Resident Finance Committee Recommends Headlee Override in Ferndale
(Ellen Shanna Knoppow, March 24, 2024)
Ferndale, MI -The City of Ferndale Resident Finance Review Committee, appointed in 2023 by former mayor Melanie Piana, delivered their final report in a presentation at the regular city council meeting on Monday, March 11.
Tasked with evaluating how the 2025 expiration of the city’s Headlee override millage would affect general operations, the committee voted 8-2 to recommend that the city council consider a proposed ballot initiative to reset the city’s operating millage to 20 mills as part of the 2024 general election.
The resident-led committee was made up of residents Kate Baker, Brook Ciambelli, Vice Chair David Hoppe, Simrit Jhita (alternate), Kimberly Lennex, Jeffrey Loftus, Alvita Lozano, Kyle Savoie, Dale Vigliarolo, Chair Quinn Zeagler and City Council LIaison Greg Pawlica.
Zeagler began by explaining the factors that affect property taxes: the taxable value of one’s home, along with the millage rate.
There are two state laws in play as the City looks at incoming revenue – Proposal A and the Headlee Amendment. Both are complicated issues, but the City of Ann Arbor provides a good explanation:
The Headlee Amendment to the Michigan Constitution was passed in 1978. This amendment created a process for the reduction of millage rates (the Headlee Rollback) to ensure that total municipal tax revenue could grow only at the rate of inflation, plus new construction.
Proposal A was passed in 1994. The primary goal was to reform school finance, but it included two provisions that altered local property taxation. The first was a limitation on the growth of individual properties to the lesser of inflation or 5%. The second was the establishment of “uncapping” property values. Uncapping refers to the process of increasing a property’s taxable value to the State Equalized Value at the time of a change of ownership.
Headlee suppresses total taxing authority within a jurisdiction. Proposal A limits taxable value on individual properties.
Prior to Proposal A, municipalities could roll-up their millage rates to keep up with inflation if inflation outpaced property value increases. Following Proposal A, the Headlee Roll-up is no longer an option. Therefore, when a Headlee Rollback occurs, the only way to increase millage rates is through a vote of the people, typically referred to as a Headlee Override.
Additionally, Proposal A exempted new construction from the Headlee Rollback, but did not do so for uncapped taxable value. So, when a property gets uncapped, that property owner must pay higher taxes on the property. However, that new value becomes part of the Headlee Rollback calculation and municipalities do not recognize revenue from uncapping.
“The combination of both of these laws together means that recovery from recession is slow,” Zeagler said, “because there is no longer a mechanism for cities to capture tax dollars at the same rate as economic recovery. And we saw this happen during the great Recession. It started in 2008, and Ferndale did not return to the same taxable value until 2020.” Yet while the Ferndale tax base remained the same, the cost of goods went up considerably.
The Headlee Amendment requires the city to reduce its millage when annual growth on existing property is greater than the rate of inflation. Hence, the city’s millage is “rolled back” so that the resulting growth in property tax revenue, community-wide, is no more than the rate of inflation.
“The new money collected from the uncapped home is essentially redistributed to all of the homes in the form of a millage reduction,” Zeagler said. “That’s why we see the unsold homes saw their taxable value go up by 5 percent, but their tax bill only went up by 1.4 percent. What this means is that when we see a large number of uncapped homes here in Ferndale, it does not result in a windfall of money for the city.”
The only way to bring the millage rate back up is through a Headlee override. Following an override, the rollback is in effect again. “Until there’s change at the state level, residents in cities like Ferndale have used the heavy override to ensure that there is adequate funding for their communities,” Zeagler said. Without a Headlee override or other funding source, $4 million will need to be cut from the city’s $26 million general operating fund.
Voters approved Headlee overrides in 2010 and 2015. Those funds were used to backfill jobs that had been cut and to modernize city services.
The resident finance committee looked primarily at three scenarios: no renewal, and the override would expire; a renewal of the override with approximately the same millage; and a reset of the millage to its charter amount.
The Headlee override represents between 2.2 percent and 8.6 percent of a resident’s combined tax bill. That varies based on school district and whether there is a primary residence exemption. The remaining taxes are unaffected by an override.
Sixty-three percent of residents are paying less than $330 per year toward the Headlee override, many paying less than $100 per year. Another 27 percent are paying between $330 and $545 per year.
The committee reviewed the priority-based budget to inform their recommendations. First, they considered services that aren’t mandated. That includes parks and recreation, communications and outreach, and others, which would also result in layoffs of staff in those departments.
Cutting all non-mandated services would not make up for the entire $4 million shortfall without an override.
The committee then reviewed eliminating public services that are considered self-mandated, which could affect public safety, maintenance, special events like Pride and the Dream Cruise, property maintenance, and so on. The $4 million could be made up for by reducing, eliminating and/or outsourcing the self-mandated public services plus eliminating the non-mandated ones.
Zeagler noted that “If additional funding is secured at a later date after cuts have already been made, the damage will be hard to undo. Quality of life here in Ferndale would be dramatically reduced.”
Following the disinvestment scenario, the committee looked at scenarios that would maintain or improve city services. Priorities were based on the findings of the Cobalt Community Survey, which indicated that a vast majority of respondents (over 90 percent) want to maintain city services and implement the recommendations of the task force and just under 90 percent want to hire and keep good employees.
“Ferndale residents want a vibrant business district, recreation for all generations, responsive public safety, special events and urban green spaces,” Zeagler said. In the short-term, property taxes and city services would remain about the same. However, cuts would be required in the near future. Capital investments in buildings and expansion of city services wouldn’t be possible.
In scenario three, property taxes would go up slightly: Sixty-three percent of residents would see an increase of less than $300 per year. Overall, 90 percent of residents’ property taxes would increase by less than $500 per year. “This committee’s understanding of renewal is that it maintains current services, and scenario three in particular enables funding some of the priorities from the strategic plan,” Zeagler said. Examples include the construction of a new recreation center, and drop-off sites to recycle a wider range of items.
The committee then considered the findings of the resident task force which addressed the condition of city buildings in 2022. That group looked at equitability in terms of female facilities and maintenance needs of the buildings. “A repair-only option gets you a building where the air handler runs and the roof doesn’t leak,” Zeagler said. To put a human face on current conditions, Zeagler pointed out that the smell of exhaust is present in the upstairs living quarters at the fire station. New buildings would be configured differently to improve the health, comfort, and workflows of the staff.
“So we really do need to look at options that add a little bit more space so that we can address those and other issues,” Zeagler said. “And that’s why the task force looked at a repair and expansion and a replacement, which also includes a little bit more square footage.” Both options are similar in cost. As it stands, the recommendations of the task force can’t be met due to lack of funds. Zeagler pointed out that maintenance needs become more expensive the longer they are deferred.
While the industry standard for facilities maintenance is 2 to 6 percent of the city budget, Ferndale stands at 0.5 percent.
“As Ferndale residents who have spent months and hundreds of hours studying this issue, we recommend that city council consider a Headlee override millage to reset the city to its charter amount for the November election,” Zeagler said.
“And we do this because it meets resident expectations about what it’s like to live in Ferndale: maintaining current services, improving services like those discussed in the strategic plan, and making our city more attractive to new talent who works in highly competitive fields, supporting the retention of existing staff, ensuring basic features and a safe and equitable working conditions, and making sure that we’re maintaining these buildings for generations to come.”
There was also a minority opinion, which opted for a Headlee override at a different millage rate. It would enable some improvements but would be insufficient to meet many or the task force’s recommendations.
“We were all in agreement on four things,” Zeagler said of the committee. “That was for smarter spending, making sure we’re looking at the dollars that we’re spending and using them in the best possible way, seeking alternate sources of revenue to reduce dependence on future override drafting an economic incentives policy and providing additional education for prospective home buyers so there’s no surprises when they receive their first tax bill.”
City council will review the committee’s findings. A decision to include a ballot question must be made by spring 2024, in compliance with election deadlines.
The City of Ferndale has an online dashboard dedicated to the Finance Committee which includes relevant documents, meeting videos and minutes, and the recommendation report. To learn more, visit https://www.ferndalemi.gov/Government/Services%20List/Finance%20Committee.
