While Traverse City’s red-hot real estate market might seem like a good thing for local governments collecting property taxes, the City of Traverse City could actually lose an estimated $4.5 million over the next five years due to the Headlee Amendment – Michigan legislation that requires cities to reduce their millages when property growth exceeds inflation. At a city commission study session tonight (Monday), City Assessor Polly Cairns and City Treasurer James Henderson will review how Headlee could impact city revenues the next several years. City commissioners tonight will also receive an overview of the city’s new website, discuss rules for recreational marijuana stores before a May 2 vote to approve a new ordinance, and consider hiring a negotiator to work with the state on the city’s behalf on the Grandview Parkway redesign.
Headlee
Michigan legislation passed in 1978 to protect property owners from tax increases has had another impact in the ensuing decades – constraining revenue growth for local governments, sometimes to the point where deep budget cuts need to be made.
The Headlee Amendment rewrote the Michigan Constitution to require voter approval on any local tax increases or new taxes. It also requires local governments to reduce their millages when annual property growth exceeds inflation. This is referred to as “rolling back” the millage, which helps ensure that governments collect the same gross revenue by reducing the millage rate to offset rapid property value growth.
While the idea of the amendment was to protect homeowners from high property tax increases, analyses from sources including Michigan State University Extension and the Michigan Municipal League (MML) have determined Headlee has had a constraining impact on government budgets. Because Headlee and another amendment passed in 1994, Proposal A, prevent governments from rolling their millages up to self-correct for past rollbacks, it can be difficult for governments to catch up on property taxes. For example, when property values plummeted during the Great Recession from 2007 to 2009, tax revenues were reduced for governments. Now, as property values have recovered, “the Headlee Amendment and Proposal A have prevented property tax revenues from catching up,” according to MSU. Governments can go to voters and ask to override a Headlee rollback, but such requests can be unpopular and have a middling success rate.
The end result is that even during peak real estate booms, such as that currently seen in Traverse City, Headlee “has prevented local governments from being able to share the benefits of any substantial market growth in existing property values,” according to MML. MSU-E adds that with revenue growth limited, “even local units that have been fiscally conservative are finding themselves facing uncertain budget situations.” At tonight’s commission study session, City Assessor Polly Cairns and City Treasurer James Henderson will explain what that means for Traverse City the next several years. “Moving forward, it is our assumption that, barring significant unforeseeable economic changes, there is a high likelihood that we will need to reduce our levied operating mills due to significant inflation in the real estate market,” according to Henderson. In a report to commissioners, Henderson provided projections for the next five years with Headlee rollbacks factored in. The cuts would reduce city revenues by $377,645 in 2023, $613,715 in 2024, $876,626 in 2025, $1,168,741 in 2026, and $1,492,610 in 2027 – a total loss of $4,529,336 over the next five years.
Outside of legislative changes to Headlee, options are limited for governments to address the revenue losses. “We can’t do anything,” says Mayor Pro Tem Amy Shamroe. “We’ve had to explain this a few times. You might see a red-hot real estate market or a big development going in and say, ‘Well that’s going to bring in all this money.’” But Headlee limits how much revenue can be collected from that growth communitywide, Shamroe notes. With property taxes serving as the single biggest revenue source for most municipalities in Michigan, those constraints can cause budget challenges in numerous areas, she says. “This isn’t just whether we give a raise to the city manager,” she says. “It’s police, it’s fire, it’s roads, it’s all the projects we’re doing. It’s huge for everything in the city.”
City Website
City commissioners will receive an overview tonight of the city’s new website, which is now live and has been overhauled for “optimized functionality and usability for enhanced transparency and communication,” according to City Clerk Benjamin Marentette.
Among its new features, the city’s website is now ADA compliant, prominently displays city news and upcoming programs and projects, has an alert system with email and text notifications to subscribers, offer subscriptions for a new city e-newsletter, has more robust and better organized departmental pages, has an internal site search engine, offers a more prominent city calendar with upcoming meetings and events, and has a new design and reorganized navigation. Traverse City vendor Flight Path Creative was chosen through a request-for-proposals (RFP) process to design the new website. City Communications Specialist Colleen Paveglio, who led the project, says the city’s goal was to create a “a service forward website with a unique design for navigational ease that demonstrates our special community and creates brand identity for future communications.”
Marijuana Stores
City commissioners will have a chance to talk through any final changes to the city’s proposed recreational marijuana rules tonight before voting to approve the new ordinance at their May 2 meeting. Discussion tonight will focus primarily on how many stores commissioners want to allow throughout the city, with some board members previously supporting a range of 8-10 and others willing to go up to two dozen. If commissioners can reach a consensus tonight and approve the new rules next week, the city would “be in a position to start accepting applications sometime in early June,” according to Marentette. Building in time for application review, that means permits could start being issued by August or September, the city clerk said.
Grandview Parkway
Finally, commissioners tonight will discuss the possibility of hiring an outside negotiator to work with the Michigan Department of Transportation (MDOT) on design elements the city wants incorporated in the Grandview Parkway reconstruction project. A recent legal opinion from an outside attorney determined that a 1947 agreement between the City of Traverse City and the state gives the city approval power over the new design of Grandview Parkway. Shamroe says she is supportive of the suggestion from Commissioner Tim Werner to hire someone to help the city in negotiations, saying it would help alleviate staff workloads. “It’s a huge project, and it’s a once-in-a-lifetime opportunity to make sure we get this right,” she says. “I don’t think anybody is looking for an extreme redesign of what’s been proposed, or to haggle for more money. We want to make sure it happens in a way that fits our community, and isn’t a generic blueprint that MDOT has for every road.”
