Ann Arbor Reaches Tax Settlement with Pfizer

Local governments are one step closer to knowing the impact of a tax appeal that Pfizer is pursuing – and while the news isn’t great, it could have been worse.

Last year, Pfizer contested the assessed value that the city of Ann Arbor set for the drugmaker’s former research campus here. Pfizer, which closed its massive local R&D operation last year, argued that its Ann Arbor properties should be given a dramatically lower assessment – less than half of the value assigned by the city for 2008 and 2009.

A settlement reached earlier this month between Pfizer and the city of Ann Arbor is a compromise that’s now being reviewed by the Michigan Tax Tribunal. It lowers Pfizer’s assessment for 2008 and 2009, but not by as much as Pfizer requested. If approved, it will represent a total loss of roughly $10 million in tax revenues over the tw0-year period for all local entities that received taxes from Pfizer, including the city, Washtenaw County, Ann Arbor Public Schools, Washtenaw Community College and the Ann Arbor District Library. The tribunal is expected to make a ruling in the next few weeks, and is expected to approve the deal.

County administrator Bob Guenzel mentioned the settlement at a budget forum Tuesday morning for members of the business community, which The Chronicle attended. The county would take a nearly $1 million hit over the two years, he said – collecting $426,948 less in 2009 and owing Pfizer $557,989 from 2008.

Tom Crawford, the city’s chief financial officer, said Pfizer’s original proposal asked that taxes paid to all taxing authorities be lowered from a total of $12.5 million in 2008 and the same amount in 2009 to roughly $6.4 million in 2008 and $3.1 million in 2009. The compromise settlement does lower Pfizer’s taxes, but not by the full amount it requested.

For the city of Ann Arbor alone, Pfizer has been the largest taxpayer, bringing about $4 million in taxes to the city each year. If Pfizer had been 100% successful in its appeal, the city would have had to refund to Pfizer $2.1 million for 2008 and would have received $2.1 million less than expected for 2009. As a result of the settlement the city won’t lose that full amount, but it is getting nearly $3 million less over that two-year period. About half of the taxes from Pfizer are allotted to the general fund – the remaining taxes are paid to AATA, parks and other city entities.

Pfizer made its appeal in October 2008, so local entities were prepared for some kind of revenue loss. A May 18, 2009 memo from Ann Arbor city administrator Roger Fraser indicated that the city had budgeted $722,000 from its general fund reserve for fiscal 2010 to cover the potential Pfizer tax revenue loss to the general fund. And, in fact, under the settlement the city’s general fund will receive $695,494 less from Pfizer for that timeframe – an amount covered by the $722,000. [A complicating factor in this discussion is that tax years are based on calendar years, while the city's fiscal year runs from July 1 through June 30.]

Crawford said that a motivation for settling was the prospect of the appeal being dragged out over several years, with an unknown outcome.

As for other entities, Ann Arbor schools will get $3.38 million less than originally expected from Pfizer over the two years, while WCC will see a drop of $636,000 during that period. The library will receive $332,000 less.

Here’s how the settlement will be handled, according to a memo sent to local taxing entities on May 18 from Matthew Horning, the city’s treasurer:

For tax year 2009, the changes will be relatively easy to implement. Changes will be reflected in tax bills, and will be handled in the normal course of tax collection and distribution. The 2008 tax year is a bit more complicated. For real property, changes will be handled through the County Treasurer’s chargeback procedure. For personal property, changes will be handled by the City Treasurer.

An even bigger blow to tax revenues is yet to come, when the University of Michigan completes its purchase of the 174-acre Pfizer site next month. When that occurs, the property will be removed from the tax rolls completely, as the university is a tax-exempt institution.

This also comes at a time of overall significant decline in tax revenue. At Tuesday’s budget forum, Guenzel told the group that Washtenaw County’s three largest taxpayers have been General Motors, Pfizer and Ford/Visteon. Pfizer is gone, he noted, GM is on the brink and former Ford/Visteon plant in Ypsilanti is closed. Residential property tax revenues have fallen sharply too, and the county faces a possible $26 million deficit in the coming two years.