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Manager Musings- Nov. 13

The staff received the first draft copy of the City's annual audit yesterday. The draft was presented to the staff (myself, the Treasurer, and the Clerk) by representatives from Plante and Moran, the City's contracted auditing firm. Although the full report will be presented to the City Council at its next regular meeting (November 24), I'd like to share a few of the notable highlights.

First, the bottom line is that the City is in fine financial condition. The amended budget for the previous fiscal year (which ran from July 1, 2007 through June 30, 2008) anticipated $280,573 more in expenses than in revenues. That number merits very serious consideration when you realize that, if that ratio continued, the City's projected fund balance (savings) of $1.2 million would only last another four years. Through the efforts of the staff, though, budgeted expenditures were significantly reduced, resulting in a loss of savings of only $42,849 (leaving $1.4 million in the fund balance). That level of expenditures, although still negative, is much more acceptable than the originally anticipated loss. I expect that this year's budget, which originally projected a $276,672 loss from savings, will also be significantly less as we reduce expenditures and explore other savings opportunities.

Second, the $1.4 million fund balance represents approximately six months of expenditures for city operations. A recommended level of expenditures is between four and six months, so the City has done well to put money aside over several previous years. Those savings are now being used for what they are generally intended: to supplement declining revenues during economic difficulties.

Third, although the finances appear to be fine, we have some processes and procedures that need to be thoroughly examined. Some of our recordkeeping must be improved. New techniques must be implemented to meet the new requirements imposed on local governments by national accounting standards. These changes will have to occur before the audit at the end of the current fiscal year (June 30, 2009).

The City is in satisfactory financial condition. Yes, revenues are down due to the overall economic climate, but we are spending less money. We will continue to provide the level of services that you have come to expect from City Hall. We will explore new opportunities to attract more residents and new businesses to town in an effort to generate more revenue.

If you wish to learn more about the City's annual audit, please consider attending the November 24 City Council meeting (7:30 p.m., City Hall). 

Property Tax Tutorial

The Board of Review is scheduled to meet on March 3, 2009, and March 9, 2009, to hear appeals related to property values and to consider poverty exemptions. To file an appeal for the Board of Review to consider, please obtain a petition or application at City Hall. If you cannot personally appear before the Board of Review, you may submit your appeal or application via mail. All letters must be recieved no later than March 9, 2009.

Since asessments and property values can be somewhat confusing, please take the opportunity to review the following information. In the early 1990's, the voters in Michigan amended the Michigan Constitution with Proposal A. In short, property taxes could not increase annually by more than five percent or the rate of inflation, whichever was less. Since the rate of inflation since the enacting of Proposal A, property taxes have increased only at the rate of inflation, while property values have increased markedly more. For illustrative purposes, please see the graph to the left. Point 'A' is when Proposal A came into effect: a resident's property value (commonly called Assessed Value) was approximately the same as the property's Taxable Value. Over time, the Assessed Value (the blue line) increased more rapidly than the Taxable Value (the red line), due to the constraints imposed by Proposal A, limiting any increase in the Taxable Value as mentioned above. At the height of the housing and property boom, the difference between the two values was significant, as illustrated by Points 'B' and 'C': homeowners were paying taxes on a value much lower than that actual value of their property for several years.

Unfortunately, the housing boom faltered and the economy has soured, resulting in declining property values. Many property owners are confused and upset that, despite the apparent decline in their Assessed Value, their Taxable Value continues to rise. Again, for illustrative purposes, please refer to the graph to the right. The housing boom reached its peak at Point 'B,' with property owners paying taxes on that same property valued only a Point 'C.' As property values (the blue line) now decline toward Point 'D,' the Taxable Value (the red line) still continues to rise (toward Point 'E'), since it is still below the blue line. In fact, red line will never go above the blue line! In a worst-case situation, if the blue line continues to fall, when the red line meets the blue line, the red line will follow the blue line downward. The long-term effect of Proposal A, though, is that property owners have greatly benefitted by being taxed at a lower value than the true value of their property.

This tutorial hopefully offers a somewhat clearer picture of this confusing topic. If you wish to discuss property taxes in additional detail, please contact City Hall.  

Property Tax Information

For current property tax information, please click here.

City Treasurer