HISTORY EST. EST. Year IRM IRM % % % % % % % % % % % % % % % % % % % % % % % % % % Taxable Value Calculations are derived by using IRM/CPI percentages. This has been mandated with the introduction of Proposal A of IRM/CPI is calculated by the US Department of Labor. 28

29 VARIABLES AFFECTING MILLAGE ROLLBACK The major variables that impact the Headlee rollback calculation include: Taxable value uncapping from property transfers ( popups ) The greater the number of pop-ups, a greater impact on rollback Change in CPI The lower the CPI, a greater impact on rollback The higher the CPI, a lesser impact on rollback 29