During a special Committee of the Whole on Monday night, city council members heard a presentation on the state of city finances and options for raising revenue. Held at 5:30pm in City Hall, the hour-long meeting included an overview of the issue from City Manager Mike Burns and comments from two citizens in attendance.
The Problem with Property Taxes
To kick-off his presentation, Burns offered an overview of the current condition of the city’s demographics and its general fund.
The City of Lowell operates on a $2.9 million general fund. Of that amount, $1.36 million – or 47 percent – comes from property taxes. The city’s millage rate of 15.7 mills is the second highest in Kent County but not as high as allowed by the state Headlee Amendment or the city charter. Under state law, the city could charge a millage rate of up to 17.4597 without a vote of the people. The Lowell City Charter allows a millage rate of up to 20, but anything above the Headlee limit would have to be approved by voters.
Burns noted that while Lowell’s millage rate was high, its property values are relatively low. That means the amount of money the city collects per mill is lower than what other cities may collect. As a result, some cities may have a lower millage rate but collect more money per homeowner from property taxes.
Compounding the problem is Proposal A, a change to property tax assessments that was approved by voters in 1994. Under its provisions, a municipality can only increase the taxable value of a property by the rate of inflation except in the year a property is sold. That means that while the market values of homes have risen significantly in recent years, tax revenues have not kept pace. Since inflation rates have been near zero for the past decade, city income from property taxes has remained flat.
The bottom line for city council members is that there simply isn’t enough money coming in from property taxes to fund infrastructure needs such as road repairs.
Options for Gaining Revenue
After outlining the problem, Burns then turned to possible solutions:
- Create more development in the city to generate more revenue
- Eliminate city services
- Increase the millage rate
- Institute a city income tax
However, most of these, he said, were not feasible. With the city landlocked and already largely developed, it would be difficult to generate more revenue through that means alone.
As for city services, he said there would be an easy way to come up with money for the roads. “I can solve your problems with infrastructure today,” Burns told city council members. The solution would be to simply eliminate the police department which accounts for 25 percent of the general fund dollars. Burns went on to dismiss the idea, saying the city would be turning its back on a core function. “Quite frankly, the first job of a city is public safety,” he said.
While the city could contract with the Kent County Sheriff Department for services, the city would lose its ability to respond immediately to citizen concerns and to enforce ordinances. Plus, there would be costs involved in contracting with the Sheriff’s Office which means eliminating the police department wouldn’t result in pure savings for the city.
Increasing the millage rate would be a hard sell for residents already unhappy with the current rate. That left the city income tax as seemingly the best option.
“The only way to sell it is to reduce the millage rate,” Burns said. He suggested dropping the millage rate no more than four mills in exchange for a city income tax of 1 percent on residents and 0.5 percent on non-residents. The tax would need to be approved by voters.
Next Steps for a City Income Tax
At the end of his presentation, Burns suggested that if the city council decides to pursue a city income tax further, they should first hire a professional firm to analyze the issue more thoroughly. “Don’t rely on me,” Burns said. He added that this type of forecasting was outside his area of expertise. “That’s not what I do every day.”
Citizens Jim Hodges and Diane LaWarre offered comments during the meeting as well. Hodges said the council had a difficult decision, and there were no easy answers to addressing the city’s income shortfall. “There’s not a lot of fat that this city has [to cut],” he said. While not saying whether he was for or against the proposal, Hodges noted that taxes can be good, but they can cause hard feelings among citizens if they feel they are unduly burdened by them.
LaWarre commented in opposition to the prospect of a city income tax. She thought it might encourage people to buy homes outside the city limits where they could still use city amenities without paying the tax. “I have always voted for an increase in our millage because of our wonderful schools and public services,” she said, explaining her opposition wasn’t because of personal financial concerns but related more to the possibility of an income tax negatively impacting the city as a whole.
City council members appeared noncommittal about the proposal but expressed concern that something needed to be done. “It’s time to step up, make a statement and get our infrastructure up to where it needs to be,” says councilmember Marty Chambers.
Both council members Jeff Phillips and Greg Canfield were absent, and Mayor Mike DeVore noted he was interested to hear what they thought.
After the meeting, Burns and DeVore said the issue would be discussed at future meetings and quick action was not expected on the matter.
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