Arbor Update

Ann Arbor Area Community News

City Income Tax?

19. December 2008 • Matt Hampel
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Leigh Greden issued a call for thoughts about a city income tax in the thread about the recent Pfizer purchase. His charge:

In the short-term, this will create serious challenges for the local governments because: (1) The City will lose over $3,000,000 in annual property tax revenue, including more than $1,000,000 in general fund revenues (police, fire, etc), and more than $300,000 in parks millage revenue — these translate into real cuts in services; (2) The City must maintain a high quality of life. After all, that’s what ultimately draws good talent to the UM. Will we be able to do that if we lay off police officers, close parks, etc.?; (3) The UM’s anticipated job growth will occur over ten years. How do we pay to maintain City services in the meantime?

The income tax issue is fascinating. I expressed support for one five years ago because: (1) About 60,000 people commute to the City every day, and they use our roads, but pay nothing in taxes; (2) The income tax would result in the elimination of the City’s 6+ mill general operating property tax millage, which means that some (or maybe all) of the new income tax paid by homeowners would be offset by a dramatic reduction in property taxes; and (3) The income tax exemption could be set high enough to mitigate the impact on low-income renters who wouldn’t benefit from the property tax reduction.

I would be very interested in hearing what people think about an income tax.

Steve Bean responded:

First, I think that Ann Arbor’s situation as home to a holder of much land area that can’t be taxed may be different than Detroit’s or perhaps that of other cities that have instituted an income tax. Maybe we’re more well suited to it in that sense. Perhaps even more so because that landowner is also the largest employer and pays high wages on average.

Another thought came to me after reading on the Chronicle site about the Wall Street meeting between the U and neighbors in the Lowertown area. We could potentially do two things with tax dollars assessed on income (is that the right term?):

1) use some of that money to somehow ‘buffer’ neighbors from the U’s activities—both during construction projects and after; and

2) use some of it to create a physical and social environment that would potentially obviate the need for undesirable things (from a community standpoint) that the U says are necessary, like the planned parking structures. For example, if we used tax dollars to improve the transportation system (mass transit, roads, sidewalks, bike lanes, car sharing, etc.) to the point that driving would truly become the last choice of commuters, then both the residents and the U could be satisfied. We need to make those kinds of investments eventually, anyway, right?

John Q wrote:

One of the knocks against the income tax is that it would require a lot of renters to start paying the income tax while their landlords enjoy a windfall in reduced property taxes (and no, I don’t expect the landlords to pass along the reduction in property taxes in reduced rents). By implementing the income tax, the city has effectively increased the tax burden on renters with no return in benefit. While renters don’t directly pay property taxes, it’s always factored into the rent they pay so most are already contributing their share in taxes to city services.

  1. Makes a lot of sense to me. My one selfish and kinda trivial concern: I hate the actual process of doing taxes: tracking down the forms, reading the instructions, and worrying about what I might have forgotten. A city tax is one more thing to forget. The simpler to comply, the better….

    We’ve had the argument about property taxes and rent before, and I’m mystified by the claim that one won’t affect the other. It seems to depend on the assumption that rents are somehow totally immune to market forces.

       —Bruce Fields    Dec. 19 '08 - 10:00PM    #
  2. Bruce beat me to it. Yeah, there might be a brief interim period where a change in the property tax rate wouldn’t affect rents, but given the turnover in tenants around here, I can’t imagine that would last.

       —Larry Kestenbaum    Dec. 19 '08 - 10:02PM    #
  3. “It seems to depend on the assumption that rents are somehow totally immune to market forces.”

    I wouldn’t claim that. But what market forces are going to push rent down? There’s no incentive for most landlords to reduce rents. Rental rates have always been higher in A2 than surrounding communities.

       —John Q.    Dec. 19 '08 - 10:37PM    #
  4. An income tax will incent businesses to move to the townships, or out of the area, further weakening the tax base. The City is extremely business unfriendly already – adding cost (to employers or employees) only exacerbates the problem.

    Another option would be to run City Hall like a business and allow for things to get done in a timely manner (e.g., permits, inspections, decisions etc).

       —anonymous observer    Dec. 19 '08 - 10:46PM    #
  5. No way. Horrible idea.

    Whooosh! goes new job creation and voom! goes everyone who doesn’t have kids in school, straight to the townships.

       —Fred Zimmerman    Dec. 20 '08 - 12:04AM    #
  6. “they use our roads, but pay nothing in taxes”

    Toll booths maybe?

       —Edward Vielmetti    Dec. 20 '08 - 12:23AM    #
  7. >“they use our roads, but pay nothing in taxes”

    >Toll booths maybe?

    It’s not a question of the revenue technology, it’s a question of the urban planning philosophy.

    Sticking it to non-residents is an excellent way to destroy regional cooperation and to discourage people from creating jobs in the city.

    I react emotionally to this issue because the only cities that I have ever lived in with income taxes were horribly managed (District of Columbia, 6%). I suppose there must be some college towns with property tax situations like ours where income tax makes sense in theory, and I am willing to learn about them from the smart people here, but I simply cannot escape the thought that even proposing a city income tax is a tone-deaf idea that is sure to backfire in the current economic climate.

       —Fred Zimmerman    Dec. 20 '08 - 12:37AM    #
  8. Disclaimer: none of the following is actually based on any academic study of the subject.

    Based on little else but casual observation and gut feeling, I have to say that a city income tax seems like a terrible idea. It seems too often a death blow to cities that adopt it, at least in Michigan, or else is a sign that the city is so desperate they don’t know how else to raise the money. Presumably Ann Arbor is not really in such dire straits. Very large, very successful cities like Chicago and NYC can get away with it. Anyone else seems to struggle with it.

    An exception seems to be Columbus, though it has a growing population, but Columbus also has a history of annexation. Ann Arbor, on the other hand, has ceased to annex new lands, unlike other growing Midwestern cities (Lawrence, KS comes to mind). The only thing it can do to increase the tax base is to increase density, of both housing and businesses, within the city limits. Or else forge some sort of city-county revenue-sharing partnership. I’m kind of cynical that this is about to happen, but what do I know.

    At the very least, I would urge caution on the issue. We have no idea what UM is going to do with the land ultimately. What I suspect is, Pfizer wanted to sell the whole thing in a single package, but none of the potential buyers (Gates, KDow, etc.) was big enough to do it themselves. It doesn’t look like anyone wanted to form a group to do the buying together, and probably the credit markets dried up at just the wrong time—furthermore a single buyer with deep pockets probably looked like a better opportunity to creditors than a piecemeal proposal. So—UM to the rescue! 100M is like chump change for them, especially in exchange for a dozen or so buildings. I strongly suspect UM will want to lease or sell parts of the property, and only then can we evaluate what the true revenue loss will be to the city. Meanwhile all the new people involved need to take their places and get telephone numbers and make calls and so on, which will take some time.

    Finally, I would like to know what the imagined exemption threshold would be, roughly, for renters. Considering the number of city residents who rent, this is a pretty important question.

    I would also like to know how a city income tax would prevent more people from commuting to the city from out of town—I’m confused.

       —Young Urban Amateur    Dec. 20 '08 - 01:12AM    #
  9. Rents are subject to downward market forces unless there’s a de facto oligopoly or insufficient supply and no room to fix it. Ann Arbor does not meet either criteria. If the property tax goes down, the owner of an empty rental has more room to lower their rent and then will, rather than let their house sit empty while another sits full.

    As a city resident who pays the not-insignificant property tax, I can say that I hate the idea of an income tax. It doesn’t matter what’s “fair.” It matters whether the economic incentives are self-sustaining.

    I choose to live in Ann Arbor with good schools, nice neighborhoods, close proximity to downtown, and a short commute to downtown. The cost to me is the (relatively) high property taxes and (relatively) high house prices.

    There are plenty of people who don’t think the benefits are worth the money, and they live in larger, cheaper houses in the townships and commute in to work.

    The value of my house is a complex equilibrium derived from the percentage of folks who value this type of residence over a township house and the relative taxes it takes to support the city that they find so desirable.

    If you introduce an income tax, the long-term effect will be to drive businesses out of the income tax area, forcing Ann Arbor to raise property taxes anyway. Businesses will move because the township fraction of their workers have no interest in paying the income tax. If you tax the city residents anyway, even after their job moves to the township, then they’ll leave too.

    In short, it doesn’t matter if it’s fair to tax commuters for consuming city services or not. If you try to charge them their fair share, they and the businesses they work for will leave. The only self-sustaining method of funding the city is to tax the people who value living here enough to do it despite the taxes.

       —Eric    Dec. 20 '08 - 01:13AM    #
  10. I am actually for a city income tax. I believe it is a way for the burden of our city expenses to be shared by those who use the city but do not contribute to the operating expenses. For years now, people have been moving to the townships to avoid paying the AA property taxes, yet many still like to use the city resources (parks, pools, etc.) and benefit from all that the city of Ann Arbor has. Everything in life is not free. Non-residents enjoy the use of our parks, enjoy our vibrant downtown area and generally support us in all our community service programs. (I do realize that the county also supports some but not all of the programs financially). It is time for non-residents of Ann Arbor to step up and actually help pay for some of what makes Ann Arbor special. The city income tax is away of equalizing that responsibility.

    I would much rather have a city income tax implemented with a property tax decrease for AA residents so that everyone who uses the city shares in the costs.

       —Diane    Dec. 20 '08 - 01:41AM    #
  11. I don’t believe that implementing a city income tax would make business run for the townships; in fact it might actually have the opposite effect. If enough revenue is raised from the income tax, Ann Arbor might be able to lower some of the property taxes that effect business.

    The property tax is the reason why businesses set up shop in the townships. A city income tax is not paid by business, but rather by the employees. I don’t believe that a business would change their business plan based on a 1% city income tax on their employees.

       —Diane    Dec. 20 '08 - 01:54AM    #
  12. Another concern I’ve heard in past discussions on this subject is that there’s no guarantee that the property tax millage wouldn’t be raised in the future after the institution of the income tax. Any thoughts on that, Leigh? Also, would only wages be taxed? Not investment income?

    I think the following groups would cover most people that would be affected by a taxing change:

    1) Live and work in the city.

    2) Live outside the city and work in the city.

    3) Live and work outside the city.

    4) Live in the city and work outside the city.

    5) Live in the city and don’t work (primarily seniors/retirees/disabled and students not living on campus.)

    6) Live outside the city and don’t work.

    The current property tax system is favorable toward members of group 2 and unfavorable toward members of groups 1 and 4. Group 5 members may have sufficient incentive to join group 6 (or a need to join group 1.) (I think the quality of our transportation system might be a key in having kept in the city many of those who want to stay active.)

    A switch to an income tax would have the following impacts.

    Group 1: Some members would likely see a slight decrease in amount taxed. Little incentive to move to another group except group 5.

    Group 2: Members would have an incentive to join either group 1 or group 3 (or 5 or 6).

    Group 3: Minimal impact. Preferable to stay in group 3, or if employment situation changes, join group 1 rather than join group 2.

    Group 4: Members might have a slight incentive to join either group 1 or group 3 (or 5 or 6).

    Group 5: Yippee!

    Group 6: Minimal impact. Might consider joining group 5.

    Assuming I’m not too off in these assessments, I don’t see a likelihood of a net population loss to the city. The impacts on groups 2 and 4 would offset each other somewhat. The largest potential impact would seem to be for more retirees to stay in the city rather than leave. Once the income tax is set in place it doesn’t seem likely that revenues would drop over time.

    That’s from the individual perspective. The business perspective is another matter. (Feel free to take that on. Maybe I’ll get to it later.)

    Key question: How would city workers feel about subsidizing services for non-campus-student and other non-working residents? (Keep in mind that city residents currently subsidize people who live outside the city and work in it—group 2—though their use of city services is significantly different than that of group 5.)

       —Steve Bean    Dec. 20 '08 - 03:34AM    #
  13. “It seems too often a death blow to cities that adopt it, at least in Michigan, or else is a sign that the city is so desperate they don’t know how else to raise the money. “

    There’s no pattern to the cities in Michigan that levy an income tax. While some fall into the “dying cities” category (Detroit, Flint) others do not (Lapeer, Walker). Those that are relatively healthy use the Income Tax to reduce their reliance on property taxes. Those that are not healthy use it to supplement often meager property tax revenues. I expect Ann Arbor to fall somewhere in the middle where the additional income is used to bolster existing revenue but also provide a modest property tax reduction.

    “Ann Arbor, on the other hand, has ceased to annex new lands, unlike other growing Midwestern cities (Lawrence, KS comes to mind).”

    Actually, this isn’t true. This year was probably one of the most active annexation years for the city. But the annexation is almost entirely infill in areas defined by the annexation agreements between the city and Ann Arbor, Pittsfield and Scio Township. Absent some major change in policy or state law, I don’t foresee any major annexations in Ann Arbor’s future. But even if the city could annex, the greenbelt program would make that largely pointless. That’s why more density and/or a regional revenue sharing plan makes more sense.

    I think a lot of the focus on the “business” side of the income tax misses the point that the University is by far the largest employer in the city. It’s not uprooting and moving to the townships, income tax or no income tax. A certain segment of the local business community is likewise tied to their location in the city and isn’t going to move out. The segment worth debating are those businesses that have a choice in location. Also, the impact of that on business attraction should be part of the debate.

    “Another concern I’ve heard in past discussions on this subject is that there’s no guarantee that the property tax millage wouldn’t be raised in the future after the institution of the income tax.”

    Link the adoption of the income tax to a charter amendment to limit property taxes to a certain millage level. Future property tax increase would be subject to voter approval.

       —John Q.    Dec. 20 '08 - 06:00AM    #
  14. A list of local income taxes nationwide:

    One other point that should be added to the discussion. A local income tax would be flat, not progressive (the state income tax is also a flat rate for all income levels).

    Many more municipalities levy local sales taxes. Local governments in Michigan are generally prohibited from levying a local sales tax.

       —John Q.    Dec. 20 '08 - 06:37AM    #
  15. Instead of raising taxes, the city could actually increase the property tax base and reduce City operating expenses.

    This would be very easy – all City Hall has to do is stop stonewalling already approved projects. The processes at City Hall are beyond broken. This leads to excessive delays and redundant staffing.

       —anonymous observer    Dec. 20 '08 - 07:21PM    #
  16. Which projects are being stonewalled at City Hall?

       —John Q.    Dec. 20 '08 - 09:08PM    #
  17. Tax changes ALWAYS = tax increase

    City income tax = taxation without representation for non residents

    Additional costs incurred to collect and administer the tax = no real money for the city to do anything of value.

    City income tax makes it undesirable to work in the city.

    People will do whatever they can to avoid setting up a business in the city since they don’t want to have to collect the tax from their employees and their employees don’t want to pay.

       —Anonymous    Dec. 20 '08 - 10:38PM    #
  18. What city services do commuters consume? Roads, parks? Seems to me that the added usage due to commuters brings minimal expense. The big items like police & fire, water & trash, commuters get only indirect benefit from. (I leave out AATA because it willingly subsidizes service to Ypsi, etc.) Commuters support many city businesses and the social scene. Their employer may pay city taxes as well.

    Levying a tax on commuters to cover a budget shortfall for city services seems unfair at best, and counterproductive at worst. Don’t we want AA to remain the center of the local economy?

       —mcammer    Dec. 20 '08 - 10:45PM    #
  19. “Tax changes ALWAYS = tax increase”

    Examples? John Q. provided a list you might check. Would you be willing to try to find some that support your characterization, and some that don’t?

    “City income tax = taxation without representation for non residents”

    This is an interesting consideration. I’d like to hear what others think about it. Without representation? That may be, but not without services in exchange for their tax contributions.

    “Additional costs incurred to collect and administer the tax = no real money for the city to do anything of value.”

    Can you find numbers from the other cities’ experiences to quantify those “additional costs”?

    “City income tax makes it undesirable to work in the city.”

    For what percentage of the working population? I’d guess it would be less than a double digit percentage increase over those who ALREADY don’t want to work in the city.

    “People will do whatever they can to avoid setting up a business in the city since they don’t want to have to collect the tax from their employees and their employees don’t want to pay.”

    Again, what percentage of businesses that would otherwise consider setting up in the city?

    Furthermore, as John Q. pointed out, income taxes aren’t typically put in place as a complete replacement for property taxes. The middle ground where one would land is likely to have less of the negative impacts you describe.

    By the way, if this alternative isn’t given consideration by the city or ultimately isn’t adopted, it won’t be because of naysaying anonymous posters on a blog. If you really oppose it, put your name behind your comments and/or substantiate your assertions. Otherwise most people are likely to ignore them.

    Personally, I don’t like the idea of taxing income. I think it’s backwards. But I raised the question because I think it’s worth discussing and exploring in comparison to our current system, and now is a time when people will be more open to that. The least flawed alternative may be one of these two, or it may be something else we haven’t considered yet. I appreciate council member Leigh Greden being open minded enough to participate in this exploration. I hope he’ll be as open when I ask about land taxes. :-)

    “Levying a tax on commuters to cover a budget shortfall for city services seems unfair at best, and counterproductive at worst. Don’t we want AA to remain the center of the local economy?”

    Your view of what’s “unfair” is interesting, mcammer.

    This is a long-term consideration, not a short-term, reactive band-aid. I posed the question of whether it was time to consider an income tax because of the ongoing trend in the U’s purchase of land and the ongoing (and increasing) challenges of providing services to a community of which a large number of members don’t directly pay for those services. Leigh chimed in because he’s been interested in the potential of an income tax for years, as he pointed out.

    The city (along with the U) will remain the center of the local economy—that’s not likely to ever change (at least not until farming becomes the major employment sector, and that’s a ways off yet), primarily because of the presence of the U. As John Q. pointed out, it’s an anchor, and it has a large constellation of ‘support’ businesses around it.

       —Steve Bean    Dec. 21 '08 - 12:18AM    #
  20. As noted in the useful link given by John Q and in the actual law (Act 284 of 1964), exemptions must be at least $600 or may equal “the full personal and dependency exemptions authorized by the federal internal revenue code”. This includes dependency exemptions and additional exemptions for the aged or blind. Since these now amount to $3,500 per person or dependent, single persons could have an exemption to the city tax of $3,500, and a married couple filing jointly with two children could have $14,000 in exemptions. It appears that Federal exemptions for those over 65 have now been subsumed into increased standard deductions, so it is not clear whether an additional exemption for these cases would be available for city income tax.

    Note that the tax on nonresident income may only be half that on residents, usually 0.5%, and only on income earned in the city. There is a partial tax credit from the State of Michigan for city income taxes.

    Edward Gramlich and his associates at the UM School of Public Policy prepared a report upon the recommendation of the Budget Review Committee on which I served. The report, dated January 28, 1997, has a number of interesting conclusions. It notes that nontaxable income for city residents includes retirement benefits, annuities, unemployment benefits, gifts to nonprofits, military pay, and “net profits of financial institutions”. Taxable income for nonresidents is limited to wages or salaries, a share of net profits of a nonresident owner of an unincorporated business operating in the city, and net capital gains and net rental profits from property located in the city. (Note that landlords would pay tax on rents.) For corporations doing business in the city, tax can be levied up to 1 percent on taxable net profits as defined in the federal code. I am summarizing a much more detailed explanation.

    The report examines many possible effects, including on business activity and on renters. It concludes that renters will pay “$38 or less in taxes on average”, and that this is mitigated by the state tax credit. Interestingly, it does not make a recommendation for or against the tax, letting the numbers speak for themselves.

    Here is an interesting tidbit: “the city charter calls for eliminating the general operating millage if a city income tax is enacted. In effect, the income tax would substitute for this specific millage.” My analysis of that point is that many current understandings based on TIF where millage is being shifted to other entities (DDA, brownfields, SPARK, etc.) would be affected.

       —Vivienne Armentrout    Dec. 21 '08 - 12:39AM    #
  21. “City income tax = taxation without representation for non residents”

    This is a completely bogus charge. No state or local tax is levied without there being an express authorization for that tax in state law. Don’t like that a local government can levy a tax on non-residents? Take it up with your state legislator and tell them to repeal the ability for cities to levy local income taxes. That’s your representation on this issue.

    “Levying a tax on commuters to cover a budget shortfall for city services seems unfair at best, and counterproductive at worst.”

    That depends on the context of the question. If your employer is the cause of the budget shortfall by willful removing 5% of the city’s tax base, effectively shifting a higher tax burden onto the remainder of city taxpayers, then I think what is fair and productive are questions that should be answered by the employer. There’s no doubt that the University of Michigan is a huge asset to Ann Arbor. Without it, the city wouldn’t enjoy anywhere near the prominence or quality of life that it enjoys today. But that relationship is complicated especially by the fact that the University provides little direct contribution to pay for the demand on city services created by its presence. I doubt that there would be any discussion of an income tax is the University made payments to the city similar to the PILT (Payment in lieu of taxes) revenues that the DNR pays for state-owned lands.,1607,7-153-30301_31154_37215—-,00.html

    But since the University doesn’t contribute directly to the city’s revenue stream, when it reduces that revenue stream by acquiring land, it shouldn’t be surprised that these options are being reviewed.

       —John Q.    Dec. 21 '08 - 01:29AM    #
  22. I have no doubt that a city income tax has a firm constitutional and statutory basis, and there is a reasonable argument that non-resident employees benefit from rendition of city services; however my concern is the economic impact it may have the local economy.

    The Michigan communities that have adopted a city income tax have those whose populations are substantially dependent on public assistance. Examples include Pontiac, Lansing and Flint. such recipients would not be affected by such a tax. Ann Arbor sits at the other end of the spectrum and the levying of a city income tax across the board on high-income professionals could result in a flight of these people outside Ann Arbor akin to the “Brain Drain” that afflicted Great Britain in the 1960s and 70s.

    The State of Michigan employs a tax economist who undertakes in-depth research on the effect of a proposed tax increase upon the overall public economic health and issues a report and recommendations to the State Treasurer and also testifies to state legislative committees when called upon. I believe that such similar studies should be implemented herein before any such city income tax proposal is put to final vote.

       —Kerry D.    Dec. 21 '08 - 03:41AM    #
  23. “The Michigan communities that have adopted a city income tax have those whose populations are substantially dependent on public assistance.”

    Not true. There are some communities where this is true. However, the common link between a number of communities levying the income tax is the presence of a major non-taxable land owner, most often a college or university or the State of Michigan, which places significant demand on the local community’s budget while depriving that local unit of property tax revenues. Examples:

    Albion – Albion College
    Big Rapids – Ferris State University
    Ionia – Several Michigan State prisons
    Jackson – Several Michigan State prisons

    The same is true for Ann Arbor.

    As for the argument that the income tax would cause a “brain drain”, what are you basing that argument on? Anyone living in Ann Arbor already pays a premium when it comes to taxes as compared to other surrounding communities. This is due to a combination of higher tax rates and higher property values. One would expect that for those motivated solely by tax impact, they would already be living somewhere other than the city. Also, an income tax would likely be offset by a reduction in property taxes so the overall financial impact for most city residents who own property would either be neutral or positive. The counter argument to your position is that by allowing the city to fund a higher level of service, the income tax allows the city to promote a city that attracts people willing to pay more to get more.

    Where I see cities getting in trouble are places like Detroit where the income tax doesn’t result in a higher level of city service. In those cases, people resent paying that tax because it doesn’t appear to create any benefit. That won’t be the case in Ann Arbor. Also, the city is limited to imposing a 1% tax on residents and 1/2% tax on non-residents (or lower but the non-resident amount must always be 50% less than the resident amount). For a non-resident with an annual taxable income of $100,000, that works out to $500 a year in local income taxes.

       —John Q.    Dec. 21 '08 - 09:02AM    #
  24. Virtually anyone in Metro Detroit could reduce their cost of living by moving into the city of Detroit. Yes, the city has an income tax and high property taxes, but it also has housing costs dramatically lower than almost any suburb.

    It is therefore inescapable that people left Detroit (and continue to stay away) for non-economic reasons, not because of taxes. People prefer to live in the suburbs despite the fact that it costs more to do so.

    It is sophistry to attribute Detroit’s economic woes to its city income tax.

       —Larry Kestenbaum    Dec. 21 '08 - 12:22PM    #
  25. A couple of comments. First, the complaint that we’re subsidizing those who live outside the city but work here or even come to use the parks strikes me, from a justice perspective, as pretty hypocritical. Ann Arbor is massively subsidized by Michigan taxpayers who live elsewhere—in the form of millions in state support for the University (which of course go to paying Ann Arbor property taxes by employees and to supporting Ann Arbor businesses). And most of those Michigan taxpayers are poorer than we are and live in communities much more vulnerable to the current economic downturn than our recession-resistant, university-supported local economy. So it strikes me as unfair for us to take further advantage of the fact that the U can’t pick up and move by scraping another 1% off the top of what the state sends to the university. In fact, if I were a state legislator, I might even ponder a bill forbidding local municipalities from imposing city income taxes on state university employees.

    In terms of the size of a city income tax—it would be a big increase. In our particular case, a 1% tax would be at least a 50% increase in our city taxes — maybe closer to a doubling. I believe an increase of this size would, indeed, have a significant impact on the attractiveness of Ann Arbor to businesses and their employees. Businesses don’t care only about taxes they pay directly—it really doesn’t matter if you call this an ‘employer tax’ or an ‘employee tax’ — the effect is the same.

       —mw    Dec. 21 '08 - 08:27PM    #
  26. Let me guess mw, you for the University of Michigan? Whatever benefits the city gets from the presence of the University (and I’ve acknowledged that it’s significant), it doesn’t translate into tax dollars to pay for the city services needed by city residents and businesses. When the University comes in and removes significant portions of the city’s tax base from the tax roll, that has an impact on the city’s ability to pay.

    Property taxes are far and away the largest revenue source for the city. The local property taxes fund everything from police and fire service, AATA, street repairs, garbage pickup and parks and recreation facilities and services. Each time the tax base is reduced, you’re directly cutting into the level of service that you can provide.

    I don’t think a local income tax is an ideal way n for the city to offset the loss of property tax revenue from the University’s actions. But the city has very few options if it wants to maintain the level of service that make it a place where people want to move and live. The only other option that would raise the amounts being lost by the UM’s acquisition of the Pfizer property is to increase property taxes. If you don’t find a way to replace lost property tax revenue, you’re faced with cutting services to residents and businesses and reducing the long-term investments in infrastructure.

    I would put the question back to you, knowing that the city budget is going to take a significant hit from the UM acquiring the Pfizer property and knowing that it won’t translate into significant tax dollars for the city, what would you propose as an alternative for the city to explore?

       —John Q.    Dec. 21 '08 - 09:12PM    #
  27. mw – Ann Arbor sure does benefit from UMich’s presence, in terms of jobs, spin-off and support businesses, non-monetary cultural benefits, etc. All those are good things for the community the University is located in.

    On the other hand, communities have bills to pay (police, fire, snow plowing, trash hauling, parks, etc). The universities do increase the costs of these services, but those bills don’t get paid by the University directly.

    The community has to cover these costs from the rest of the population, and there are pretty much two ways to do that – property tax and income tax. A property tax takes the money from the people who are living and doing business in the community – many of them benefiting from the jobs, support biz, and cultural advantages of having the university there. An income tax does a very similar thing – takes money from people working in the community, many of whom are benefiting from the things the university brings to the community.

    One way or another, A2 as a community has to pay its bills, and, property tax or income tax, a lot of it is going to be an indirect way of getting at the fact that the U doesn’t pay bills. Either way, a chunk of that money is going to come from U students and employees, who get it from the U, who get it from Michigan taxpayers.

    So, I don’t understand your apparent position that a property tax is just fine, while an income tax is something to get lathered up at the mouth about and call for laws against. They don’t seem like all that different scenarios to me, from the State-level perspective.

    (There is, of course, the personal perspective. Maybe you live in a Township but work at the U, and so are trying to frame your personal costs as societal costs?)

       —Murph    Dec. 21 '08 - 09:14PM    #
  28. mw does say that he/she pays city taxes. No matter what tax is implemented, there’s always going to be people who pay more, even if the majority pay the same or less. The three things we don’t know are:

    1) How much revenue would a local income tax generate?
    2) What percentage would be levied?
    3) How much offset in property taxes could be accomplished by including revenue from an income tax?

    The city’s taxable value in 2008 was around $4.8 billion dollars (for a peer comparison, the city of Farmington Hills has a tax base of $4.4 billion and Troy has a tax base of $5.5 billion). For each mill levied in property taxes, that generates about $4.8 million in revenue. For each $4.8 million in revenue generated by a local income tax, the general fund millage could be reduced by 1 mill. For comparison, the city of Walker outside of Grand Rapids is a suburban community with a population around 25,000 residents. Walker levies a 1% rate for residents and 0.5% on non-residents. Walker’s income tax generated around $8 million in 2008. One would expect that a similar rate in Ann Arbor would generate much more revenue.

    A previous AU discussion that provides some numbers to the mix:

       —John Q.    Dec. 21 '08 - 09:41PM    #
  29. What I think is missing from this discussion of the technicalities and equities of an income tax is a sense of temporal context. Let me put a few assumptions on the table:

    1) GM and Chrysler will file for a prepackaged bankruptcy in 2009 and Ford will have no choice but to go along with the structural reforms demanded by Obama’s car czar. That means that…

    2) at best the MI auto industry including suppliers will be about 70% of its current size in 2010 – 2015.

    3) I think there is about a 50-50 chance the Big Three will emerge from the restructuring as viable, so let’s say that by 2015 they’re either

    85% of current size (good case)
    30% of current size (bad case).

    4) While that will hurt Ann Arbor and put downward pressure on home prices, everyone else in the state will be hurting worse and there will be more needs chasing less money. There will be significant cuts in state funding for UM just as there were in the recession of the late 70s early 80s.

    In that environment, do we want to establish an income tax? I’m not sure, but here’s what comes to mind.

    I agree that in theory a tax is a tax and that in principle a well constructed income tax might be the right tool for the job … but I think that this is essentially an emotional and political issue.

    To me, a city income tax for Ann Arbor seems like a “raising the drawbridge” strategy that will isolate us from the rest of the state and impede all the things that need to happen in Michigan as a whole.

       —Fred Zimmerman    Dec. 22 '08 - 12:02AM    #
  30. John Q: Let me guess mw, you for the University of Michigan?

    You mean work for? No, I don’t. Also, I live in the city, not the townships.

    Whatever benefits the city gets from the presence of the University (and I’ve acknowledged that it’s significant), it doesn’t translate into tax dollars to pay for the city services needed by city residents and businesses.

    Directly? No. But the indirect effects are massive. Property values (and property tax revenues) are high here because of the proximity of the University. The University is THE critical factor in making this a wealthy, desirable place to live. As a thought experiment, imagine the U did decide to pick up and move. Do you think that would create a boom in Ann Arbor when all that real-estate opened up for private development? Or do you think it would make Ann Arbor a much poorer place (like any number of mid-sized Michigan cities)?

    Of course we have to pay for police, roads, parks, etc. But are we trying to do that with per-capita revenue that’s low for the region? Or is our per-capita revenue high, but just not quite high enough to match our spending habits?

    Murph: So, I don’t understand your apparent position that a property tax is just fine, while an income tax is something to get lathered up at the mouth about and call for laws against. They don’t seem like all that different scenarios to me, from the State-level perspective.

    The difference is that a property tax is paid by us — by people and businesses who chose to live and operate here. But an income tax would be intentionally designed as a way to siphon a bit of money from the U. Put it this way — suppose Ann Arbor was able to impose a tax directly on the money sent from Lansing to the U without having to wait until it showed up in the payroll? Would that be OK? How do you think people in Flint, Pontiac, and Jackson would feel about it? Now if the costs of hosting the U were much greater than the benefits, Ann Arbor would be justified in demanding a cut of U funding (sort of like overhead charges for academic grants). But it’s clear that the benefits to Ann Arbor greatly outweigh the costs of hosting the U, and so I think we ought to suck it up and pay for our own roads and not try to figure out how to get Michiganians outside Ann Arbor (most of whom are having a much rougher time than we are) to subsidize us even more than they already do.

       —mw    Dec. 22 '08 - 12:14AM    #
  31. John Q. crystallizes the discussion—how to cover the budget hit from Pfizer going off-the-books. Seems to me you must (singly or in combination)

    a) raise more from existing payers, whether by raising rates, coming up with new taxes, or growing the base; or

    b) find ways to obtain money from non-payers; or

    c) reduce costs/services.

    An income tax coupled with property tax reductions and renter exemptions seems designed to make non-resident workers pick up the tab. Are we soaking them just because we can? Nobody has yet said what costly services these commuters require. Imposing taxes based on flimsy assertions is nothing short of political thuggery.

    There is a sense that commuters aren’t contributing to our community. They do contribute, with every meal they eat, every gewgaw they buy, every cultural event they attend. Should they also pay for being workers in this city, perhaps because their employer doesn’t? Will we give them a say in how their taxes are spent if they do? Are they only part of our community on the revenue side?

    The real beef seems to be with UM. Just as state law gives AA the power to tax non-residents, it lets UM buy up taxable property. Don’t like it, run for Regent. Or, ask the state legislature for a “University Hosting Offset”. You’ll get a sense of what the rest of the state thinks about AA’s revenue problems then. An income tax levied on non-residents is a clumsy cudgel to beat UM with.

    Like it or not, it think we should stick to options a & c.

    For the record, city home owner, UM drone.

       —mcammer    Dec. 22 '08 - 01:37AM    #
  32. While it may be an entertaining intellectual exercise to debate an income tax for the City of Ann Arbor, politically such a proposal is a non-starter.

    In November, 2007, Ypsilanti voters crushed an income tax proposal by 67% to 33%.

    Ypsilanti is in the same county as Ann Arbor, and shares the characteristic of having a large university (EMU) with a bunch of property off its tax rolls. I expect an income tax for Ann Arbor would suffer the same fate.

    Why? Because, as the debate above shows, such a proposal pits group against group – not good for a pro-tax vote.

    Also, the requirements for a city income tax (set by state law) are so complex that only three people ever understood them. One died, one went mad, and the third forgot all about it.

       —David Cahill    Dec. 22 '08 - 01:40AM    #
  33. I am always discouraged by the “rich Ann Arbor” image since my neighborhood and the 5th ward in general has many modest homes inhabited by people of modest income.

    But the “rich Ann Arbor” is not borne out by published statistics. According to the US Census, data for Ann Arbor indicate a median family income of $79,488. (The mean is $106,599, which shows that we do have some very affluent families.) The median household income is only $53,587. Data for Washtenaw County on the other hand, show a median family income of $80,779, with a median household income of $59,887. Student households probably pull down the median number for the city, but these statistics do show that overall Ann Arbor is not wealthier than the rest of the county. Some parts of the county, of course, are much poorer, but some are much more wealthy, and these (think Barton Hills) are likely to be earning income in Ann Arbor.

    A new SEMCOG report shows that Ann Arbor is far below most other Washtenaw County communities in terms of taxable value per capita. Ann Arbor is below the county mean TV per capita at $39,977. Only Augusta, the two Ypsilanti(s), and barely Northfield are lower. Ann Arbor Township has a per capita tax base of $92, 674; Scio’s is $64,417. The significance of that is that a mill of property tax in Ann Arbor Township raises a lot more money than one in Ann Arbor, thus each of us must carry more mills for the same ability to provide public services.

    The glaring question, of course, is what to do about truly low-income populations like commuters from Ypsilanti or students. That is where a high exemption should help, and because they don’t earn much money, their tax should be fairly low. Let’s suppose that an unmarried person commuting into Ann Arbor makes $30,000 per year ($15 per hour). After exemption of $3700 (I think that is the correct number for 2008), his tax would be $131.50. He would have a state tax credit of about $23. (There are likely some adjustments to income that could decrease the tax paid even further.)

    For someone making that much and living in an owner-occupied house here in Ann Arbor, the income tax would probably be advantageous since he/she may be living in a house that have appreciated considerably but doesn’t reflect current income. (Think $263 instead of roughly $600 for a $200,000 house.) Of course, the income tax is much kinder to an aging population for the same reason, since retirement income is not taxed.

    As a homeowner and resident of Ann Arbor, I know that the income tax would be better for me. I also think that it would be better for the region because it can support amenities for both businesses and visitors as well as residents. Obviously people who live outside the city and who would face a new tax will not like it. But I don’t think the “rich Ann Arbor” argument flies.

       —Vivienne Armentrout    Dec. 22 '08 - 02:12AM    #
  34. MW-The difference is that a property tax is paid by us — by people and businesses who chose to live and operate here. But an income tax would be intentionally designed as a way to siphon a bit of money from the U.

    The income tax is not a way to siphon money from the University but rather a way to have the people who are recruited to work at the University help pay for the roads and other city services. A large number of university employees live outside the city. I actually work for the U and could factor a guess and probably well over 50% live outside the city. Although the post docs and graduates students mostly live within the city limits, most professionals do not. I do not have exact numbers but would interested in seeing them if anyone has them. I base my assumptions on personal experience with my colleagues. People should stop labeling the income tax as a “punishment” but should think of it as living up to their local responsibilities.

    MW-But it’s clear that the benefits to Ann Arbor greatly outweigh the costs of hosting the U, and so I think we ought to suck it up and pay for our own roads and not try to figure out how to get Michiganians outside Ann Arbor (most of whom are having a much rougher time than we are) to subsidize us even more than they already do.

    First of all, someone who works for the U, lives outside the city and makes the same salary as me is not having a rougher time than I am. In fact they have it easier with much lower property taxes and not having to pay for the snowplowing and road repairs that they benefit from.

    The entire region benefits from the University of Michigan, not just Ann Arbor. If the U disappeared tomorrow, the effect would be felt countywide.

    Keep in mind…Those who live outside the city and do not work in the city will pay nothing. Therefore those who do not use city services are not subsidizing those who do.

    Also, not to start another argument…but the fact that the people in the townships and other parts of the county are subsidizing Ann Arbor is quite funny, when it is actually the opposite. The higher population areas (Ann Arbor being the main area) contribute more to countywide services than they ever get in return. An example is the cost of the sheriff. We contribute, but never actually use the service.

       —Diane    Dec. 22 '08 - 09:34AM    #
  35. One question: Does anyone know what categories of employees, if any, will be automatically exempted from a city income tax e.g. federal or state employees, foreign workers etc.?

       —Mark Koroi    Dec. 22 '08 - 11:18AM    #
  36. It’s not a surprise I think that the idea of a city income tax is horrible, I don’t live in the city of Ann Arbor (in fact, I live less than a mile outside of the city limits).

    I chose NOT to live in the city 5 years ago, because of the high property taxes and the high home values. Now you will penalize my family for our financial decisions in order to “equalize” the financial burden? Are you trying to get us to move out of the region altogether?

    There’s not a lot of things keeping those of us who moved from elsewhere in this region, why give us reasons to move?

       —jhallum    Dec. 22 '08 - 07:31PM    #
  37. I’m not sure the failure of Ypsi’s income tax should be read as a predictor of the prospects for Ann Arbor’s tax. Ypsilanti already has higher taxes than Ann Arbor, a smaller base of employees, and there were concerns that most homeowners (read voters) would end up paying more under the tax sytem. Furthermore, I heard many people worry that the exemption was too low.

    I’m not saying an income tax would or should pass, I’m just saying one that reduces net taxes on homeowners and has a high enough exemption to give a break to low-income taxpayers has a better shot of passing here than the Ypsi proposal did.

       —Chuck Warpehoski    Dec. 22 '08 - 08:13PM    #
  38. Although I think the issue of “equalizing the burden” is one that sounds good to a lot of city residents, I don’t think that’s the reason that the city is considering this. The city’s looking at the income tax because it has very few options for continuing to pay for the current level of services to residents and businesses when the University’s actions undercuts the tax base, which though property tax revenue is the primary way of paying for services. The city could continue to jack up property taxes. Or it could look at cutting back services. In the long run, I think that such moves do more harm than good. For those arguing that an income tax hurts the city’s economic viability, please explain how raising property taxes or cutting services is good for the city’s economic viability? The critics have easy answers for why they don’t like the income tax. But none of them seem to be able to provide answers to the question of what is the alternative to it.

       —John Q.    Dec. 22 '08 - 08:17PM    #
  39. If the only motivation is making up $ from the University’s purchase of Pfizer, that’s tactical thinking, not enough to justify a change with so many possible counterproductive effects on incentives.

    I would say “cut services that the university cares about,” but apparently the city doesn’t have very much leverage there, or is unwilling to risk using it.

       —Fred Zimmerman    Dec. 22 '08 - 09:53PM    #
  40. I have always assumed that income tax proposals are not just a way to siphon off income from the state; it’s (perhaps more importantly) a way to siphon off money from the federal government. Last I heard, only about 25% of the UM budget comes from Lansing; the rest comes from tuition, endowment, and other sources. Those “other sources” include federal monies, and tuition is often, if not primarily, funded by federal loans (or else from loans that come from out of state). That budget is then spent to a significant degree on employee salaries. So much of it comes from the US taxpayers at large, not from MI taxpayers alone (so the MI taxpayers’ contribution to it is only about 10M/300M=3% at most). Just my take on it.

    As for income, Ann Arbor city may not be unusually wealthy, but Washtenaw county, i.e. Ann Arbor metro, does place in the top 100 counties in terms of per capita income, based on 2000 census data at least

    Link: Highest per capita income counties (Wikipedia)

    (Though as you can see for median income, it drops off the list, though I imagine it remains high on the list of the next 100 counties).

       —Young Urban Amateur    Dec. 23 '08 - 02:30AM    #
  41. Thank you to AU for encouraging this debate, and thank you to all the people who have commented. In the 48 hours following the UM’s announcement, several constituents sent me unsolicited e-mails supporting an income tax. As reported in the ANN ARBOR NEWS, Councilmember Rapundalo also suggested that we pursue the idea. I expect it will be discussed by the City Council at our January 10 retreat.

    A few background points, some of which have been covered in previous posts. Under State law, Ann Arbor voters must approve an income tax. State law provides that the tax rate for residents cannot exceed 1.0% and must be twice the rate charged to non-residents. Businesses would also be subject to the tax on income earned inside the City. The exemption must be at least $600 per dependent. Section 8.7 of the City Charter prohibits the City from levying a general operating property tax at anytime when an income tax is levied. That means all property owners inside the City would enjoy a property tax cut of 6.1682 mills. That also means the City could not subsequently re-instate the operating millage unless the voters amended the Charter. That should address the questions raised by Steve Bean and John Q. Thank you to Vivienne for providing links to useful data.

    Now for a few comments.

    I agree with Larry Kestenbaum’s comments (Post #24) that income taxes do not appear to play any significant role in driving residency or business investment. In addition to the cities with an income tax cited by Steve Bean (Walker and Lapeer), Grand Rapids and Lansing also have income taxes. Both cities are similar to Ann Arbor: Grand Rapids is one of the few areas in Michigan enjoying relative economic growth, and Lansing has a stable workforce through the State government. Sure, some cities with an income tax face serious strutural economic problems, but I do not believe there is a causal connection between their income tax and their economic woes.

    The City hired an outside consultant in 2004 to analyze a possible city income tax. The primary goal at the time was not to raise new revenue, but to instead shift some of the tax burden to commuters. Councilmember Teall and I served with City staff on a committee that managed the study. The study concluded that the City would generate significant new revenues with an income tax even after (1) allowing a large personal exemption ($5,000 or more per dependent) to offset the impact on renters and low-income people, (2) accounting for the elimination of 100% of the general operating millage, and (3) setting aside over $1 million annually to cover the costs of administering the tax. The reason for this positive cash-flow is simple: tens of thousands of people commute to Ann Arbor everyday, and their cumulative income is substantial. The property tax and income data on which the study was based have surely changed significantly since 2004, but I believe the underlying conclusion remains the same.

    While I understand David’s point about Ypsilanti’s recent defeat of an income tax (Post #32), I believe this exercise is nonetheless very important. After all, it will be far more than an intellectual exercise if six members of the City Council vote to place the tax on the ballot. Beyond that, I also disagree with David’s conclusion that Ypsilanti’s anti-tax vote bodes poorly for a similar vote in Ann Arbor. I believe that Ypsilanti was proposing a property tax cut of only 2 mills, which is 1/3 the cut that Ann Arbor property owners would enjoy. Although Ypsilanti has a higher property tax rate than Ann Arbor, Ann Arbor properties generally have much higher taxable values, which further increases the potential savings to many Ann Arbor voters.

    I’m intrigued by the debate about whether renters would enjoy any trickle-down savings through lower rents. I have always assumed that landlords would not pass along their property tax savings to their tenants; perhaps I’m wrong. I worried in 2004 about the effect on renters and low-income residents, which is why our modeling included some high personal exemptions.

    Please continue the debate. It’s been very helpful.

       —Leigh Greden    Dec. 23 '08 - 07:34AM    #
  42. The original post by Greden says that “60,000 people commute to the city every day and use our roads….” Maybe I missed this somewhere (and if I did, sorry), but exactly how many people are employed in Ann Arbor? Figures from the SPARK web site put the figure at around 30K individuals in five industries.

    Maybe 60,000 people commute into the City, but do all of them work here, and would all of them be subject to a City income tax?

    Many years ago, City Council members rumbled about taxing UM sporting events. A $2 dollar per ticket tax on tickets sold to UM home football games alone, would generate over $1 million in gross revenue yearly.

    The A2 News had an interesting editorial today that points out the obvious: UM cannot be relied on to provide the lion’s share of business development and jobs in our City. It’s not in the best interest (economically) of A2. Further, SPARK simply can’t be the only entity that brings business development to A2.

    Perhaps it’s time our elected leaders begin to aggressively pursue established businesses considering relocation (or even pitching the prospect to targeted growing companies). Waiting for the next Google to choose Ann Arbor is akin to standing around and waiting to be asked to dance.

    It appears that the projected budget deficit in the General Fund means that waiting to be chosen by business leaders with established companies, or even relying on SPARK, aren’t economically viable strategies. Why not invest in a program that includes the “courting” of targeted established businesses? Avoiding a City income tax (which, as a business owner, I’d like to do) is going to take some creative thinking.

    I understand why some support the tax, but I agree with those who see it as a last resort, and possibly damaging to business.

    Patricia Lesko

       —Patricia Lesko    Dec. 23 '08 - 07:38AM    #
  43. I wonder how Leon Drolet and the Michigan Taxpayers Alliance feels about the issue of a city income tax?

       —Mark Koroi    Dec. 23 '08 - 08:17AM    #
  44. Leigh:

    >n the 48 hours following the UM’s announcement, >several constituents sent me unsolicited e-mails >supporting an income tax.

    At least the same number have sent you unsolicited messages via this forum that the idea will be at
    best hotly contested.

    >After all, it will be far more than an
    >intellectual exercise if six members of the City >Council vote to place the tax on the ballot.

    The first thought that came to my mind was “recall petition.” I won’t back it, but it will certainly occur to others. What are the rules in Ann Arbor?

    You have certainly come up with a great way to get city politics energized around a heated debate that distracts everyone’s energies from far less problematic ways of addressing the coming fiscal crisis. Please, back off before you go too far down this dead end.

       —Fred Zimmerman    Dec. 23 '08 - 09:33PM    #
  45. Recall because Council is giving residents an opportunity to choose whether they want to switch to a local income tax or face the prospect of higher property taxes? Who knew that asking voters to choose was a recall-worthy offense.

       —John Q.    Dec. 23 '08 - 09:53PM    #
  46. Thank you, Fred, for your observation. Likewise, the first thing that came to my mind was “recall” when I heard the prospect of a city income tax being proposed. It conjured up images of “Mr. Perks” the giant pink polyethelyne pig mascot of the Michigan Taxpayers Alliance and the situation in Redford Township that ultimately resulted in the Democratic primary election defeat of Township Supervisor Miles “Boss Hogg” Handy. A city income tax unfairly discriminates against hard-working citizens and benefits welfare recipients, the unemployed, and others outside the law’s reach. Post #36 shows how such a tax may be received by non-residents; it could hurt the Ann Arbor economy; a “brain drain” is certainly a possible scenario.

       —Mark Koroi    Dec. 23 '08 - 10:40PM    #
  47. John Q — I am not talking about the merits of the income idea in my post #44 — I am talking about the likely real-world political outcome of this proposal if it goes very far forward, i.e. a bitter and divisive fight.

    It’s the “Pottery Barn” principle: it’s an option that, regardless of whether it succeeds, defines the political debate for many years to come. When we reach into the toolbox for solutions to the looming financial problems, we shouldn’t grab the pointy end first. A city income tax should be the last resort, not the first.

    Surely one of the things most of us agree on here at Arbor Update is that one of a community’s most precious resources is its “social and political capital” of trust and cooperation to solve ever more vexing problems. For basic reasons of human nature, a new tax that has a new set of differential impacts on members of the community will reduce our solidarity at the time we need it most.

       —Fred Zimmerman    Dec. 23 '08 - 11:15PM    #
  48. Recall? Are you kidding me? Do not take away my right to vote on something that is a legitimate solution to the city’s tax problem.

    Ann Arbor is not the first city to consider a city income tax; this is not novel. An open discussion is good without some people trying to use recall attempts as scare tactics.

    I for one want my elected officials to ask my opinion and to inform me of the options. I want the city council to discuss ALL the options, no matter how unpopular the options are, before deciding on how we are going to deal with the Pfizer Properety tax loss.

    I may not always agree with how my city councilmember votes, but I at least hope that they are voting in the best interest of the city. (I am still not over the whole chicken issue…aahh!!)

    Sometimes being unpopular is the price of leadership and the cost of conviction.

       —Diane    Dec. 23 '08 - 11:24PM    #
  49. Diane — it should be obvious from the totality of my comments on this topic that I personally am not trying to scare anyone and that I have mixed feelings about the technical merits of an income tax. And of course a recall petition doesn’t take away your right to vote, it gives you a chance to vote again! ;-)

    Sometimes being unpopular is the price of leadership, and sometimes electrocution is the price of sticking a fork in an electric socket. In American politics, even in Ann Arbor, new taxes are forks.

    I am simply saying that of all the options available to us, an income tax is one of the riskiest and least appealing. I am pretty sure that almost any group of citizens convened as Ann Arbor’s City Council and sitting in commitee would reach the same conclusion. That’s not because I think people are stupid, it’s because I think committees are risk-averse, unless shielded from public input by groupthink. That’s not going to happen here.

       —Fred Zimmerman    Dec. 23 '08 - 11:37PM    #
  50. Fred, 49 posts and no one has proposed any alternatives that maintain the city’s ability to provide the current level of services to residents and invest for the future. The scenarios the city is facing are not hypothetical “what ifs”. The Pfizer property will come off the tax rolls. The value of all properties will continue to decrease. The prospects for a significant economic turnaround in the near future are slim. The likelihood of significant levels of new development in the city are low. If you insist that “new taxes are forks” than we might as well start talking about what’s going to be cut because there’s no magical money tree that’s going to start shedding off new revenue that doesn’t involve some discussion of taxes.

       —John Q.    Dec. 24 '08 - 12:46AM    #
  51. John, I think you are absolutely right, we should be talking about what is going to be cut off, and particularly how we are going to get through the years 2010-2012, which, as I have explained, I believe will be the most difficult ones for cities in Michigan.

    As Larry K. observed in another thread, there is a lot of denial going on. My personal view—and I am not asking anyone else to agree with me, I am simply stating my perspective—is that for City Council to be working towards a new income tax is simply an elaborate, divisive, and counterproductive form of denial.

    Leigh asked for feedback from the citizens, well, that’s mine. I will await the results of City Council’s island retreat with interest.

       —Fred Zimmerman    Dec. 24 '08 - 01:13AM    #
  52. I’m against a city income tax. I think the city ought to look at cuts it can make. I could very well be convinced to vote for property tax increases in lieu of some cuts. Tough times are tough, and the city can’t be totally insulated from that.

    Nothing wrong with discussing an income tax as a possibility, but I would oppose any council member who favored it. We don’t need the circus of a recall petition here, councilpersons face reelection often enough.

    Fred also brought up the issue of negotiating directly with the U. The Regents could certainly do something to help the city. We could remind them who provides their fire protection, make them understand that construction allowances won’t be so easy to come by, threaten ticket taxes, etc. if they act in ways that make city finances harder. It’s worth a shot anyway.

       —mcammer    Dec. 24 '08 - 02:08AM    #
  53. “We could remind them who provides their fire protection, make them understand that construction allowances won’t be so easy to come by, threaten ticket taxes, etc. if they act in ways that make city finances harder. It’s worth a shot anyway.”

    Or not. The city doesn’t have the ability to affect any of the items you listed. The point is that a lot of this is being directly driven by the actions of the University. In good times, there’s enough to go around and the city absorbs those costs. In bad times, having the University knock out a chunk of the city’s tax base, even if it ends up helping more than hurting in the long run, doesn’t change the reality that the city is going to have to absorb a hit in property tax revenues at the time that it needs them the most.

       —John Q.    Dec. 24 '08 - 02:15AM    #
  54. When the U wants to take out a lane of traffic or wants exemptions from the noise ordinance for construction, that is absolutely within the power of the city to allow.

       —mcammer    Dec. 24 '08 - 02:51AM    #
  55. I agree with Diane that a healthy debate is good. A majority of Councilmembers are reading this thread, so they’re aware of the many comments. But, we must remember that one of the justifications for an income tax is to shift some of the tax burden to commuters – not to increase taxes. Indeed, the tax could be structured to be revenue neutral for the City.

    Pat- Perhaps you haven’t read the Council packet the last several years, but the City Council has worked hard – often with success – to recruit new business here. We don’t sit back and let SPARK do all the work. The Mayor, Councilmembers, and staff work diligently one-on-one with specific employers to recruit them to Ann Arbor. We approve tax abatements when they will retain and/or create new high-paying jobs. In fact, we just scheduled two new tax abatement hearings. And economic development is one of the reasons we’re building a new parking garage next to the Library.

    You also suggested that the City should tax UM sporting events. You made similar arguments during the Council election that the City should tax and regulate the UM more. Let’s set the record straight: The UM is a constitutionally-autonomous body that cannot be taxed or regulated by local governments, and thus, unfortunately, your suggestion is illegal. Mcammer is correct that the City does control street closings, etc.

    I don’t know where you read that 30,000 people are employed in Ann Arbor, but I suspect you mis-read the data. The UM alone employs over 35,000 people, the vast majority of whom work inside the City. And thousands of those people live outside the City. And there are many other large employers inside the City, such as the AAPS, County, City, Edwards Brothers, and many others. The BLS reports that 184,000 people work in the Ann Arbor region, and the City constitutes the largest employment base within that region.

    And Mark, with all due respect, I personally don’t care at all what Leon Drolet thinks – and I think a majority of Ann Arbor voters feel the same way. But I do care what Ann Arbor residents think, which is why this debate is so helpful.

       —Leigh Greden    Dec. 24 '08 - 04:14AM    #
  56. All this talk reminds me how glad I am to be paying for a greenbelt. What a brilliant use of taxation.

       —Never forget    Dec. 24 '08 - 04:18AM    #
  57. 7% of each property tax dollar goes to Washtenaw Community College. Presumably everyone in Washtenaw County pays property taxes to support the community college.

    10% of each dollar goes to Washtenaw County itself. Presumably all homeowners in the County pay for taxes to the county.

    11% goes to a state educational fund. Presumably every homeowner in the state pays into the fund.

    7% goes to WISD.

    So, 35% of what all property owners pay in Ann Arbor is also paid by people who commute in to the city.

    Ann Arbor Schools account for 27% of the budget. Presumably nobody believes that people who commute in from out of town should have to pay for AA schools unless they are allowed to have children attend those schools.

    4% goes to the Ann Arbor library. Ditto.

    So far, 65% of property taxes go for expenses that either non-residents do not benefit from, or already share in.

    Only 28% goes to the City, another 4% goes to the transportation authority. Some portion of the City budget goes to roads, but I would be exceedingly surprised if it was even 1/4, given that the city budget supports attorneys, a courthouse, a golf course or two, city buildings, salaries, pensions, etc. etc. The numbers aren’t that easy to pull out of the budget from 2009, but someone more motivated than I can surely do it.

    By now you probably see where this is heading. Given that people who commute in to work in Ann Arbor either already pay for, or do not benefit from, the overwhelming majority of services supported by the property tax, in what universe is it fair for them to pay an income tax? Their employer, if not a non-profit, already pays property taxes that presumably support sewage, police/fire, and some toward roads and infrastructure. It seems to me the height of unfairness — especially when state funds go toward road building and repair — to tax people just because they happen to work in Ann Arbor.

       —Anna    Dec. 24 '08 - 06:03AM    #
  58. Anna, you’re comment started conflating property tax revenues with “the budget” when you got to schools. The city’s general fund budget is funded by a totally separate millage than the schools’ budget. Likewise for the library system and AATA.

    “in what universe is it fair for them to pay an income tax?”

    The universe in question is the one where many of those people work for the university (which is one of those non-property-tax-paying non-profits you mentioned) and the one in which the cost of the services they enjoy, while not huge, is also non-zero. The question of fairness will be addressed if and when the rate is proposed and the amount is determined. Even then that question won’t be answered, imo, because fairness is too subjective, if not an imaginary concept.

    What we’re doing here is exploring whether a combination property tax/income tax system would be less flawed (a slightly different way of saying “less unfair”) than the current property tax system. (Fred and mcammer have argued in favor of comparing variations within the current property tax system by considering different levels of spending and millage rates, respectively.)

       —Steve Bean    Dec. 24 '08 - 07:02AM    #
  59. “All this talk reminds me how glad I am to be paying for a greenbelt. What a brilliant use of taxation.”

    I was wondering when someone was going to blame the greenbelt for the current fiscal problems. The greenbelt is actually one of the few things that’s helping the city’s long-term financial picture.

    First, it’s encouraged the townships to reconsider their sprawl growth patterns. Since it was approved by the city voters, three townships have approved their own greenbelt millages (Ann Arbor – concurrently with Ann Arbor city, Scio and Webster). Two others (Pittsfield and Superior) have supported the city’s efforts through other means. Working together, the city and the townships have been able to capture millions of dollars in federal matching funds to acquire development rights to greenbelt properties. What other city funding program has had such success?

    Two, by encouraging the townships away from sprawl development, it’s helped keep the city as a viable location for new development. As was noted earlier, city commercial property values actually went up this year, which is quite an accomplishment when overall property values have been in decline.

    Third, by discouraging excessive residential development in the townships, it helps maintain property values in the city. At the time the greenbelt proposal was passed, the great fear was that the greenbelt would cause property values in the city to skyrocket. Who knew that 5 years later, the big fear would be how would property values fall in the city and townships. Unlike many growth areas in SE Michigan, the Ann Arbor area has fewer unfinished subdivisions with developers in bankruptcy and homeowners in foreclosures. If the greenbelt had not been approved in 2003, you can be sure that a number of property owners would have cashed in with the development community and that today is undeveloped would have been filled with subdivision streets and unoccupied homes.

       —John Q.    Dec. 24 '08 - 07:53PM    #
  60. Hey John Q, how about decloaking? Most of the people contributing to this thread have done so. —Fred

       —Fred Zimmerman    Dec. 24 '08 - 08:05PM    #
  61. Steve: I was relying on a graphic, produced by the city, and available on the website, entitled, “where your property tax dollars go.”

    I understand what you have said, and I am still in total disagreement, as a matter of principle. That said, if the question is to be addressed or answered I would be more than happy to debate the numbers. A rational debate is hard without pinning down the details: exactly which city services do you believe ought to be subsidized by commuters? Roads? Fire services? Fine, then people have something to sink their teeth into, and we can get into details about how much the state pays for roads, how much the county pays for roads, and how much the city pays, what percent of the city budget actually comes from the city residents, and how much actually flows in from the state, what existing businesses pay, what the University contributes directly, how much out of towners pay for parking on the street, tickets, etc.

    As an aside, most universities pay “in-kind” fees for fire services. Is it confirmed that the University does not?

       —Anna    Dec. 24 '08 - 08:47PM    #
  62. Once again, I think that we need to calm down a bit—the real effects of the Pfizer sale are still unknown. We don’t know what the U. will do with the land. Property values are already rising within the city. The recent award of the FRIB to Lansing may also help raise property values. I know that due to MI’s property tax laws this is not a surefire way for the Pfizer tax losses to be recouped by the city, but it’s a start. Again, the U. could do any number of things with the land. K-Dow might still locate here. We just won’t know until next year. It’s possible nothing will need to be done.

    It’s also possible that a city income tax would only need to be a fraction of a percent to bring in the needed income. SEMCOG says that A2 has nearly 48K households. Let’s pretend that all of those households earn their income within the city limits. With a Pfizer loss of $4M in property taxes, each household would need to contribute only $83 each—or, assuming an average household size of about 2.4 (roughly city population divided by number of households), that’s less than $40/person. It would work out to an income tax of about .1%. And that’s not even including all of the commuters. Of course the real situation would be more complicated than this and I’m sure any real income tax would be higher than that, but by ten times? I find that unlikely. I also find it unlikely that an income tax of .1-.2%, or $40-$80/year, would create a discernible brain drain from the city to the townships. (Much more irritating, though, would be the extra paperwork necessary to may such a minimal tax each April 15.) And all of this is assuming that none of the Pfizer land will be sold by the U. Or that there will be no additional business relocations into the city in the near future.

       —Young Urban Amateur    Dec. 24 '08 - 10:04PM    #
  63. “Hey John Q, how about decloaking? Most of the people contributing to this thread have done so.”

    No thanks Fred. Did I say something that requires me to be “on the record” for my comments to count? For everyone’s benefit, I don’t work for the city, I don’t work for the University and I am not a member of the Council or any boards or commissions and I’m not the Mayor despite David Cahill’s previous claims.

       —John Q.    Dec. 24 '08 - 10:44PM    #
  64. John Q —

    Did I say something that requires me to be “on the record” for my comments to count?

    —No, and I didn’t say that.

    For everyone’s benefit, I don’t work for the city, I don’t work for the University and I am not a member of the Council or any boards or commissions and I’m not the Mayor despite David Cahill’s previous claims.

    —No, and I didn’t say any of those things either (or, for that matter, think them).

    —What I do think is that identity-concealing handles are childish and unhelpful in this particular online setting, and I would like to encourage everyone to abandon them — especially those who, like you, frequently make intelligent and informative posts. Your posts would be more valuable still if they were tied to a person who found it convenient to associate himself publicly with his convictions.

    —Just my $.02, for what it’s worth. You’ve heard my perspective, I won’t raise the subject to you again.



       —Fred Zimmerman    Dec. 25 '08 - 02:38AM    #
  65. I would like to find out who Parking Structure Dude! is?

       —Mark Koroi    Dec. 25 '08 - 02:50AM    #
  66. Arbor Update has always welcomed posts from folks who aren’t comfortable posting under their full name, several of whom (as you’ve noticed) have consistently been among our most thoughtful contributors. Please respect their wish for a little privacy.

       —Bruce Fields    Dec. 25 '08 - 08:08AM    #
  67. Bruce, I entirely agree with you that contributors should be permitted to remain pseudonymous, and that in no case should their privacy be involuntarily violated—as mine was, btw, in a recent thread where my server log from another site was employed in a discussion here. While Arbor Update did nothing to protect my privacy in that case, you can be assured that I personally will never do anything to violate anyone else’s privacy here.

    My view is that that pseudonymous contributors with strong advocacy positions on vital community issues should voluntarily relinquish their privacy in favor of increased maturity, accountability, and transparency.

    Thus, I cannot accede to your request that I “respect” hiding behind handles because, in fact, I do not respect it.

       —Fred Zimmerman    Dec. 26 '08 - 01:11AM    #
  68. In the hope that this thread does not go any further on the “handle” issue, let me say, Merry Christmas and Happy Holidays, one and all! There are always a lot of things that are important in the world, “handles” aren’t near the top of my list.

       —Fred Zimmerman    Dec. 26 '08 - 01:14AM    #
  69. Now that the City will be losing the tax revenue from the Pfizer site, the decision to expand city hall is looking better all the time! I believe that in time, the city will use an income tax to increase spending despite the ~6 mill reduction. I am opposed to any income tax and I will point out that the city has already broken its promise to not divert park’s fund money to other purposes. The 6 mil tax can be replace with other property taxes as the special park’s fund millage shows.

       —Chuck L.    Dec. 27 '08 - 09:42AM    #
  70. Anna, the U contributed to a city fire truck a while back, but I don’t remember (and haven’t searched for) the details. That’s the extent of their PILT-type contributions that I’m aware of.

    YUA, keep in mind what Vivienne and Leigh shared about the requirement that the general fund millage be eliminated if an income tax is adopted. So the income tax rates would need to be higher than you supposed.

    I wonder if a PILT might be more appealing to the U if it were targeted at something that also benefitted them, like the transportation system (more broadly defined than AATA’s operations), rather than just going into the general fund.

       —Steve Bean    Dec. 27 '08 - 11:08PM    #
  71. I can’t resist the temptation to respond to Chuck L.‘s comment about the proposed City Hall addition (also known as the Courts-Police Facility).

    I’m out of town on vacation, and don’t have the exact figures available. However, I remember that the net additional annual cost to the City, after all savings are deducted, of this project is a bit over one million dollars per year.

    This amount is roughly the same as the City will be losing in property tax revenue from Pfizer.

    So one painless alternative to a city income tax is to postpone this project.

       —David Cahill    Dec. 28 '08 - 12:01AM    #
  72. David,

    I would also add that instead of trying to raise taxes by adding new taxes, how about working for a moratorium on housing foreclosures for the purpose of preserving the taxable value that already is on the books?
       —Chuck L.    Dec. 28 '08 - 02:03AM    #
  73. David’s comments about the PD/Court facility costing the City $1,000,000+ per year, after deducting all savings, is ridiculously false. I believe that the Ask Voters First group made that same argument, and it was soundly rejected as false. I can’t even fathom how they reached such an absurd calculation.

       —Leigh Greden    Dec. 28 '08 - 02:28AM    #
  74. Leigh,

    Where’s Math Man when we need him most? So it is “ridiculously false” the assertion that the new PD/Court facility will raise the city’s operating expenses? Where are your numbers? What about the fact that the current set-up has the city and county sharing court security at a tremendous savings to Ann Arbor tax payers while the new facility will require separate and duplicated court security assets paid for out of the general revenue fund? Please don’t remind us that the county wants the city out of the courthouse; they want to sell the Hogback Road facility to raise capital to build a giant jail. A giant jail will also raise operating expenses for County tax payers. As a resident and tax payer in both the city and county, I see my elected politicians proposing to spend lots of money plus money they really do not have on projects that are of almost no benefit to me or my family. At the same time, measures, like a moratorium on housing foreclosures would have a major benefit to me and my family since most of my personal wealth is tied up in my home (like many others I will add) but the politicians have no time or interest in this issue.
       —Chuck L.    Dec. 28 '08 - 02:53AM    #
  75. Leigh, what is your estimate of the net annual cost (or savings) to the City of the PD/Court facility, since you don’t like the estimate of Ask Voters First?

       —David Cahill    Dec. 28 '08 - 11:00AM    #
  76. Please don’t remind us that the county wants the city out of the courthouse; they want to sell the Hogback Road facility

    Hm? No county facilities on Hogback Road are contemplated for sale. However, the juvenile court facility on Platt Road would become surplus if that court is moved downtown.

    to raise capital to build a giant jail.

    I would expect that the (very modest) jail expansion will be completed long before the Platt Road property is sold. Those two things are completely unrelated as far as I know.

       —Larry Kestenbaum    Dec. 29 '08 - 04:14AM    #
  77. Larry,

    They are not unrealated. The county needs to maintain a capital improvement fund; a fund that needs to be replenished if it is drained by a new jail facility. Selling existing assets is a way to replenish the fund and it does not matter that the construction of the new jail is not contingent on selling off assets to raise capital. It also burns me to no end that the county has provided the city with the alibi needed to justify the new city hall expansion by moving the juvenile court to downtown; how convenient for the city! My understanding is that it is the county obsession of building a new jail that is driving the changes that end up getting the city kicked out of the county courthouse. As I have said before and I will say again, I’m seeing a lot of money being spent on things I don’t care about while the things I do care about get little or no consideration.
       —Chuck L.    Dec. 29 '08 - 06:06AM    #
  78. It also burns me to no end that the county has provided the city with the alibi needed to justify the new city hall expansion by moving the juvenile court to downtown

    I don’t agree with this analysis. For years, county decision-makers have been impatient with the city for failing to get its act together and find a court facility. As far as the County was concerned, the city could just rent some more space in the City Center building and put in a few courtrooms. It was the City’s decision to go with new construction instead.

    the new facility will require separate and duplicated court security

    Agreed that this will cost the city more. However, it will cost the county less, because it will no longer be necessary to maintain security at the separate juvenile court facility. We will also be able to combine some records management functions.

    All that being said, I wonder whether securing the Courthouse really requires as many people as are currently devoted to it. But that is an issue for the court and the sheriff to figure out.

       —Larry Kestenbaum    Dec. 29 '08 - 08:32AM    #
  79. Good point about courtroom security. I have been to several district courts(e.g Wayne and Garden City) that have no entrance security personnel screening incoming members of the public and I am not aware of any great threat to the public safety at those institutions being perpetrated. I do not know why multiple deputies have to be stationed with metal detectors at entrances at the County Courthouse on 101 East Huron.

       —Mark Koroi    Dec. 29 '08 - 08:41AM    #
  80. The city gets some money for U/M fire protection under a grant program but it has never been fully funded. The city’s financial reports for the last 4 years show the following amounts of general fund revenue for a category called U/M Fire:
    fiscal year 05 $331,841.48
    fiscal year 06 $693,345.77
    fiscal year 07 $1,032,137.70
    fiscal year 08 $808,232.78

    In fiscal year 08 the fire department spent just over 13 million so the U/M amount is only about 6% of the total.

       —karen sidney    Dec. 29 '08 - 10:13PM    #
  81. Larry,

    I think you are over down-playing the “let’s build as big of a jail as possible” attitude of the County. True, the County will get some cost savings, but it looks like the reason or motivation is to build a new jail. I find it interesting that Leigh Greden has not commented on the increased operating expenses that the new city hall expansion will involve. All he has done is deny that the expansion will cost the city more without providing any data that can be fact checked.
       —Chuck L.    Dec. 29 '08 - 10:55PM    #
  82. I believe that the money to reimburse the city for UM fire protection comes from the state, not directly from the UM. Given the current state budget situation, I would not expect that to increase in the near future.

       —Vivienne Armentrout    Dec. 29 '08 - 11:08PM    #
  83. I’ve been wading through the comments here, and have just skimmed many of them, so forgive me if this has already been discussed.

    Why not have this proposed income tax fund the city services that serve people who work in and visit the city, while the other services (those that are primarily property-owner-focused) are funded through property taxes? Perhaps it would make some sense to fund some services from both sources.

    Some examples:

    Income tax funded: Downtown streets and primary roads (like Maple, Miller, Packard, and so forth), including repair and plowing; downtown development; parking

    Property tax funded: Secondary/neighborhood streets; trash collection; parks; building services, permits, community standards; schools

    Split in some proportion: police; fire; ambulance

    Just a thought…

       —Ed Thierbach    Dec. 30 '08 - 12:12AM    #
  84. Good question, Ed . Maybe Leigh Greden can answer that for us.

       —Mark Koroi    Dec. 30 '08 - 01:12AM    #
  85. Ed’s question raises the issue of which city services are paid for with city property taxes. Money for street plowing and other maintenance comes primarily from state gas and weight tax money, not local property taxes.

    City taxpayers do pay a special streets millage tax, which is used for resurfacing and reconstruction of city streets and bridges. Many of the large projects, such as the Broadway Bridges, are paid for mostly with federal money. According to an April 2006 city memo, from 2002-2006 the city spent $74 million on streets projects, with half coming from the city streets millage and half from other sources, mostly federal aid.

    Downtown parking is paid for with user fees, which were about $14 million in 2008. The downtown parking system, which is managed by the DDA under contract with the city, paid $730,000 to the city to maintain major and local streets. It also pays the city $1 million per year in rent. These figures are from the DDA’s 2008 audit.

    Police, fire, parks and solid waste is paid for mostly from city property taxes.

       —karen sidney    Dec. 30 '08 - 01:58AM    #
  86. With reference to an income tax, remember that it would replace only the general operating millage. Ann Arbor voters have been willing to vote themselves taxes for many special purposes, including a couple of parks millages and the Greenbelt (which benefits township residents as it preserves their open space amenities), the road repair millage, a separate solid waste millage, and the AATA millage. None of those would be affected by an income tax.

    The Ann Arbor Public Schools and the Ann Arbor District Library, which have the same district boundaries for historical reasons, are completely separate governmental entities, with their own boards, administrators, and budgets. Those property taxes are paid by all residents and businesses within that district boundary (and service area), which is larger than the city of Ann Arbor. Changes in the city property tax would not affect these entities.

    The general operating millage doesn’t just pay for services to residents, but for many costs of operating as a city and as a community. For example, though federal funds pay for many human services, including affordable housing, the city also contributes general fund dollars to those needs, which are area-wide needs, not just city responsibilities. Recently the city began paying a fixed percentage of its budget (I believe it is 1%) to the arts. It could certainly be argued that the cultural matrix provided within the city benefits the entire region and makes it a desirable place to live and have businesses.

    Even as city residents, we pay for many activities that we will never personally benefit from. But we shouldn’t have to bear the expense alone to make the entire region a successful community.

       —Vivienne Armentrout    Dec. 30 '08 - 09:27AM    #
  87. I recall that Roger Fraser was doing presentations last year showing that we’re in deep doo-doo vis-a-vis revenues and property tax caps against rising costs of services. That was definitely before U of M ponied up to acquire Pfizer’s property, and before massive home devaluation that will significantly drop revenues.

    So, I’m wondering how we can make an income tax a revenue-neutral tax burden shift, when in fact we need significant new revenues to offset a structural budget defecit?

    I’ve found this whole thread fascinating and full of good info – but am having trouble extracting the best course to follow from it.

    I do note, from personal experience, that an awful lot of highly-paid, SUV-loving, McMansion-owning neo-conservatives commute ridiculous distances to work at U of M (or other rich employers) and love to bitch about the city and its politics. The devil in me makes me want them to pay! But this can’t be an emotional or blinkered issue – it has to be based on numbers. So far John Q has the high ground on that score – no one has come up with a reasonable alternative (and I like the charter amendment proposed in post #13 – even though it means procedural headaches for raising future property tax revenue).

    I note also that the University has its own police system, with its own (sometimes Byzantine) rules and laws. This isn’t something that the city can take away from the U, short of changing state law. The discussion about Lower Town got me started on this thread, and the non-answer non-communication typical of the U during those discussions, along with the ‘private’ police service and the pass-through funding of fire services, leads me to renew my call for a ‘Town and Gown’ agreement, shared by many other university towns and their schools, but not by us.

       —Pete S.    Dec. 30 '08 - 04:37PM    #
  88. I agree, the whole point of instituting an income tax would be to increase revenues from a broader tax base than Ann Arbor property owners. It would require some real number-crunching because we would definitely want generous exemptions to protect our lower-income residents. But if it did not produce an increased overall revenue, it would be pointless.

    One factor that might be helpful is all the high-rent property that has been built in the central city area. Some of this is in the DDA area, so tax increments have been diverted to DDA uses rather than to the general fund. Under a city income tax, rents would be taxable and could contribute to the general fund. (The owners would also enjoy the tax benefit of dropping the general operating millage.)

    As to a Town and Gown agreement, the difficulty has always been that the UM is specifically called out in the Michigan Constitution as a self-governing entity. There have been calls for cooperation since I first moved here in 1986. The UM generally comes to the table but never leaves anything on it. We depend on their simple goodwill to transfer money to our civic corporation, and they have generally declined. (I’m sure that there are many programmatic exceptions that I am ignoring.)

       —Vivienne Armentrout    Dec. 30 '08 - 08:41PM    #
  89. Thanks for all of the great budget info; it helps me understand how things work today. I guess my original question can be rephrased as, “Does any proposed income tax need to be a direct replacement for the general fund millage, or are there other options, like splitting the general fund between the millage and new tax, or directing the new tax toward specific services?” How out-of-the-box can the city think and still be within state law?

    Also, I completely agree that the city must somehow offset declining revenues, as Pete S wrote. However, I’d caution against calling it a means to “increase revenues”. That phrase can be easily misunderstood to mean “the city gets more money than it used to”. I’d call it a means to “offset losses” from a suddenly smaller tax base and declining property taxes.

    One final point. As we know, many people who would pay a city income tax would not live in Ann Arbor, and thus would have no opportunity to elect the representatives who would oversee that money’s management. The tax’s benefit to them must be made abundantly clear.

       —Ed Thierbach    Dec. 30 '08 - 09:21PM    #
  90. Ed,

    “The tax’s benefit to them must be made abundantly clear.” This is what will happen when out-of-towners are on their lunch break and overstay their parking meter by 10 minutes and have a ticket for an expired meter waiting for them. Or better yet, if an undocumented worker from Mexico is stopped by Ann Arbor police, there will be plenty of jail space in the new Washtenaw County jail to hold that person. If the tax base is shrinking, the budget must shrink with it. What is wrong with ending this awful expansion of City Hall? I am still waiting for Leigh Greden to provide data to support his claim that the new expansion will not raise the city’s operating expenses.
       —Chuck L.    Dec. 30 '08 - 09:49PM    #
  91. Pete S. re 87 and the comment that the proposed tax “has the high ground” in terms of the numbers: I can’t agree. Cutting services is just as logical.

       —Fred Zimmerman    Dec. 31 '08 - 12:28AM    #
  92. Here are some more thoughts of mine to stimulate discussion. This call for an income tax started when UofM announced that it had bought the Pfizer site for 108$ Million. I find this interesting, UofM never seems to have any money when it comes to their employees but they can shell out 108$ Million for a used building. I figured that Pfizer would donate the building to UofM and take a tax write-off of about $50 million, but hey, why should they do that when UofM will pony up 108$ Million? Also, if UofM had not stepped in, the site would have remained on the city’s tax roles longer before the transfer or some private developer would have snatched up the site leaving it on the tax roles. Thanks UofM! As far as extra revenue goes, there was an idea a few years ago to tax ticket sales at the Big House. A $1/ticket tax would raise about $1 Million/year. I like that a lot better than an income tax!

       —Chuck L.    Dec. 31 '08 - 10:34PM    #
  93. FWIW, today’s New York Times has an article about the building program at UM. Some interesting statistics include the 30,000 plus employees at the UM, the $1.6 billion value of the nine new buildings underway, and its $5.2 billion budget.

       —Vivienne Armentrout    Jan. 1 '09 - 12:31AM    #
  94. “I find this interesting, UofM never seems to have any money when it comes to their employees but they can shell out 108$ Million for a used building.”

    To be accurate, the purchase is for the entire site which is well over 100 acres, not just a single building.

       —John Q.    Jan. 1 '09 - 12:43AM    #
  95. Re Post #74: Chuck, you are mistaken in asserting that politicians have no interest in a mortgage foreclosure moratorium. Senate Bill 1306, introduced by State Senator Hansen Clarke of Detroit, seeks such amoratorium and is modeled after the statute passed by te Michigan Legislature during the Great Depression.

    The United States Supreme Court has previously upheld the power of states to enact such legislation and rejecting arguments by banks that it violates the Impairment of Contracts Clause of the U.S. Constitution.

    The sad part is that Senator Clarke’s noble efforts have stalled. What needs to be done is a lobbying campaign by citizens for passage of this bill.

       —Mark Koroi    Jan. 1 '09 - 01:26AM    #
  96. John Q.,

    Yes, I should have said used buildings; so I erred by not adding a “s”. I will still accuse UofM of botching the negotiations. Aside from revealing that they don’t care about their immediate neighbors, I think they were stupid even when it comes to representing UofM as an institution. They should have acted like they were not interested in the site and gone to pains to trick the Pfizer folks into thinking they were not interested (they could have floated fake trial balloons about building similar facilities while expressing dis-information about why the Pfizer site did not meet their needs.) I think Pfizer would have sat for a long time on the site and eventually donated it to UofM in exchange for the tax write-off. Anyone who would want to buy the facility would have to have offered at least $50 Million to make it worth Pfizer forgoing the tax write-off (in the mean time, the city would have been collecting the tax revenue on the site.) How much do you want to bet the Pfizer folks were doing something similar to UofM? To Mark Koroi, it is my understanding that the Governor has the power now to suspend mortgage foreclosures under provisions of laws enacted during the Great Depression. But I also have another question for Mark: what laws would need to change for the city of Ann Arbor to place a tax on tickets sold by UofM? In the long run, any tax on tickets would most likely reduce UofM’s profits, not be passed on to sports fans. The crowd control and fire protection costs to Ann Arbor are far greater than what the city gets back from the State under a special program plus any gifts from UofM. Instead of sticking it to hard working commuters and their families, why not stick it to UofM who has already demonstrated that they care little about the city of Ann Arbor’s tax base.
       —Chuck L.    Jan. 1 '09 - 04:13AM    #
  97. Chuck: I would like to make several points regarding your observation that Governor Granholm may be a source of authority to prevent the foreclosure crisis in this state.

    Firstly, the Governor has publically stated that she opposes Senator Clarke’s SB 1306, but would support a bill that would only give a six-month moratorium in foreclosure proceedings to encourage workout arrangements betwwen lenders and distressed homeowners. Hansen Clarke’s bill calls for a two-year moratorium.

    Secondly, civil rights groups have cited specific prior legislative enactments in this state as a reservoir of emergency executive authority at the Governor’s disposal to halt utility shutoffs, foreclosures, evictions, plant closings, and worker layoffs; in my opinion those statutes have absolutely no application to adverse economic situations such as the one faced in Michigan.

    MCL 10.31 was enacted in 1945 and deals with the Governor’s power to exercise authority over situations of public disorder; the few court decisions interpreting this statutory section have only addressed rioting situations and curfew declarations. MCL 10.85 is a similar law passed in 1982 which has never been interpreted by any reported decision of an appeals court. I sincerely doubt if any court would construe these two statutes to be a grant of blanket executive power to the Governor to interfere with contractual relationships and, even if it did, such an enactment would almost surely be struck down on constitutional grounds.

    The final law being cited as a source of authority for the Governor to declare a moratorium has been the Emergency Management Act, signed into law in 1976. The express reach of this statute was to address natural and man-made disasters; the term “disaster” is defined by the act and makes no mention of economic distresses as being within the purview of its jurisdiction, hence this enactment has no relevance to relief from foreclosures via gubernatorial fiat.

    Also, the political concept of bestowing blanket powers upon a chief executive in times of purported crisis has been thoroughly discredited in modern history. The most salient example being German chancellor Adolf Hitler’s ascension as dictator via suspension of the Bundestag (parliament) after declaring a national emergency. The constitutional concept contained in the Michigan Constitution of 1963 of separation of powers as a means of checks and balances prevent a chief executive in Michigan from ever assuming such broad powers.

    Lastly, I agree that a surcharge or some other type of tax on tickets sold by U-M is an excellent source of revenue enhancement and would be equitable as these ticket purchasers obviously benefit from the rendition of municipal services at various levels. How to go about doing this from a legal legislative standpoint is beyond me, however. Does anyone have an answer to Chuck’s question?

       —Mark Koroi    Jan. 1 '09 - 08:15AM    #
  98. Ed, see my post #70 for a partial answer to your question.

    Given Karen’s information on the breakdown of the various millages and their uses, would the streets millage need to be somehow adjusted/replaced/eliminated if an income tax resulted in the elimination of the general fund millage? I ask because it seems that that millage addresses the primary services (roads) that commuters benefit from. Or does revenue from that millage go into the general fund rather than a separate fund?

       —Steve Bean    Jan. 1 '09 - 11:18PM    #
  99. Lower property taxes within the city, combined with the feeling of “taxation without representation” by those who pay city income tax but commute, could, in the long-term, motivate people to move into the city. From an environmental point of view, this is a very good thing. It would mean shorter commutes and/or greater use of public transportation, which would reduce traffic.

    Perhaps it is true that some businesses might choose to open outside of Ann Arbor because of this tax. But the biggest employers in the city are the U of M and its hospital, and they aren’t going anywhere.

       —Emily B    Jan. 2 '09 - 01:10AM    #
  100. Regarding post 96:

    Pfizer would have knocked down their buildings and sold the vacant the land if the UofM did not purchase the site. All you need to do is look at Pfizer’s track record. This is what Pfizer did previously at other sites that they shut down; prime example is Kalamazoo, where Pfizer destroyed newly renovated lab buildings so that they could avoid the property taxes. They originally tried to sell the land with the buildings, but when that failed they knocked down the buildings.

    The same thing would have happened here in Ann Arbor. Although, many of you are unhappy with the UM for purchasing the site, at least we won’t have another condo development in place of a site that will employ many people, albeit a non-profit site.

    UM did not steal this from a private buyer. They snatched it up because a for-private buyer is NOT interested at this time. If you think Pfizer would have held on patiently and waited for the market to improve you are kidding yourselves. They want to make money; they don’t care where the money comes from.

       —Diane    Jan. 2 '09 - 01:46AM    #
  101. Diane,

    If they knocked down the buildings, it would have reduced the write-off they could get from donating the site to UofM. Like I said, “ How much do you want to bet the Pfizer folks were doing something similar to UofM?” (in reference to Pfizer obscuring their intentions in order to maximize the sale price.) It looks to me like the threat of tearing down good buildings was how they got UofM officials to make a $108 Million offer. I don’t believe it and would have preferred to see the land stay on private tax roles anyway.
       —Chuck L.    Jan. 2 '09 - 03:49AM    #
  102. I want to make two points-
    1. About Mark Koroi’s comment on court security and its costs
    2. Article about Ann Arbor having spending problems and not revenue problem

    > Good point about courtroom security. I have >been to several district courts(e.g Wayne and >Garden City) that have no entrance security >personnel screening incoming members of the

    > Mark Koroi

    Some of the judges are ruling based on no law, evidence or facts and they are scared of being shot? That is the only reason I can think of for all the security, if even Wayne county does not have such a security.

    On the city tax side, Ann Arbor does not have a revenue problem, it has a spending problem. No amount of tax increase will help Ann Arbor with the kind of leadership it has. Karen Sidney’s post (85) clearly articulates where the money is coming from for roads etc and much of it does not seem to be city money, it is part of the gas tax paid by all the consumers in the state of michigan.

    Everyone here has forgotten the article in Ann Arbor news – Errors erode City’s financial strength (March 16, 2003). Since the article is not available anywhere online, let me quote a few of those errors – {
    “There is a lot of mismanagement with money,” said Tom Edman, a retired city firefighter who negotiated for the firefighters union for 22 years. “The taxpayer is getting beat up. No doubt about it.” Tracking the decisions and events that depleted the city’s savings is not a simple task. One obvious target of criticism has been the City Council……

    ….Then, when Berlin negotiated the early retirement program with the unions, he allowed retirees to use their highest hourly rate to determine their salary to be used for pension calculations. It meant employees who worked as little as one day at a higher rate could use that amount as a full year’s salary. “When I heard about it, I said, ‘You got to be kidding me,’ “ pension board member Bob Amburgey later said. “I’ll give you that it is a weird way to do calculations.” That stipulation allowed several assistant fire chiefs to boost their pensions through short-term promotions before retiring. For instance, Thomas Schmid saw his annual pension rise to $133,816 from $100,783 after his promotion to interim fire chief, which lasted only 50 days…
    With such legacy and current costs, Ann Arbor can not survive with tax increases. Ann Arbor has to modify their contracts with the people who work for the city.

       —Srini    Jan. 2 '09 - 08:30AM    #
  103. Chuck L. and Diane—I think both of you make good points, but I sense there may be a bigger context here. It can’t be coincidence that K-Dow was called off just a few days after the sale. Most likely this was seen/known ahead of time by the players. We don’t know what was going on behind the scenes; maybe there was a potential buyer that none among the city, regents, and state would have been happy with. Maybe the UM (and Lansing) had an interest in maintaining Ann Arbor’s image as a vibrant place for development of leading science and technology. Look at home property values in the city: they’re already (and suddenly) back to where they were two years ago. That doesn’t seem like coincidence to me either.

    (Another question for anyone out there: what would the effect on Pfizer have been if they tore down the buildings? Wouldn’t that have reduced the value of the property, removing revenue from the city while saving Pfizer maintenance costs in the short term? Sure they might’ve gotten a lower price later on, or under Chuck L.‘s scenario gotten less of a write-off for a donation, but could it have just been a wash for them, whereas the city was going to lose no matter what?)

       —Young Urban Amateur    Jan. 2 '09 - 10:58PM    #
  104. Re Post #102: Are those pension benefit figures confirmed as accurate? If so, I wonder who would have agreed to such a calculation rule. Seems like an overgenerous pension to me.

    I agree 100% that the City of Ann Arbor has spending problems rather than revenue problems. I recall you were supportive of the Ask Voters First movement and even before that one of the most vocal opponents of the jail millage that was defeated. Keep in mind, however, that all AVF activists that ran for City Council were defeated at the polls last year ; that leaves only two AVF supporters on City Council – Mike Anglin and Sabra Briere – who may or may not be re-elected if they run again.

    In a nutshell, there has yet to be a broad-based groundswell of opposition to the City Council’s free spending ways. Until that happens the city may have a rough road ahead. The Mayor, in his victory speech on Election Day warned that Ann Arbor is nowhere near the rosy financial condition it enjoyed in the 1990’s decade. Even though the City of Ann Arbor still enjoys a fine bond rating there has been a substantial depletion of the value of the city’s employee pension fund due the prevalent economic downturn. I, therefore, believe that an across-the-board reduction in municipal expenditures, including City Council salaries, is advisable(shades of the Gramm-Rudman federal budget legislation of two decades ago).

       —Mark Koroi    Jan. 3 '09 - 06:09AM    #
  105. My suggestion would be for Ann Arbor to file for Bankruptcy and restructure under Chapter 11, re-negotiate all the contracts so that bad contracts of previous years are flushed down the toilet! A New Beginning !

       —Srini    Jan. 3 '09 - 06:47AM    #
  106. What would it take to eliminate the university exemption from property taxes?

       —Fred Zimmerman    Jan. 5 '09 - 09:05PM    #
  107. I believe that would take a constitutional amendment.

       —Leah Gunn    Jan. 6 '09 - 05:24PM    #
  108. When Pfizer extorted the state and city a couple years back to get tax abatements, I was one of the people arguing that we shouldn’t give them, as there was no way they would walk away from $3 billion in infrastructure – heck, they were talking about abandoning the Ann Arbor site and setting up in Saline!

    I don’t think it was a bad call to oppose those tax breaks – it’s corporate thuggery that goes on in many places, and in Michigan, with home-rule laws, it pits community against community. Had their HDL-raising drug ‘come in’ (instead of killing people), Pfizer would be sitting very pretty.

    The university getting the whole lot for $108 million? Something doesn’t add up – it’s worth a lot more than that. I’d love to see the terms of sale – maybe there is a ‘grant-in-kind’ of some sort, or credit for donation somehow – something to help their write-down. The U ‘lucked out’, though, and consequently the Michigan taxpayer.

    About Council salaries – look, having run for Council and having been quite ready to do the job had I won (fat chance in a locked-in one-party town), an $18,000 stipend for what amounts to a full-time job (if done correctly) hardly seems excessive. In fact, it’s a joke – which was only $11,000 a few years back. Councillors don’t do it for the money, but reasonable compensation is warranted.

    We’re certainly not going to make up shortfalls on the backs of Council salaries. Clearly you meant the reductions as symbolic of the need to reign in spending across the board, not as an actual function of balancing the budget, as (according to Leigh’s 2005 missive) the Mayor and Council (including Ex. Asst.) takes up only 0.41% of the general operating fund, which itself is only a third of the total city budget.

    Seems like punishing Council will only make matters worse, as Councillors will likely not do a better job thereafter.

       —Pete S.    Jan. 7 '09 - 01:05PM    #
  109. I don’t think Pfizer ever used any of the tax abatements – can someone out there give us information on this?

       —Leah Gunn    Jan. 7 '09 - 07:21PM    #
  110. I believe that Pfizer had to hire a certain number of new employees to be eligible for the tax abatements. Pfizer never did. They consistently decreased the number of employees over the years and therefore were never eligible for the tax abatements. Not sure how accurate this is, but that was the rumor that floated amongst the employees at Pfizer.

       —Diane    Jan. 7 '09 - 10:55PM    #
  111. Re Post #106: Article Six, Section Four of the State of Michigan Constitution of 1963 provides:

    Property owned or occupied by non- profit religious or educational organizations and used exclusively for religious or educational purposes, as defined by law, shall be exempt from real and personal property taxes.

    Article 12, Sections One through Three govern the manner in which the state constitution may be amended:

    (1) supermajority vote of both houses (2/3 vote) followed by majority approval at next general election or a special election; (2) ballot initiative by petition followed by majority approval at next general election; (3) adoption at constitutional convention followed by voter ratification within ninety days of convention adjournment.
       —Mark Koroi    Jan. 12 '09 - 09:14AM    #
  112. Re #111: a well-organized, determined petition movement could do a lot to change the University’s attitudes.

       —Fred Zimmerman    Jan. 12 '09 - 07:56PM    #
  113. John Q. (or anyone else), do you know if it’s possible in Michigan to tax the land at a different (higher) rate than the property (buildings) on it, as is done in some jurisdictions in Pennsylvania?

       —Steve Bean    Jan. 14 '09 - 08:24PM    #
  114. Steve,

    Michigan’s Constitution requires uniform taxation. This has come up before as it relates to how farmland is assessed and whether it can be assessed differently than other properties. The answer was that it would require a constitutional amendment to do so. I would assume the same would be true for an assessment system like they have in Pennsylvania where buildings are assessed different rates than the land.

    From the state Constitution:

    “The legislature shall provide for the uniform general ad valorem taxation of real and tangible personal property not exempt by law except for taxes levied for school operating purposes. “

    The key word here is uniform. There’s also an AG opinion that gets into the legal details here:

       —John Q.    Jan. 14 '09 - 09:36PM    #
  115. Of course, Proposal A pretty well trashed the idea of “uniform” some time back.

    In Minnesota (at least as of 30 years ago), every class of property is taxed on a different percentage of market value. Farmland has a low percentage; vacant urban land has a high percentage.

       —Larry Kestenbaum    Jan. 14 '09 - 10:17PM    #
  116. As I’m sure Larry knows, the exceptions for Proposal A are written directly into the State Constitution.

       —John Q.    Jan. 14 '09 - 11:51PM    #
  117. Right. But it was depressing to see the uniform taxation language among the “provisions to be altered or abrogated” when the complete language was published before that election.

       —Larry Kestenbaum    Jan. 15 '09 - 12:10AM    #
  118. No.

       —John Q.    Jan. 18 '09 - 07:39AM    #
  119. I believe that the prospect of significantly reduced property taxes for homeowners may ultimately be a red herring to induce residents to support such an income tax proposal. When all the numbers are worked out after these residents are paying a municipal income tax, they may actually be paying more taxes in the long run.

    Personally, if it is possible, I would like to see the city attempt to tax the sporting events that draw huge crowds to Michigan Stadium and Crisler Arena and cause huge tie-ups on roads and create a significant burden on municipal services. With hundreds of thousands of sports fans in Ann Arbor every year a “per ticket” tax could realize significant revenue. The State of Michigan already “taps in” to this fan base via the six percent sales tax being imposed on virtually everything that fans consume when coming to Ann Arbor and patronize local business establishments.

       —John Dory    Feb. 2 '09 - 02:31AM    #
  120. I take it that the proposed City Income Tax is now a pretty dead issue. I hear no public support and it is now forgotten apparently by City Council.

    Am I wrong?

       —Kerry D.    Mar. 29 '09 - 04:16AM    #
  121. The city budget priorities include consideration of a city income tax. The summary also notes that a 10% deficit in the General Fund is expected.

       —Vivienne Armentrout    Apr. 16 '09 - 01:17AM    #
  122. Expanding City Hall is looking better all the time…Not! I think they knew this would happen and they wanted to get City Hall expanded before the fiscal crisis hit (the city has it’s priorities, you know.) I guess the cops will have to fill the funding gap by issuing many more tickets! What new and creative means will they think of next to rip-off the citizens? Why do I keep feeling like the money I pay to government in taxes is a waste?

       —ChuckL    Apr. 16 '09 - 02:49AM    #
  123. You are not alone, Chuck. The Ann Arbor News reported that 400 tax protestors gathered in Ann Arbor and Chelsea today,including 200 at the Diag at U-M.

    A crowd estimated at 4,000 met outside the Capitol in Lansing to protest unfair taxation as well as other protests occurring throughout the state.

    It is against this backdrop that City Council wants to impose an income tax on its citizens.

    Show these councilpersons our collective displeasure at the polls this August.

       —John Dory    Apr. 16 '09 - 04:27AM    #
  124. That is an interesting thought. Which councilmembers need to be sent a lesson? Or is it “vote for none of the above”?

       —Vivienne Armentrout    Apr. 16 '09 - 07:03AM    #
  125. I would be interested in examples of “unfair taxation” in Michigan. As one who is employed and owns a home, I would be hard pressed to think of any tax that I pay that is “unfair” although if Michigan moved from a flat income tax to a progressive income tax, I would agree with that change. I’ve also recently started seeing the impact of President Obama’s “Making Work Pay” tax credit in my paycheck so no complaints there.

       —John Q.    Apr. 16 '09 - 08:37AM    #
  126. Re Posts #125 and 126: Any councilpersons that support the imposition of an income tax on local residents should be voted out of office. I would like to dub the proposed income tax legislation the “Greden Ordinance” so we know who to think of when and if the City of Ann Arbor deducts money out of workers’ paychecks.

    As to a “progressive income tax” this clearly contravenes Article Nine, Section Seven of the Michigan Constitution. A constitutional amendment will be required to impose such a graduated income tax. My guess is that the Michigan Republican Party will vigorously oppose such a proposed amendment.

    To the extent Governor Granholm has been proposing such an amendment along with relief from the Michigan Business Tax, this effort will likewise fail.

       —John Dory    Apr. 18 '09 - 11:25PM    #
  127. “I would be interested in examples of “unfair taxation” in Michigan.”

    Is it that difficult of a request John D.?

       —John Q.    Apr. 20 '09 - 08:10AM    #
  128. Re Post#128: An example of an unfair tax is the current state income tax which was hiked by 37.5% in 1983 and is unduly onerous on Michigan workers.

       —John Dory    Apr. 25 '09 - 11:43PM    #
  129. Today’s edition of the Ann Arbor Chronicle features a feasibility study conducted by the Plant & Moran accounting firm as to a proposed City of Ann Arbor income tax.

       —Mark Koroi    Jul. 21 '09 - 05:20AM    #
  130. “ An example of an unfair tax is the current state income tax which was hiked by 37.5% in 1983 and is unduly onerous on Michigan workers.”

    You mean the state income tax which has as lower rate today than it was in 1983 or even 1975?

       —John Q.    Jul. 21 '09 - 07:38AM    #
  131. City Council members Leigh Greden and Stephen Rapundalo asked to have the question of a city income tax “revisited.” The 2006 study was recently updated. In order for Ann Arbor to have a city income tax, voters will have to approve it. I’ve heard the idea is to put it on the November ballot.

    Hizzoner, Greden and the Gredenaires will, I believe, try to sell it as a “neutral” tax on homeowners. Renters will only see relief if landlords pass on any savings. There 47,000 housing units. 45,000 of them are currently occupied. Of those, 25,000 are renter-occupied (US Census data).

       —UMGrad1234    Jul. 21 '09 - 05:01PM    #
  132. I haven’t had a chance to read the full report but a key point will be what level of exemption is chosen. A high level of personal exemption would make me more favorably inclined toward it.

    I think that the impact will be highly personalized, depending on one’s situation. The most negatively impacted (other than nonresidents) will be high-income persons whose property taxes are moderate to low because of their choice of housing. Renters of moderate to low income will pay some, but not much, and cost of rentals will be dependent on market conditions. (Note that landlords would still have to pay tax on their rental incomes, even if their property taxes on the rental units decline.) People whose income depends on retirement vehicles and Social Security will pay very little income tax, since those categories are excluded.

    I’d like to consider the effect on businesses locating in Ann Arbor. High-income businesses with little property exposure would seem to be negatively affected, but where a business has a high property expense, that would seem favorable.

    Maybe the report has a number of case examples. I haven’t read the full report or examined the data tables, only scanned the summary.

       —Vivienne Armentrout    Jul. 21 '09 - 05:44PM    #
  133. Let’s see, show me one example of a city where a city-income-tax has actually improved the quality of life in that city.

    If you want to drive the rest of the business out of Ann Arbor, this ought to do it.

       —Just a homeowner    Jul. 21 '09 - 06:34PM    #
  134. Albert Berriz of McKinley has said if this passes their corporate headquarters would pull out of the city.

    With the current City Council, I have no faith in their ability to properly administer the additional dollars that would come in. (As I write a check for my water bill that includes a a ‘surcharge’ for tree planting and police protection of the water plant…).

       —Alan Goldsmith    Jul. 21 '09 - 06:42PM    #
  135. McKinley’s founder, Ron Weiser, was recently installed as the chairman of the Michigan Republican Party, and is staunchly opposed to taxes in general and has made, not unsurprisingly, the opposition to taxation as the centerpiece of the Michigan Republican Party plans to make 2010 a rebound year for the state GOP.

    I wholeheartedly support Albert Berriz’s position and applaud him for standing up against the notion of a city income tax.

       —Mark Koroi    Jul. 21 '09 - 08:39PM    #
  136. I think that he and his boss (ex boss)and the rest of the Michigan Republican Party are fascist little weasels (lol)but an income tax is going to inpact business in the city in not so good ways.

       —Alan Goldsmith    Jul. 21 '09 - 09:23PM    #
  137. “Let’s see, show me one example of a city where a city-income-tax has actually improved the quality of life in that city.”

    The cities in Michigan that levy a local income tax are listed here:

    There are a number of Michigan’s worst on there. There are also cities on there that are leaders in terms of growth and quality of life, possibly in part due to their local income tax. 14 states allow local income taxes and many Ohio cities, including affluent and successful ones levy local income taxes.

    Every tax has its flaws. The property tax is favored by most people not because it’s the most fair or progressive or efficient form of taxation. But it remains a mainstay because it’s relatively stable and it’s so ingrained in our system of financing government that moving away from it requires getting people to change their mindset about how government should be financed.

       —John Q.    Jul. 21 '09 - 10:49PM    #
  138. Alan has a good point in that any major change in the way we are taxed, especially if it increases the amount collected (and why do it otherwise?), requires confidence in our elected officials and administration. If we make a rational choice to pay more or to tax other people more in order to support commonly held goals, fine. But if there is no support for the services that we need and value, confidence lags. Unfortunately, the trend seems to be to commit money to projects or special goals (like the Percent for Art) and then claim an inability to pay for services. It makes it harder to have that leap of faith.

    All that said, I’d like to point out two driving factors in making an income tax more appropriate for Ann Arbor:

    1. The University of Michigan continues to eat up land area and shrink our property tax base. We have had a few short-time bursts of growth because of annexations, but that will come to an end soon. We will soon be completely landlocked once the township islands are absorbed.

    2. We have been quick to give away tax revenue to TIF entities. The DDA, the Smart Zone (LDFA), and brownfield projects all cream taxes from new building off the top. Some of that money comes back to the community in various ways, but does not support operation of our government.

       —Vivienne Armentrout    Jul. 21 '09 - 11:43PM    #
  139. Currently thousands of nearby residents in the townships get a free ride. They use the city parks, they drive on the roads and their employers contribute little. The biggest one pays no taxes and they gobble up land. An income offers a way to get some dollars indirectly out of the UM.

    The income tax would save the city from having to make the cuts that will be forced by the state cutbacks. There can be no good news in the state budget. The county is in much worse shape than the city so they will be making cuts to the non profits.

    The income tax would bring some new money in and most people would not be paying much more, others would probably break even, some would probably save.

    My worry is that it won’t get on the ballot. The mayor has never been for it and there might be more council members against it but voters deserve a chance to decide if we want the cuts to go through or have the income tax.

       —David Lewis    Jul. 22 '09 - 12:03AM    #
  140. I get a free ride every time I drive out of town. All those people in Ypsi providing roads for me to drive. How dare I!

    How about we cut spending? There was a report on the financial state of the golf courses a year ago or so showing that Huron Hills is a big money loser. Why would I pay income tax to support a failing golf course?

    I have no confidence that the city would spend more money wisely. And Huron Hills is just one piece of evidence showing that.

       —just a homeowner    Jul. 22 '09 - 03:46PM    #
  141. “I have no confidence that the city would spend more money wisely. And Huron Hills is just one piece of evidence showing that.’

    Is Huron Hills funded by the General Fund? My guess is the answer is no. But this is why the debate over an income tax will never get to the level of a serious discussion because few voters understand how city government is financed. Most voters equate government finances to their own household finances and don’t understand that funds from dedicated millages or federal and state funds can’t be commingled with general fund dollars. City doesn’t have enough money for police or fire? Close the golf course! Except that doesn’t free up any money for police and fire. I trust informed voters to make the best decision for the city but in this case, I doubt many voters will get enough detail on the various options for financing city government to be able to have an informed vote.

       —John Q.    Jul. 22 '09 - 06:06PM    #
  142. I haven’t followed this as closely as some, but as I recall the city council did pass an appropriation to make whole the Huron Hills golf course last year, after it showed a deficit in its enterprise-type fund.

       —Vivienne Armentrout    Jul. 22 '09 - 07:26PM    #
  143. The city did transfer general fund money to the golf enterprise fund. The golf fund then transferred the money back to pay off a debt to the general fund.

    One of the reasons the golf fund was losing money and in debt to the general fund was high city overhead charges. Even the city hired golf consultant said the overhead at the city courses was much higher than private courses. Golf course operations are now overseen by a citizen committee and the courses are doing much better financially.

       —karen sidney    Jul. 25 '09 - 02:05AM    #
  144. I stand corrected. Next time, I’ll look up the budget numbers before commenting. I still stand by my belief that the income tax will never get a fair hearing because it’s a major change from the current property tax system and the amount of education required to explain the change won’t overcome the attacks from those defending the status quo.

       —John Q.    Jul. 25 '09 - 06:56AM    #
  145. I posted this on the Chronicle, but want to post it here too. Do we want to emulate the cities listed below?

    This is from the state’s website:

    Individual Income Tax

    What cities impose an income tax?

    For 2008 the following Michigan cities levy an income tax of 1% on residents and 0.5% on nonresidents.

    Albion, Battle Creek, Big Rapids, Flint, Grayling, Hamtramck, Hudson, Ionia, Jackson, Lansing,

    Lapeer, Muskegon, Muskegon Heights, Pontiac, Port Huron, Portland, Springfield and Walker.

    The exceptions to the above rates are as follows:

    City Residents Nonresidents
    Detroit 2.5% 1.25%
    Grand Rapids 1.3% 0.65%
    Highland Park 2% 1%
    Saginaw 1.5% 0.75%

       —just a homeowner    Jul. 25 '09 - 05:01PM    #
  146. “Do we want to emulate the cities listed below?”

    You tell us. As I stated before, some of those cities are among the worst in the state. Some of those cities are successful and thriving or were before the economy turned sour. Albion, Ionia, Portland and Walker share almost nothing in common with Detroit, Flint or Lansing. Having a city income tax isn’t what made Detroit a failure nor is it what keeps Walker successful. It’s an alternative way to raise taxes and if examined, may make more sense than the current system of property taxes. You have attacked the income tax proposal but have provided no reasons why the current system is better than any alternatives.

       —John Q.    Jul. 25 '09 - 09:15PM    #
  147. According to today’s, the final version of the City’s study on a proposed income tax shows the following burden shifts, after the savings due to the reduction in property taxes are deducted:

    Resident individuals: Taxes increase from $21.3 million to $22.9 million.

    Commuters: Taxes increase from zero to $12.4 million.

    Corporations: Taxes decrease from $6.7 million to $3.3 million. calls Greden “one of the leading proponents of the tax.”

       —David Cahill    Jul. 26 '09 - 04:46PM    #
  148. Three million in administration costs, an increase in money taken and if you are a two income family and own a home in the city, your cost ‘savings’ are very minimal. And Corporations come out ahead…

    No wonder Greden loves it.

       —Alan Goldsmith    Jul. 26 '09 - 11:11PM    #
  149. Employed residents of U-M properties, who pay no property tax now, would pay income tax. That’s Mary Sue Coleman and probably a whole lot of people in family housing.

    Based on the info given above, homeowners can compare the taxable value of their propety with their adjusted gross income. If the AGI is more than 62% of the taxable value, they will pay more. Otherwise, less.

    I’m guessing that condo owners, typically, would have incomes exceeding 62% of their home’s taxable value, and owners of standalone single family homes will have incomes less than that number.

    The November 2009 electorate will be dominated by single family homeowners. Arguably, they could vote their self-interest and pass the income tax.

    But the difference will probably be slight for most people. And everyone who pays income taxes will have to deal with another set of forms.

    As taxes go, income taxes are cheap to collect, whereas property taxes are extremely expensive. But the city doesn’t get out of the property tax collection business.

       —Larry Kestenbaum    Jul. 26 '09 - 11:44PM    #
  150. There would definitely be winners and losers, which complicates these kinds of shifts. Note that by state law, retirement income of most types would not be taxed, while the city operating millage would be stopped, so homeowners whose income depends mostly on Social Security, pensions, and other retirement income would come out ahead (lower property tax, no income tax to speak of). People living in Ann Arbor who are relatively high-income would pay more tax. And of course all those commuters would pay a new tax.

       —Vivienne Armentrout    Jul. 27 '09 - 12:38AM    #
  151. So, if I earn $50K and have a house with a taxable value of $100K, how much do I end up shelling out under an income tax? And of course, that’s just the city’s portion. The county will still get its property tax, and so will the three mills plus the extra millage to the schools. Oh yeah, then there’s the WISD trying to get me to add another millage to my tax bill.

    So…how will an income tax be better? And what’s to say the city won’t raise the rax rate? What caps are there on a local income tax? Any?

       —just a homeowner    Jul. 27 '09 - 12:41AM    #
  152. Yes, state law caps the income tax (1.0/0.5). I’m guessing that the cities who levy a higher tax had to seek a special dispensation, but maybe someone else knows exactly how that worked. Still, with Headlee, I don’t think it could go up without another vote.

       —Vivienne Armentrout    Jul. 27 '09 - 02:24AM    #
  153. The rates are all set by state law. The few cities that levy more than the standard rate are allowed to do so by state law. Unless the state law is changed, Ann Arbor can never levy more than the 1%/0.5%. It can always levy less. Also, the non-resident rate can not exceed 1/2 the rate for residents. From the ever helpful CRC web site.

       —John Q.    Jul. 27 '09 - 04:08AM    #
  154. “So, if I earn $50K and have a house with a taxable value of $100K, how much do I end up shelling out under an income tax?”

    Under the current city millage, you about pay $1600 in property taxes just for city services ($100,000 / 1000 X 16 mills).

    Under the income tax + property tax combo, assuming your Adjusted Gross Income (AGI) is $50,000 and a $600 personal exemption required by law (single, no dependents) you would pay:

    Property Tax: $1000
    ($100,000 / 1000 × 10 mills)

    Income Tax: $494
    (($50,000 – 600) X 0.01)

    Total Tax for city services: $1494

    Factors that could affect this include a higher exemption amount (lower income tax owed), a lower income tax rate (low income tax owed) or using the income tax revenue to offset other property tax millages in addition to the general fund (lower property tax revenue). Depending on who does your income taxes, there will possibly an additional time/cost factor the income tax.

       —John Q.    Jul. 27 '09 - 04:21AM    #
  155. I was reading page 7 of the study (see it on the Chronicle’s website) and I encountered this paragraph:

    “Since the City is the home of a large university, it is appropriate to point out that in other income tax cities, students are generally treated as non-residents. Their residency is where their permanent home is (the place they will return to whenever they go away). An exception to this treatment is if a student registers to vote in the City, in which case they would be treated as a resident for income tax purposes.”

    So a student will pay a “tax penalty” for registering to vote here.

    Terrific. For years the Dems have done everything they could to encourage students to register here. The income tax would do just the opposite.

       —David Cahill    Jul. 28 '09 - 10:44PM    #
  156. Most students are renters and will likely not benefit from any property tax relief associated with the likely provisions of an income tax law, unless the landlord passes the benefit to the tenant. Mike Anglin cited the large percentage of renters in Ann Arbor as one of his key reasons for opposing the concept of a city income tax.

    Technically, the basis for allowing students to become “residents” is whether or not they intend to permanently leave their prior residence and establish their new location with a certain corresponding level of permanancy. There is extensive case authority interpreting the law on this issue; much of this litigation deals with eligibility for “in-state” versus “out-of-state” tuition rates at public universities. As a legal matter, students living in a dormitory who plan to leave upon graduation generally cannot consider themselves “residents” and have no legitimate basis for registering to vote. The proper procedure for that student is to vote where he actually has established his or her home, whether inside or outside Michigan.

    However students do vote. The 2008 general election was preceded by the filing of about 10,000 new voter registrations for the City of Ann Arbor; these were primarily students. Most sophisticated campaign organizations operating in Ann Arbor will take these new student registrations into account in tailoring and irecting such capaign activity.

       —Mark Koroi    Jul. 28 '09 - 11:50PM    #
  157. Larry

    Why do you say income taxes are cheap to collect and property taxes are expensive? The city spends less than $1 million per year on the assessor’s office. The draft 2009 study estimated collection fees for an income tax at $3 million.

       —karen sidney    Jul. 29 '09 - 12:07AM    #
  158. As to students voting and paying income taxes, the things you folks have no relation to the reality as I understand it.

    Residency for voting is 30 days before the election, and any student living in Ann Arbor who is of age qualifies. Under a Michigan Supreme Court decision, a student may choose either to be registered to vote in their parents’ community or the college town where they are living.

    My understanding is that any employed student would be subject to the city income tax regardless of where they are registered to vote. I have never heard of an ability for students to escape income tax by “choosing” some other residency.

    And indeed, opposition to the income tax in East Lansing was based partly on the fact that many employed students would be subject to it whether they wanted it or not.

    On the other hand, this is not the issue it once would have been. University tuition has become so expensive that “putting yourself through school” by wages is no longer possible. At the same time, university students (at MSU and presumably also U-M) come from far more affluent backgrounds than they once did. I’m guessing this means far fewer undergrads work today than did in the 1970s or 1980s.

    That fact is unfortunate for student voting, because our studies of the student vote at MSU showed that employed students who were far more likely to vote in East Lansing than students who did not work.

       —Larry Kestenbaum    Jul. 29 '09 - 03:54AM    #
  159. As to the cost of the property tax, the cost of regularly inspecting and assessing and equalizing taxes on every property is not borne just at the city level. And I doubt that $1 million/year is a fair estimate of the city’s average annual cost, including periodic citywide reassessments, the board of review, etc., etc.

    On the other hand, $3 million for collecting income tax seems high to me, and presumably includes some kind of startup costs. Collecting income taxes also has economies of scale that are not possible with property taxes. Possibly Ann Arbor is too small to realize some of those economies.

       —Larry Kestenbaum    Jul. 29 '09 - 04:00AM    #
  160. I assume that taxable income is limited to earned income, whether through investments or salaries? Student who are primarily dependent on their parents would not be taxed, right?

    I was fortunate to be supported by non-taxable assistantships and fellowships through most of my graduate work. I assume that those would also be exempt from local tax?

       —Vivienne Armentrout    Jul. 29 '09 - 04:57AM    #
  161. Right, I’m only talking about wages earned by the student, not parental gifts or fellowships.

    I don’t know the current tax status of assistanceships — I’m pretty sure mine (the cash portion) were taxable (federal and state) when I was at Cornell in the late 1980s.

    If a student worked, say, at an Ann Arbor restaurant, and successfully claimed not to be an Ann Arbor resident, his wages would still be subject to city income tax at the nonresident half percent rate.

    But I find it ludicrous to think a student who lives and works in Ann Arbor would not be a resident for city income tax purposes.

       —Larry Kestenbaum    Jul. 29 '09 - 05:37AM    #
  162. I pay Federal and State taxes on my Federal Work-Study earnings. That’s how a large portion of undergraduate student work at UM is funded.

       —Matt Hampel    Jul. 29 '09 - 10:08AM    #
  163. The city doesn’t actually bother to keep properties assessed. I appealed the value of my house when I bought it because of the huge variation in SEVs in relation to market value. A house in my neighborhood sold for $800,000 and had an SEV of $275000. Another house sold for $500000 and had an SEV of $260000.

    I did a study of SEVs in relation to sales price over several years. The most expensive houses were likely to be WAY undervalued for tax purposes. Which means the rich folks of Burns Park and AA Hills are paying far less than their fair share of taxes.

    If they would pay more in an income tax, then great.

       —just a homeowner    Jul. 29 '09 - 03:13PM    #
  164. Let me try to clarify the residence issue for students. Universities are allowed to set their own rules for residence without regard to what the state or city governments do. The U of M is infamous for defining in-state residence narrowly. But that’s not the issue here.

    As Larry says, the Michigan Supreme Court has ruled that a student can choose his/her residence for voting purposes either in his/her parents’ community or in his/her college town.

    By registering to vote in AA, a student is choosing AA as his/her residence, according to Plante Moran. Such a student would pay the residential income tax rate – 1%.

    A student who says s/he is not a resident, and has not registered to vote here, would pay tax at the non-residential rate 1/2 %.

    So the student pays a 1/2 % “tax penalty” by registering to vote here.

       —David Cahill    Jul. 29 '09 - 05:34PM    #
  165. “I appealed the value of my house when I bought it because of the huge variation in SEVs in relation to market value. A house in my neighborhood sold for $800,000 and had an SEV of $275000. Another house sold for $500000 and had an SEV of $260000.”

    Are these SEVs or Taxable Value? Houses under Proposal A can develop large gaps between SEV and Taxable Value. Do you have specific addresses to compare?

       —John Q.    Jul. 29 '09 - 08:16PM    #
  166. State definition of resident for city income tax purposes.

    “(1) “Resident” means an individual domiciled in the city. “Domicile” means a place where a person has his true, fixed and permanent home and principal establishment, to which, whenever absent therefrom, he intends to return, and domicile continues until another permanent establishment is established. If an individual, during the taxable year, being a resident becomes a nonresident or vice versa, taxable income shall be determined separately for income in each status.”

       —John Q.    Jul. 29 '09 - 08:22PM    #
  167. Re Posts #159 & 165: Larry (or David), do you have a citation to the Michigan Supreme Court ruling that you quote as authority on this issue of student voting?

       —Mark Koroi    Jul. 29 '09 - 08:54PM    #
  168. John Q, the language from the City Income Tax Act was written in 1964. It was superseded, with respect to students, by that Michigan Supreme Court ruling, which was in 1970 or thereabouts. So it is not new law. It is something “every schoolchild knows.” I don’t have a citation.

       —David Cahill    Jul. 29 '09 - 10:27PM    #
  169. John Q: Yes, SEVs not taxable values. The two are equal the year after the deed changes.

    Take a look yourself. Ives Woods houses newly sold have—in the following year—SEVs of just a fraction of 1/2 the market value. While more modest homes in the city have SEVs above market value.

    That means that people owning modest homes (in comparison to those in Ives Woods) are paying a much higher proportion of property taxes than people in wealthy neighborhoods.

    I brought this to the attention of the city assessor in 2001 and he basically said, “too bad, nothing I can do about it.” He told me he cannot inspect and reassess properties.

    Is that true?

       —just a homeowner    Jul. 30 '09 - 12:27AM    #
  170. “Is that true?”

    My best guess is “it depends”. Is it true the year the property is sold? I don’t think so. There’s no reason for properties not to “pop-up” to one half market value. If the assessor isn’t doing this, someone isn’t doing their job. If you mean retroactively, the best answer is that absent a clear sign of fraud or deception by the person assessing or the property owners, they probably can’t reassess a property up in value. If that kind of situation exists in Ann Arbor, that’s not fair to those property owners paying more than their fair share. An income tax would reduce the impact of those disparities.

       —John Q.    Jul. 30 '09 - 04:18AM    #
  171. I think that the answer is a little more complex. It would indeed be really labor-intensive to reassess all properties at once. (This often requires a physical visit.) I’m pretty sure from my own experience that when property is transferred or a building permit is pulled for a major renovation, a reassessment is triggered. See also the assessor’s explanation.

    So why would the assessor reassess properties with the same owner for a long time? Not much motivation. At that point they probably use an area-wide average. Thus, I’ve seen my property go up and recently go down, based, I’m sure on a general area-wide value.

    Regarding the Ives Woods anecdote: Not sure what happened here, but I’d propose that properties in such areas are a lot more individual in nature than in areas where houses are much the same. It isn’t true that the SEV is 1/2 the sales value. It is 1/2 the market value. People sometimes overpay or underpay for a house, compared with its comparables. I learned from my tenure on the county board of commissioners (where we heard yearly from the director of Equalization) that SEVs are based on an area market value, not on the sale price of an individual property.

       —Vivienne Armentrout    Jul. 30 '09 - 06:06AM    #
  172. “So why would the assessor reassess properties with the same owner for a long time? Not much motivation. At that point they probably use an area-wide average.”

    That might be their reasoning but the law requires otherwise. I don’t expect the assessor’s office to do that every year but there has to be some semi-regular review of values. Otherwise, the assessments are open to challenge and an assessor who fails to do at least some kind of analysis leaves that assessment open to being adjusted downward by the Board of Review or Tax Tribunal.

       —John Q.    Jul. 30 '09 - 08:54AM    #
  173. I may have overstated my point. I meant that an individual property would not merit a physical examination unless triggered by a transfer or a building permit.

    As I said, I believe that there is a yearly adjustment based on values of comparable properties within an area. (So there is some analysis.)

       —Vivienne Armentrout    Jul. 30 '09 - 02:03PM    #
  174. That’s true. I also was speaking to the annual or bi-annual review that is supposed to be done. An individual property may not be in line with others but over time, an area shouldn’t get over or undervalued across the board as “just a homeowner” stated.

       —John Q.    Jul. 30 '09 - 06:10PM    #
  175. John Q, unfortunately, that has happened. Properties in the most expensive areas rose dramatically and the value the assessor has on the books for SEV is no where near the market value. Even after the downturn of the last year. Go look at AA Hills, Newport, Burns Park, Ives Woods. See for yourself.

    Other neighborhood such as OWS, SW near Pioneer, NE near Orchard Hills pool tend to be overvalued in SEV related to market price.

    The tax assessor told me in 2001 that he NEVER inspects properties that transfer ownership, only those with extensive renovations.

    Also, with regard to Vivienne’s comment, if someone “overpays” for a house, than that’s what it’s worth. Who are we to say what is overpaying or underpaying? And if most of the houses in the neighborhood sell for more than the SEV would indicate, then they neighborhood is undervalued for tax purposes.

    The rich get richer in Ann Arbor.

       —Just a homeowner    Jul. 30 '09 - 07:00PM    #
  176. “That means that people owning modest homes (in comparison to those in Ives Woods) are paying a much higher proportion of property taxes than people in wealthy neighborhoods.”

    Actually, I take more issue with the way taxable value is capped compared to SEV. Why should I, as a newer resident in any neighborhood (including the more modest ones) pay more for the exact same set of services as the neighbor next to me who has been in a similar house for many years?

       —jcp2    Jul. 30 '09 - 07:52PM    #
  177. Re #177: because the people of Michigan voted for this arrangement in 1994.

       —Vivienne Armentrout    Jul. 30 '09 - 11:02PM    #
  178. Some people have forgotten or are not aware of the taxpayer discontent that fueled the adoption of Proposal A. Before the tax cap was adopted, property owners in many communities regularly saw double-digit increases in their property values and that often translated into huge tax increases. This had the most affect on schools as they were the biggest part of the local property tax bill back when schools were funded almost entirely from local property taxes. As property taxes take no accounting of one’s ability to pay, these increases often fell hardest on seniors and low-income residents. Proposal A isn’t perfect. It just highlights that any tax system is going to have “winners” and “losers” in who pays and how much and there’s always going to be those who feel it’s not fair to them.

       —John Q.    Jul. 30 '09 - 11:39PM    #
  179. “As property taxes take no accounting of one’s ability to pay, these increases often fell hardest on seniors and low-income residents.”

    That’s not exactly true, especially if you are referring to properties that have had several years of double digit appreciation (as reflected by several years of double digit property tax increases). The property itself has become more valuable, and can be sold for a gain.

    I’m not advocating for wholesale gentrification of central Ann Arbor, just pointing out that: A) just because Michigan residents voted for Proposal A doesn’t mean it’s the best solution (see California) and B) Proposal A’s “losers” include new residents who could bring skill sets to the region that we need to grow. In the long term, Michigan’s current demographic trends do not look good for prosperity in a post manufacturing economy.

       —jcp2    Jul. 31 '09 - 02:52PM    #
  180. I was referring to the situation in the early 1990s when Proposal A was passed. I didn’t say that Proposal A was the best solution. But it was an improvement over the previous set up for reasons that don’t have just to do with property tax rates. As for new residents, those with the skill sets we want usually can afford to live wherever they want.

       —John Q.    Jul. 31 '09 - 10:00PM    #
  181. “As property taxes take no accounting of one’s ability to pay, these increases often fell hardest on seniors and low-income residents.”

    That’s not exactly true, especially if you are referring to properties that have had several years of double digit appreciation (as reflected by several years of double digit property tax increases). The property itself has become more valuable, and can be sold for a gain.

    One would certainly hope that seniors and low-income or fixed-income homeowners wouldn’t be forced to sell off their own homes in order to fend off a financial disaster brought on by steadily rising property taxes. There’s a long and sordid history of this happening in gentrified neighborhoods around the country. Once artists/hipsters succeed in making your working class neighborhood seem “cool” and yuppies begin to follow them, then you know your time left in the area is limited. It’s like being the frog in the cooking pan with the water temperature slowly being raised.

    Professionals can usually opt to leave or to stay in a gentrifying neighborhood based on their lifestyle choices or on availability of preferred jobs. This is a voluntary choice. They not infrequently forget that the lower income residents, the ones living there before them, must generally leave or else run a serious risk of financially insolvency. When looking for a new home, displaced lower-income homeowners put themselves at the mercy of the housing market and may end up having to move to a rental unit in another area relatively far from where they’ve spent most or all of their lives.

    This is a whole different matter from that of the wealthy owner of a million dollar home who gets an artificially low property tax rate due to a lack of appropriate diligence and follow-through by local assessors (and not due, say, to long-term home ownership being grandparented under Proposal A).

       —yet another aging boomer    Aug. 2 '09 - 05:38AM    #
  182. An online poll of 702 voters is reported on page A3 of the Sunday print edition of The question was: “Ann Arbor city officials are considering placing a city income tax question on the November ballot. Are you in favor of a city income tax in Ann Arbor?” The responses:

    28% – Yes, we need to find ways to generate revenue.
    57% – No, a city income tax is a bad idea.
    13% – Undecided, I need more information.

       —David Cahill    Aug. 3 '09 - 11:55PM    #
  183. You forgot “D”:

    I would vote for a city income tax if two or three council reps were tossed out of office because I have no faith in them handling my money.

       —Alan Goldsmith    Aug. 4 '09 - 12:15AM    #
  184. Alan,

    Agreed. If Briere and Anglin were tossed out, I would be much more confident in how council would handle the money. Good suggestion.

       —Marvin Face    Aug. 4 '09 - 01:11AM    #
  185. Good one Marvin. Those are the only two I have faith in. Lol.

       —Alan Goldsmith    Aug. 4 '09 - 01:37AM    #
  186. Re Post #135: What I have found as interesting is that Leigh Greden supports a city income tax, however at the same time Paul Dimond of the Miller Canfield law firm he works for sits on the board of directors of McKinley Associates and further Miller Canfield’s website lists McKinley Associates as one their major clients.

    It would seem to me that it is a potential conflict of interest for Mr. Greden to take any position on a city income tax ordinance, if in fact a major client of his law firm is threatening to pull its headquarters from Ann Arbor if such an ordinance is approved for the ballot and ratified by the voters.

    it also puts Greden’s employer in a very awkward position.

       —Mark Koroi    Aug. 4 '09 - 08:27AM    #
  187. Click on “Ann Arbor City Income Tax” on the YouTube search engine to see Roger Fraser, Leigh Greden and Steve Rapundalo discuss the proposed city income tax.

    Also see to examine the political movement in Ypsilanti that successfully defeated the city establishment’s attempts to impose a city income tax in that jurisdiction.

       —Mark Koroi    Aug. 5 '09 - 01:00AM    #
  188. After what happened to Leigh Greden, it looks that the proposed city income tax is something no councilman will have the courage to support.

    Any counter-arguments?

       —Junior    Aug. 9 '09 - 12:49AM    #
  189. I agree with you, Junior. With the poll still showing better than 2-to-1 against such a tax, I hope that the tax died with Greden.

    I had a chance recently to examine the various scenarios for different kinds of voters under the tax. Corporations get a hefty tax cut, and renters get a big tax increase.

    So it is a regressive tax. George Bush would have loved it!

    Under state law, the income tax can only be structured this way. It is not the City Administrator’s fault that this is so, and no one can blame him for advocating it.

    But it is a Republican tax. It is bad policy.

       —David Cahill    Aug. 9 '09 - 09:51PM    #
  190. “I had a chance recently to examine the various scenarios for different kinds of voters under the tax.”

    Are the details available somewhere?

       —Bruce Fields    Aug. 10 '09 - 12:31AM    #
  191. Yes. The Plante Moran income tax study is posted on the City’s web site. The scenarios are at the end.

       —David Cahill    Aug. 10 '09 - 01:29AM    #
  192. The City Council will hold a Working Session on the proposed income tax (with attendant information on an update to the City’s Budget) this Thursday, August 13th, at the Ann Arbor District Library, downtown branch. The meeting will be held at the 4th Floor Board Room at 7:00 pm. The meeting is open to the public, but there is no public participation. If you have questions that you would like answered, I recommend that you provide those questions in advance to the member of Council of your choice. If you plan to attend, you can slip questions to a member of Council, who may ask those questions for you.
    Limited, representational government at work — and keep in mind, members of Council may have their own questions!

       —Sabra Briere    Aug. 11 '09 - 02:34AM    #
  193. At the risk of appearing mistake prone — this is not my error. The City Administrator has changed the location of the Working Session tomorrow (Thursday, August 13th). It will now be held at the City Council Chambers.

    I do apologize for this late notice.

       —Sabra Briere    Aug. 13 '09 - 05:58AM    #
  194. Libby Hunter sang a song on August 17th before City Council that parodied the proposed city income tax initiative; it was concluded with widespraed applause by the audience.

    Here’s the link:

       —Mark Koroi    Aug. 24 '09 - 07:56AM    #