Arbor Update

Ann Arbor Area Community News

Ann Arbor revisits city income tax plan

30. November 2004 • Murph
Email this article

Consulting firm Plante Moran yesterday delivered their report on a possible city income tax to the City of Ann Arbor. The City Council will consider placing a measure on the ballot in November to create an income tax for those who live or work in Ann Arbor. From the Ann Arbor News:

The independent study stated an income tax of 1 percent on residents and businesses and 0.5 percent on non-residents could raise between $905,000 to $18.6 million annually, depending on the size of the exemption set by the City Council for dependents in a household.

An income tax would have to be approved by voters. In exchange, the city would eliminate 6.21 mills from its overall property tax rate of 16.90 mills.

Property owners – whether homeowners or landlords – would be the clear winners under this plan, while renters, students, and especially commuters would be the losers.

City Councilmember Mike Reid (R-2nd) points out that businesses and residents who rent, rather than own, their space could be net losers—renters would pay the new income tax, while landlords would receive the property tax break. The News notes that the City is “hopeful” landlords would lower rents in response to the lower property tax. It can be presumed city officials are also peering out their windows hopefully for a glimpse of the flying pigs.

The explicit target of the move is to capture some tax dollars from the University of Michigan,

“Look at the U of M,” said Council Member Margie Teall, D-4th Ward. “We don’t collect anything from them.”

“Now, we’d start collecting on their employees,” Chief Financial Officer Tom Crawford told Teall after the meeting.

If University employees are forced to pay income taxes, many may demand higer salaries from the University in order to make up for the lost income—if the University complied, it would have to raise tuitions or cut services in other areas, as extra money from the State is not likely forthcoming.

Commuters who live outside of Ann Arbor would receive no benefit from the tax shift, as most of the revenue would be used to pay for existing services, and not for new services that would provide them any new value, like commuter transit. Additionally, the effects of this tax on commuters could be felt in other cities, perhaps diverting money from the City of Detroit’s budget to Ann Arbor,

Dave Asker of Plante Moran said a person can’t be fully taxed twice. For example, the study reports that 1,306 Ann Arbor residents commute to Detroit to work, which has a city income tax. Those people, he said, would continue paying Detroit’s income tax but would receive a credit for their Ann Arbor tax.

Clearly, the idea of a city income tax is skewed in the favor of local landowners, and would be at best neutral for everyone else who lives or works in Ann Arbor. Admittedly, the City needs to find new and better ways to raise money to meet the demands of the City budget (such as replacing the hemorrhaging municipal water system), but an income tax is not by any means “better”. Perhaps they should instead consider encouraging development (or redevelopment) of underused land and structures in the City: infill development and renovation of unused structures can increase tax revenues with minimal new demands on infrastructure, with the money coming from the owners of the newly valuable structure, and not from students, commuters, and renters in decrepit older housing stock.

As a final nail, notice that residents would be charged at a higher rate than non-residents, in effect bribing students to maintain addresses outside of Ann Arbor rather than, say, registering to vote within the city.

  1. “Commuters who live outside of Ann Arbor would receive no benefit from the tax shift”

    I’m not endorsing an income tax, but couldn’t it be argued that because commuters enjoy and place stress on city amenities, services, and infrastucture that they could be asked to assist in paying to keep it up? Surely they’d receive some benefit from the revenue generated. Just a minor point.
       —Brandon    Nov. 30 '04 - 07:04PM    #
  2. Sure, but it could also be argued that they’re already ponying up in gas money and travel time in order to contribute to the locals’ economy.

    In fact, if there weren’t commuters coming in, it could be argued, all of the locals’ homes would be worth less, because there wouldn’t be such demand for those homes.

    But if I go any further on those lines, this’ll start to get silly…
       —Murph    Nov. 30 '04 - 10:19PM    #
  3. Commuters don’t draw any more off city services than out-of-town shoppers and other visitors. Why not just charge admission at the city limits for crying out loud? “Those damn out-of-towners! Ann Arbor doesn’t need them!” Is this beginning to sound like an episode of The Simpsons to anyone?

    For what it’s worth, I’m a UM employee living in Ypsi. My property tax rate is higher than Ann Arbor’s, and Ypsi’s talking about worming in some income tax of their own, to similarly get at those pesky university employees.
       —Ben    Dec. 1 '04 - 05:13PM    #
  4. A drawbridge! Excellent plan, Ben!

    (See also
       —Murph    Dec. 1 '04 - 05:40PM    #
  5. Being a non-owner, I’d rather they just raised property taxes. I’d vote for that in a heartbeat, but an income tax? Fuck that… I already hate having to fill out state and fed forms.
       —js    Dec. 3 '04 - 11:52AM    #