November 8, 2011 Ballot Proposal: Headlee Override

Summary

On November 8, voters in Charlotte will be asked to consider a proposal that would restore the millage rate for general government purposes to the Charter authorized fifteen mills. Levying the additional millage that this would authorize would generate an additional $159,800 in revenues and cost the owner of a home with a $75,000 taxable value an additional $53.15 per year.

The Proposal

On June 27, 2011, the Charlotte City Council adopted a resolution authorizing the submission to voters of the following proposal to override the tax limitation of the Headlee Amendment to the Michigan Constitution:

Shall the authorized millage for the City of Charlotte, established at 15 mills ($15.00 per $1,000 of taxable value) and reduced to 14.2913 mills ($14.2913 per $1,000 of taxable value), by the required millage rollbacks, be increased in an amount not to exceed .7087 mills ($.7087 per $1,000 of taxable value) to restore the full amount of the original authorized charter rate for each year for three years, 2012 to 2014 inclusive, for all City and municipal purposes authorized by law; and shall the City levy such new additional millage? The estimate of the revenue the City will collect if the millage is authorized and levied by the City in the 2011 calendar year is approximately $159,800, a portion of which ($2,000) will be disbursed to the Charlotte Downtown Development Authority and a portion ($2,300) which will be disbursed to the Charlotte Local Development Finance Authority.

Voters will have an opportunity to decide this issue as part of the November 8 election ballot.

Historical Background

At the time the City’s charter was adopted in 1963, voters authorized a maximum millage rate for general government purposes of 15 mills. A mill is a tax of $1 for every $1,000 in taxable value.

In 1978, Michigan voters adopted an amendment to the state Constitution that, among other things, imposed a limit on the rate at which property tax revenues of local governments could increase. In brief, this amendment, commonly known as the Headlee Amendment, required that when increases in a community’s taxable value exceeded the rate of general inflation, the maximum millage rate that the local government could levy would be reduced. The purpose of this reduction was to insure that property tax revenues from existing property would not increase by more than the rate of general inflation.

The effect of the Headlee Amendment in Charlotte has been a reduction in the maximum authorized millage rate from 15 mills to 14.2913 mills.

The Headlee Amendment contains a provision that allows a community’s voters to restore the maximum authorized millage rate to that contained in the Charter. Known as a Headlee override, this action requires a vote of the people.

Fiscal Background

Since the adoption of the Headlee Amendment, a number of factors have affected the budgets of Michigan local governments, including Charlotte. Further property tax limitations were imposed by the adoption of Proposal A in 1994. Since 2001, the State’s fiscal problems have led to reductions in state revenue sharing through which a portion of the sales tax is returned to local governments. More recently, weakness in real estate markets has resulted in widespread decreases in taxable values, further reducing tax revenues.

At the same time, the Charlotte City Council recognized the need to address a backlog of infrastructure needs, particularly in the area of street resurfacing.

A variety of measures have been undertaken to address the resulting imbalance between revenues on the one hand and operating costs and capital expenditures on the other. These measures include the elimination of staff positions, wage freezes, changes in fringe benefits, tax increases, appropriation of reserve funds and a large number of other changes meant to reduce expenditures for items such as energy costs and contractual services.

Despite these actions, City MangerGregg Guetschow has projected that an additional budget imbalance of $400,000 to $500,000 will need to be addressed over the next two years.

The purpose of the Headlee override proposal is to provide voters an opportunity to say whether they wish the City Council to address this budget gap through a combination of tax increases and spending cuts or through spending cuts alone.

Cost of the Proposal

If voters approve the Headlee override proposal on November 8, it is estimated that an additional $159,800 would be raised if the Council levied the full 15 mills then authorized. For the owner of a home with a $75,000 taxable value, the additional cost would be $53.15 per year. Property owners would first see this tax increase appear on their summer 2012 tax bill.

Under the terms of the proposal, the millage rate would remain at 15 mills for three years. After that time, the maximum authorized rate could again decrease gradually as the Headlee Amendment limitation is once again applied.

 

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