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Royal Oak Finance 101

How City of Royal Oak finances work.
by

Donald Johnson

on 19 March 2011

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Transcript of Royal Oak Finance 101

Taxes Tax=
Tax Rate X Taxable Value This is the
important
number! Tax Rate
-Set by City Commission
-Limited by
---Charter
---Headlee Amendment
Originally
20
Mills 1955
Reduced to
10 Mills! Later
Raised to
11 Mills Remember Me? 1978
Headlee Amendment

Reduces Maximum
Tax Rate to Offset
Increases in Value Royal Oak Finance 101 MRF= Millage Reduction Fraction All Royal Oak Tax Levies
General Operating 7.3947
Publicity .0234
State Solid Waste 2.0164
Voted Solid Waste .9965
Voted Fire Debt .3224
Voted Library .9597

Grand Total 11.7131 Royal Oak's 11 Mills
is now only
7.3947 Royal Oak has
one of the lowest
tax rates in Oakland
County Taxable
Value -The tax base for Michigan's property tax is not
50% of fair market value of the property.

-The tax base is an artificially derived number,
based on 1994's Proposal A.

- For properties that did not transfer ownership or have additions during the year:

---Start with prior year's TV
---Add inflationary growth (limited to 5%)
---Reduce this "capped value" if it results in a number greater than AV (50% of market value)
---Equals the current year TV Assessed Value- Value assigned by local Assessor
-Usually trails the market by about 12-18 months

SEV or State Equalized Value= Assessed Value after adjustment by County Equalization. In Royal Oak SEV=AV

Taxable Value is a "capped" value. Cannot increase more than inflation or 5% (whichever is less) Until the real estate collapse, almost everyone's taxable value was significantly less than SEV
Today, it is not unusual for Taxable Value to equal SEV. What about "Pop Ups?"

When a property transfers ownership, its TV is "uncapped"- it is reset to the SEV or 50% of true cash value. So, eventually the
City will recover its
tax base, right? WRONG! The "pop up" is an increase in the value of existing property.

Under Headlee, it must be offset with a lower tax rate. Tax Revenue
will NEVER
Recover. NEVER! When considering the fairness of options to both the citizens and the city, remember:

-Look at the dollar amount of taxes paid. Don't focus on the millage rate.

-Do the math: If TV goes down 35%, then it takes a 53.8% increase in the millage rate to put the taxpayer back where he or she was, without even considering inflation. State Shared Revenue State Shared Revenue

Constitutional
-10% of sales tax collections, distributed on a per-capita basis
-Has been in constitution since 1946 State Shared Revenue

Statutory
-Started in 1933 when 85% of retail liquor license taxes were paid to local units
-In 1939 State eliminated local taxes on intangible property and replaced it with a sharing of state intangibles tax.
-In 1967, state income tax was approved, with 11.5% shared with local units.
-In 1975 SBT was approved, replacing corp income tax and local property tax on inventories-so a portion was shared.
-In 1996 the base was changed to remove SBT and Income tax, and rely solely on Sales Tax. (At the time income tax and SBT were growing much faster than sales tax.) Governor's Budget
Eliminates Statutory Revenue Sharing.

Thats another $900,000 Dedicated Money

(Funds) The City is not a single economic entity.

It consists of over 40 separate funds

Think of it as separate companies sharing the same board of directors.

Each fund has it's own source or sources of revenue.

Most must be kept separate. Library Tax cannot be used for anything but library purposes. Highway Funds cannot pay for cops. Solid Waste Taxes can only pay for waste and recycling programs. Dedicated Money Must Be Used for it's Dedicated Purpose. ? ? ? ? Things to add

Things we have done
-staff levels
-contracts
-cost allocation
-things from various powerpoints
-other charts and graphs

We don't use any local property tax money for roads. Staff Union Contracts -New Employees
No Retiree Health Care
No DB Pension except Police & Fire which increased contributions 3%
Further Wage and Benefit Concessions from most bargaining units.
Budget Charts Where the money comes from and how we spend it. City Wide
All Funds General Fund
Only ? The End Except For Police & Fire Expenditures are more than
159% of General Tax Revenue. start
Full transcript