by Donnelly Wright Hadden

Our State government is in a frenzy to spend money and cut taxes, because it has a temporary budget windfall. Michigan officials had better save some of that money to bail out local governments next year, because Michigan cities will all see shrinking revenue when property tax receipts cannot keep up with high inflation costs.

Counties, cities, townships and public schools rely primarily on property taxes for their incomes. Property taxes are based upon property values. Property values for 2022 are computed using sales data averaged over two years: April 1st, 2019 – March 31st, 2021. The applicable inflation rate which controls how much your taxes can go up was 3.1% during that time. The data does not take into consideration the recent big jump in property values nor the current high inflation. So, Michigan’s local governments must pay more now for what they buy with taxes levied based upon obsolete data. Counties, cities, townships will be losing money. Their budgets will be in deficit.

On top of that, it will get much worse if inflation stays at 7.5%, because the Headlee Amendment to the Michigan Constitution forbids raising property taxes more than 5% per year, even if inflation is more. So, local governments will grow poorer and poorer as long as inflation is above 5%, and for more than two years thereafter until assessed values catch up with inflation.

It’s time for local governments, including in Ann Arbor, to set money aside to help them weather their coming fiscal crisis.