With poll: Good news and bad news: Property taxes in Ann Arbor are going down

City Administrator Roger Fraser discusses the city's budget challenge with the City Council at a recent meeting.

Ryan J. Stanton | AnnArbor.com

But city officials say what may come as good news to taxpayers is bad news for the city of Ann Arbor. The fact that property tax revenue is starting to decrease for the first time in years is part of the reason the city is facing multimillion-dollar budget deficits.

City Assessor David Petrak says the new assessments show an overall 4.2 percent decrease in taxable value. That equates to a 4.2 percent decrease in tax revenue to the city for the 2010-11 fiscal year, provided the millage rate doesn't change.

The Consumer Price Index - a measure of inflation and deflation - for the 2010 taxable value in Michigan is -0.3 percent. That means almost every property owner will see the taxable value decrease this year by at least three-tenths of a percent.

Properties that have taxable values close to the assessed value and are located in a declining market may see even greater tax savings.

Property owners unhappy with their assessments can appeal them before the city's board of review from March 15-18, Petrak said.

Tom Crawford, the city's chief financial officer, said all city funds are being affected by the economy and will be hurt by the resulting decline in property taxes. In a recent report to the Ann Arbor City Council, Crawford projected a $4 million drop in property taxes, spread across all city funds next year. Some will hit the general fund, parks, solid waste and streets.

The City Council already has worked to trim millions from the budgets for this year and next year. The city's administration, in a series of budget impact sheets, recently stated a $5.2 million shortfall remains to be addressed in the general fund for the 2010-11 fiscal year that starts in July.

The latest version of the city's budget shows the city expects to receive $86.1 million in general fund revenue for 2009-10, about $10 million more than it expects to have available next year.

The budget impact sheets for 2010-11 show $76.15 million in general fund revenue and $81.35 million in expenses, which need to be trimmed by $5.2 million absent any new revenue streams. The city was given hope earlier this week that it could close $2 million of that gap by negotiating a new parking agreement with the Downtown Development Authority.

DDA Executive Director Susan Pollay said she thinks the city's tax base could be much healthier than it is right now.

"Frankly, we get the size government we're willing to pay taxes on - and the development we're willing to have - and that's I think what's going on," she said. "We keep resisting new development. We don't like new development. We fight them. But the good side to them is they bring new tax dollars, and it seems that we only discuss that part of it once a year with budget. "

The city's administration recently provided the City Council with a report that showed approving new development doesn't always increase the tax base. The report lists 41 projects approved by the City Council since 2000 that either haven't started or have stalled. That includes high-rise office buildings, restaurants, retail businesses, warehouses, condos, town homes, apartments, and even a medical office building, a church and a bank.

The city's total taxable value grew from $3.1 billion to $4.9 billion during more prosperous years, from 2000 to 2009. During that time, the city's tax rate dropped from 17.13 to 16.78 mills.

In all, however, the total amount of taxes paid by Ann Arbor property owners grew from 58 mills to 59.3 mills when including non-city taxes, such as those for schools, libraries, the county and Washtenaw Community College.

General fund revenues from taxes grew from $48.2 million in fiscal year 2006-07 to a forecasted $52.03 million for 2008-09. The general fund budget this year shows tax revenues going down for the first time to $51.5 million, and dipping further to $49 million in projections for 2010-11.

Officials say the city's struggles with growth in the tax base are due, in part, to poor market conditions. But they also blame two state laws - Headlee and Proposal A - which have joined forces to keep property taxes contained.

The city has the voter-approved authority to levy up to 7.5 mills for general operations, but Headlee and Proposal A effectively have reduced that amount little by little each year - now whittled down to 6.17 mills. A Headlee override, if approved by voters, would suspend state law and reset the bar to 7.5 mills, which the city's administration has said could raise $6.1 million.

Each of the city's millages are at levels lower than their voter-approved amounts because of Headlee. The city levies a total of 16.8 mills for city services, even though 19.1 mills have been approved by voters.

The levy for employee benefits has dropped from 2.5 to 2.06 mills, as has the public transit millage, which funds the Ann Arbor Transportation Authority. The city's refuse collection tax has declined from 3 to 2.47 mills.

The street repair millage has dipped only slightly from 2 to 1.99 mills. Lastly, the city's parks maintenance and acquisition millages - two separate levies that are reported jointly in the budget - have been reduced from 1.6 to 1.57 mils.

With the jobs of police officers and firefighters on the line, some have wondered why the city can't ask voters to agree to restore the general operating millage to 7.5 mills - with the promise of lowering other millages by 1.33 mills - so there's no net tax increase. Crawford says there may be a way to ask that question on a ballot, but it's his understanding the state requires items to be put on separately and not contingent on others.

Pollay said the city should be concerned it has had limited growth as a community. She said the promise of generating new tax revenues isn't the only reason to approve new development, but it should be considered.

In addition to declining property tax revenue, the city is losing millions of dollars from investment income. The city also is experiencing reduced demand for services, which is causing millions more in lost revenue. Meanwhile, state shared revenue is declining, and the city has seen a decrease in revenue from traffic citations with about two dozen fewer officers on the streets writing tickets.

Petrak said the loss of Pfizer - the city's largest taxpayer with a taxable value of $238 million in 2008 - took away 4.86 percent of the city's tax roll. Pfizer paid the city $4.1 million and the county $1.3 million in taxes in 2008.

Ryan J. Stanton covers government for AnnArbor.com. Reach him at ryanstanton@annarbor.com or 734-623-2529.