Comments on: Court Hands County Legal Victory

By: Vivienne Armentrout

Vivienne Armentrout — Fri, 13 Feb 2009 16:25:29 +0000

I should also have mentioned the transfer tax. The county (but not other local municipalities) collects this tax when real estate changes hands. I’m guessing that revenues from that tax have also dropped.

By: Conan Smith

Conan Smith — Thu, 12 Feb 2009 20:13:01 +0000

Linda: Your inclination about the Headlee amendment isn’t far off either; it did have an impact on property tax revenue that we are dealing with today. As VA notes, the Headlee/Prop A interaction reduces the millage rate in good economic years. Prior to an Engler-era amendment, state law also allowed the millage rate to go back up in bad years. Now, we have both the reduced tax base (your home’s value) and an artificially restricted tax rate. It’s a double whammy to all forms of local government. Originally the Headlee/Proposal A interaction created a much better “smoothing effect” that would have slowed this government finance crisis considerably.

Ed: The County equalization office provides data like that and does exactly the modeling you are suggesting to anticipate tax revenue for future budget cycles. Our budget estimate for this coming year includes a wide range because we are all in new territory where SEV and TV will begin to meet for an enormous number of parcels. If thereafter SEV continues to decline, so will the TV. This is all complicated by the indeterminate rate of inflation which impacts the aforementioned Headlee calculation among other things (particularly on the expense side).

You can view Ann Arbor parcel info at this link.

By: Edward Vielmetti

Edward Vielmetti — Thu, 12 Feb 2009 19:18:05 +0000

Jeff,

Which government body (the county?) would have the data set available with the table with the column headings

parcel-id,sev09,taxable09,sev08,taxable08,…

If you started from that dataset, you could do your own modeling of what the impact of property value changes and transactions would have on tax revenues.

By: Jeff Irwin

Jeff Irwin — Thu, 12 Feb 2009 17:05:55 +0000

LDF is correct in asserting that this ‘smoothing’ effect created by proposal A slowed the increases in taxes and revenue in the boom years. Also, it slowed the decreases in bad years (by tapping into the cushion between SEV and taxable value). Unfortunately, this cushion has been obliterated by the recent, precipitous drop in values. The result is a high number of parcels with the same SEV and taxable value. This started happening a few years back and the continued slide in property values has been much more directly reflected in declining revenues in the last year.

By: Linda Diane Feldt

Linda Diane Feldt — Thu, 12 Feb 2009 14:05:21 +0000

Thanks for the correction, Vivienne. I hadn’t thought at all about the co-called “pop-up” property sales and the effect of people staying put. Another interesting wrinkle to factor in.

By: Vivienne Armentrout

Vivienne Armentrout — Thu, 12 Feb 2009 13:20:27 +0000

Actually, the phenomenon you (LDF) are describing is due to Proposal A, passed in 1995, not to the Headlee Amendment (which requires a popular vote for new taxes and decreases the amount of millages over time, among other things).

Two things are happening to the taxable value (TV) of your home. One is that it is increasing each year by 5% or the rate of inflation, whichever is less (and it has been less for a long time). The other thing is that as it is rising to meet the state equalized value (SEV), that number is falling. So as the assessed value of your home drops because of the loss in market value, it approaches the TV. If the SEV becomes equal to or less than the TV, your taxes will stop increasing (except when the housing values go back up). You can’t be taxed more than the current SEV, even if your house was worth a great deal more a few years ago.

The slow increase in TV does slightly mitigate the loss of revenue, but the county benefited much more from the “pop-up”, when houses owned for a long time were sold and a new, higher tax could be levied. Those transfers have dropped with the housing market, causing a lot of this crisis for the county budget. Too bad that for many years the county budgets were projected on the most optimistic scenario, that the rate of growth in property value would continue indefinitely. As the former budget director used to say, “the best predictor of the future is the past”.

By: Linda Diane Feldt

Linda Diane Feldt — Thu, 12 Feb 2009 12:47:56 +0000

I have a question about lowered tax revenues I’ve not seen addressed anywhere. My taxes on my house will continue to rise for some time, even as the actual property value and SEV declines. That is true because of the Headlee amendment, which keeps my taxes far lower than if I had purchased my house recently.
Aren’t there a fair number of parcels where this is true? Won’t that provide some stability in tax revenues? Anyone know numbers associated with this group of properties who will continue to pay more and more in taxes, even as the more recent purchasers pay less?

It must have enough of an impact to somewhat mitigate the falling property values – it has kept my taxes at about 50% of what someone would pay for a recently purchased home of similar value. But that gap will continue to close even if the value falls. I will pay more in taxes each year for many years to come. I bought my house 26 years ago.

It isn’t accurate to say that revenues on all properties will decrease. Or are there really so few people who still benefit from the Headlee amendment (people don’t stay in their houses long) that this continuing tax stream increase is irrelevant?