Ann Arbor Budget Deliberations Preview

Plan to save police/fire jobs relies on optimism for revenue

On Monday, May 17, the Ann Arbor city council will deliberate on the city budget and adopt it with any amendments they agree to make. If they fail to reach agreement on amendments, the city budget proposed by city administrator Roger Fraser will be adopted “as is,” as stipulated in the city charter.

orange juice glass half empty half full

Orange juice is not just a healthy drink. Unlike clear liquids, it's also great for illustrating the classic glass as half empty or half full contrast between optimists and pessimists. Possible budget amendments may depend on how optimistic councilmembers are about state shared revenue. (Photo by the writer.)

Among the amendments that will be brought forward is one that calls for fewer layoffs in the police and fire departments. Instead of eliminating 35 total safety services positions, the amendment would eliminate five firefighters.

The police and fire positions would be maintained through a combination of extra revenue items. One of those is the Ann Arbor Downtown Development Authority’s $2 million payment to the city, which the DDA board approved on May 5.

A second additional revenue item is simply a more optimistic assessment of the prospects that state revenue sharing will remain at current levels next year. The third major additional revenue item comes from increased revenue from parking fines, which the council will also vote on at its Monday meeting. The projected increases in parking fine revenue had not been included in the budget proposed in April by Fraser.

Another budget amendment would tap the additional revenues to maintain human services funding at last year’s levels – right now, there’s a cut in human services amounting to $260,000 in the proposed budget.

The additional revenues would also be used to fund another budget amendment, which would eliminate the proposed football Saturday parking in Allmendinger and Frisinger parks, plus make the mowing cycles in parks more frequent than they would be in the currently proposed budget.

Other amendments that might be brought forward would make changes that would decrease revenue, compared to what is currently proposed, by (i) eliminating an increase in contractor registration fees, (ii) eliminating an increase in rental housing inspection fees, and (iii) reducing the general fund tax administration fee from its current maximum of 1%. A final amendment that might be proposed would eliminate the proposed loading zone permit program, replacing it with increased fines for parking in loading zones, for a small net gain in revenue.

The Math for Additional Revenue Items

Many of the amendments that have been compiled by councilmembers depend on revenue items that were not part of the city administrator’s budget proposed at the council’s April 19, 2010 meeting.

The largest chunk of those revenues is the $2 million payment that the DDA board approved on a 7-4 vote at its May 5 meeting, over strong dissent from some board members as well as from the business community.

But part of the discussion at the DDA’s board meeting – and at its operations committee meeting the week before – had centered on the fact that $2 million was not adequate to prevent the layoffs that were calculated into the city’s budget. The amount needed to avert all layoffs is closer to $3.5 million.

At the city council’s May 3 meeting, Margie Teall (Ward 4) had read a prepared statement indicating that she and mayor John Hieftje were planning to bring forward an amendment to the budget to prevent as many layoffs in police and fire services as possible, and to keep human services funding at the same level as previous years. Teall’s statement indicated that the $2 million from the DDA would provide the funding for that effort.

The amendment on fire and police jobs, which Carsten Hohnke (Ward 5) and Marcia Higgins (Ward 4) are now co-sponsoring, assumes an additional $3.639 million in available funds, compared with city administrator Roger Fraser’s proposed budget. So, where is the additional $1.639 million in the budget coming from?

A nominal amount, $62,000, is provided by a reduction in the fire department’s budget for capital equipment. The other chunks come from increases in parking fine revenues and a revised estimate in state revenue sharing.

At the council’s April 19 meeting, a vote on the revised fine schedule for parking violations – which features an increase in expired meter fines from $15 to $20, but keeps the discounted rate of early payment the same, at $10 – was postponed. It had previously been postponed from the council’s Jan. 19, 2010 meeting.

During the April 19 meeting, Tom Crawford, the city’s chief financial officer, clarified that the additional revenues from the increased fines had not been calculated into the proposed budget that was presented that night:

Mayor John Hieftje then asked if the increase in fine revenue was part of the budget. Crawford indicated that the increase was not assumed as part of the FY 2011 budget – it would be additional revenue.

The budget amendments to be brought forward on Monday night include an additional $625,000 in revenue from fines.

The other revenue item on which the budget amendments depend is an extra $952,000 in state shared revenue that the administrator’s proposed budget did not assume.

Summing the changes in revenue items with the proposed allocation of the new revenue – which is handled in three separate amendments (one for fire/police, one for human services, one for parks) – gives the following picture:


  $ 2,000,000  DDA payment
      952,000  more optimism on state shared revenue
      625,000  parking fine revenue increase
       62,000  reduction in fire department capital expense

    3,639,000  total of new revenue items and expense reductions


  $ 1,585,783 15 police positions
    1,509,620 15 firefighter positions (leaving 5 still to be cut)
      260,000 human services
      138,000 mowing in parks
      120,000 trimming in parks
       25,000 eliminate football parking at Allmendinger and Frisinger parks

  $ 3,638,403 total of new allocations


How Realistic Is New Assumption on State Shared Revenue?

The concept behind the state shared revenue system is that local municipalities in Michigan have a restricted ability to levy taxes, so the state reapportions to local municipalities some revenues out of the 6% sales tax that it collects. The reapportionment comes in two flavors: the constitutional portion (15% of the 4% gross collections of the state sales tax) and the statutory portion (up to 21.3% of the 4% gross collections of the state sales tax).

State Shared Revenue: Pessimistic View

In presenting the budget to the council on April 19, Fraser had indicated pessimism that state shared revenues would remain constant from this year to next year:

Fraser said the city had made a mistake in believing the state when they said state shared revenue would be held harmless in the state’s budget planning. In October 2009 the state announced that  reductions in state shared revenue would be implemented. This year, the city is forecasting that by this time next year the state will cut the statutory portion – that part of state shared revenue controlled by the legislature – by half of what is currently left. That would mean another $1.2 million reduction for the city.  [...]

The assumption is that the state of Michigan will continue to struggle with its own budget deficit. That is compounded this year, Fraser said, by the fact that there will be a massive turnover at the state legislature with a number of people in the House and the Senate and in the governor’s office, who will not be seeking election this fall because of term limits. It is yet to be seen what the impacts will be in terms of their willingness and ability to make decisions affecting the future of the state, Fraser concluded. “We have not assumed a great deal of optimism about that,” Fraser cautioned.

Fraser also indicated at the April 19 meeting that the statutory component of state shared revenue is predicted to disappear completely by FY 2012. The budget proposed by the city administrator estimated that the total of state shared revenues would be around $8.2 million. The budget amendments to be proposed on Monday assume a total closer to $9.2 million – the same as what the city received in FY 2010.

State Shared Revenue: Optimistic View

A more optimistic attitude on state shared revenues, which is reflected in the budget amendment, is consistent with the view of the city’s lobbyist in Lansing, Kirk Profit, as conveyed to the mayor in an email sent on Thursday, May 13:

In terms of parameters, the Governor recommended a flat appropriation for revenue sharing (no increase, no decrease); the House passed its version of this portion of the budget and called for a slight increase; and the version now under consideration in the Senate calls for a slight cut. And even in considering a slight cut in the Senate, the subcommittee chair, Sen. Pappageorge, was very uncomfortable with any cut to revenue sharing and said, “I don’t think that anything pains me more than what is being done to revenue sharing”.

It is clear that there is strong sentiment and motivation in both the House and the Senate to protect revenue sharing. Additionally, the Governor has been adamant that it will be held harmless. [...]

For now, I am comfortable in advising you that you can budget with an expectation of no cut to revenue sharing. While it is my opinion that an increase is more tenuous, the flat recommendation of the Governor is probably the most likely scenario.

Other Possible Budget Amendments

There are several other possible amendments to the budget on Monday.

Other Amendments: Contractor Registration Fees

As proposed, contractor registration fees are set to increase for registration of building, electrical, mechanical, plumbing, fire suppression and sign specialist contractors.

Increases for contractor registration in the administrator’s proposed budget vary – building contractors would face an increase from $5 a year to $25 a year, for example, while plumbing contractors would go from $1 a year to $15 a year. The fee increases are assumed to generate an extra $20,000 for the city‘s construction code fund.

The possible budget amendment would eliminate the fee increases, with the reduction in revenue to be made up from the city’s general fund reserves prior year’s fund balance in the construction code fund.

Other Amendments: Rental Housing Inspection Fees

Rental housing inspections are supposed to take place on a required schedule determined by the city. Inspection rates vary depending, based on the number of units in a building, and whether the inspection is a re-inspection or prompted by a complaint.

In the administrator’s proposed budget, most of the inspection rates are set for increases of 2-4%, with the exception of life safety inspections. By way of example, the life safety inspection rate is set to increase from $34 to $60 per room/unit for the initial inspection and from $34 to $70 for a first re-inspection.

The possible budget amendment would eliminate the fee increases, with the reduction in revenue to be made up from the city’s general fund reserves.

Other Amendments: Loading Zone Permits

Also on the list of possible amendments is one that would eliminate the proposed permitting system for loading zones, which is projected to increase revenues to the city by $20,000. In its place would be an increase from $25 to $45 in the fine for parking in a loading zone, which would raise an estimated additional revenue of $25,700.

Other Amendments: General Fund Tax Administration Fee

What is the general fund tax administration fee? The General Property Tax Act 206 of 1893, as modified in 1982 by Public Act 503, allows for the “local property tax collecting unit” – in this case, the city of Ann Arbor – to impose a fee on taxpayers not more than 1% of the total tax bill for the parcel.

Back in 2004, the city of Ann Arbor did not impose such a fee. From an April 24, 2004 article reported by Tom Gantert of the Ann Arbor News:

City Council members appear to be leaning toward a proposal by City Administrator Roger Fraser to impose a .67 percent administrative charge on all property tax bills. [...]

The proposed administrative fee – which many other cities already impose – would generate an additional $1.4 million a year in revenues for the cash-strapped city. It would cost a resident with a $200,000 home an additional $31.15 a year on their property tax bill (based on a taxable value of $100,000 and a total property tax bill of $4,650).

By 2007, the administrative fee was in place at a rate of .81%. In approving the budget for FY 2008, the city council approved an increase in the administrative fee from .81% to the maximum allowable by law of 1%. The increase came in an amendment proposed by Joan Lowenstein and seconded by Leigh Greden. From the city council minutes:

[from May 21, 2007, deliberations on the FY 2008 budget] Councilmember Lowenstein moved, seconded by Councilmember Greden, that the resolution be amended as follows:

Amendment 4

Increase Tax Administration Fee Revenue

Whereas, The Tax Administration Fee is a fee imposed to offset costs incurred by a collecting unit in assessing property values, collecting the property tax levy, and the review and appeal processes;

Whereas, The General Fund includes Tax Administration Fee revenue approximately equal to .81% of the current projected tax collections, and the maximum percent allowed by State law is 1.0%;

RESOLVED, That the General Fund Finance and Administrative Services revenue budget be increased by $473,970.00 to provide for the maximum 1% percent Tax Administration Fee allowed by State law.

On a voice vote, the Mayor declared the motion carried with two dissenting votes by Councilmembers Higgins and Rapundalo.

An amendment that might be brought by Stephen Kunsleman (Ward 3) on Monday night for consideration by the council would change the general fund tax administration fee from 1% to .81%. This would reduce revenues to the city by $453,000, with the reduction in revenue to be made up from the city’s general fund reserves.

Budget Amendment Principles

In past years, when Leigh Greden still served on the city council, a principle pushed by Greden as appropriate for decision making on budget amendments was that proposals for increased expenditures needed to be offset by identification of additional revenues.

In past years, offsets for proposed increased expenditures have taken the form of cuts to other expenditures. For example, last year an amendment for an additional expenditure of $28,350 for the Leslie Science and Nature Center was offset in part by a $24,000 savings through eliminating historic district consulting. That left a difference of $4,350. From The Chronicle’s account of last year’s FY 2010 budget deliberations [emphasis added]:

Amendment #2, which was also passed unanimously, allocated the remaining $4,350 from the general fund reserves – something that violated a basic principle set forth by Leigh Greden (Ward 3). That principle was that any additional costs needed to be balanced by an alternate revenue source. In the case of Leslie, Greden introduced five points that convinced him the violation of the basic principle was worth it [...]

This year, a large chunk of the offsets that are reflected in the possible amendments do not take the form of cuts to other expenditures, but are instead handled by additional revenues, compared to the administrator’s proposed budget – from parking fines and from state shared revenue.

So a possible point of discussion that may emerge during deliberations on Monday is whether an increased level of optimism about state shared revenue – supported by the city’s lobbyist in Lansing – should count as an alternate revenue source in evaluating the merits of budget amendments.


  1. By Kerry Delaney
    May 16, 2010 at 10:37 pm | permalink

    Ahhhhhh……..where have you gone Leigh Greden, A2 turns its lonely eyes to you for budget guidance, whoa, whoa, whoa……….

  2. By John Floyd
    May 16, 2010 at 11:06 pm | permalink

    Nice work, Dave.