Proposal to Restore Essential Revenue
The combination of the Headlee Amendment (1978) and Proposal A (1994) has systematically reduced the Village’s operating mills levied from 12.5000 mils to 10.2076. This millage reduction has limited the Village’s ability to generate essential tax revenue for the Village.
What’s on the Ballot? A proposal (example language below) to restore the 2.2924 mills back to the original 12.5000 mills authorized by the General Law Village Act (1895).
What does this mean? In the first year, this restoration would provide approximately $520,000 (most current figure to date) in additional annual unrestricted general fund revenue beginning in fiscal year 2026 to help offset rising General Fund costs, such as:
- Fire/ALS Contract with Bruce Township
- Road Capital Improvements and maintenance
Fire/ALS Contract Costs
2023 – $550,000
2024 – $780,000 (+ $230,000 from 2023)
2025 – $826,800 (+$46,800 = $276,800, increase from 2023)
2026 – $876,408 (+$49,608 = $326,408, increase from 2023)
HEADLEE OVERRIDE BALLOT LANGUAGE
VILLAGE OF ROMEO MILLAGE RESTORATION QUESTION
Shall the authorized milage for the Village of Romeo for all authorized Village and general municipal purposes, established by law at 12.5000 mills ($12.5000 per $1,000 of taxable value), and reduced by the Headlee Amendment and Proposition A to 10.2076 mills ($10.2076 per $1,000 of taxable value), be increased by, and shall the Village be authorized to levy up to, an additional 2.2924 mills ($2.2924 per $1,000 taxable value) to restore the original rate to a new, restored limitation rate of up to 12.5000 mills ($12.5000 per $1,000 taxable value)?
If approved and levied in full, this millage will raise an estimated $510,000.00 in the first year of the levy based on taxable value. As required by law, a small portion of the millage levied within the boundaries of the Downtown Development Authority may also be distributed to the Village of Romeo Downtown Development Authority.
YES □
NO □
Maximum Mill Rate Increase $2.2924
(Per $1,000 of taxable property value)
$50,000 of taxable property value: Overall a $114.62 Annual Increase, equating to $9.55 a month
$100,000 of taxable property value: Overall a $229.24 Annual Increase, equating to $19.10 a month
$250,000 of taxable property value: Overall a $573.10 Annual Increase, equating to $47.76 a month
$500,000 of taxable property value: Overall a $1,146.20 Annual Increase, equating to $95.52 a month
$1,000,000 of taxable property value: Overall a $2,292.40 Annual Increase, equating to $191.03 a month
In Michigan, the process of calculating a community’s Taxable Value (TV) begins with the assessor who places values on each piece of real property within the community and on certain business owned personal property within the community as of December 31, of each year. The assessor places two values on each property: The Assessed Value (AV) and the Taxable Value (TV). The Assessed Value is 50 percent of the property’s true cash value. The Taxable Value is equal to the AV in the year a property is initially acquired; in subsequent years it is increased by the lesser of inflation or 5%, whichever is lower, until there is a transfer of ownership or significant improvements are made to the property (this is known as “uncapping”).
For example, if a home could sell for $200,000 (true cash value) in the open market, the assessed value is $100,000 in the year of acquisition. Each subsequent year it is increased by the lesser of inflation or 5%.
Headlee Rollback and Headlee Override
Introduction
The term “Headlee Rollback” became part of municipal finance lexicon in 1978 with the passage of the Headlee Amendment to Michigan’s Constitution. In a nutshell, Headlee requires a local unit of government to reduce its millage when annual growth on existing property is greater than the rate of inflation. As a consequence, the local unit’s millage rate gets “rolled back” so that the resulting growth in property tax revenue, community-wide, is no more than the rate of inflation. A “Headlee override” is a vote by the electors to return the millage to the amount originally authorized via charter, state statute, or a vote of the people, and is necessary to counteract the effects of the
“Headlee Rollback.”
Impact of Headlee Amendment
Since the passage of the Headlee Amendment, units of government are required to annually calculate a Headlee rollback factor. The annual factor is then added to Headlee rollback factors determined in prior years resulting in a cumulative Headlee rollback factor sometimes referred to as the “millage reduction fraction.” This total “millage reduction fraction” is then applied to the millage originally authorized by charter, state statute, or a vote of the people. In summary, the actual mills available to be levied by a unit of local government is the product of the authorized millage rate times the total millage reduction fraction. This is known as the “Headlee maximum allowable millage.”
Impact of Proposal A
Prior to Proposal A legislation passed in 1994, local governments were allowed to “roll up” their millage rates when growth on existing property was less than inflation. “Roll ups” were a self-correcting mechanism that allowed local governments to naturally recapture taxing authority lost due to Headlee rollbacks in prior years. A local government could only “roll up” its millage rate to the amount originally authorized by charter, state statute, or a vote of the people.
Additions to taxable value (such as newly constructed property) are typically excluded (or exempt) from the Headlee roll back calculation. The 1994 General Property Tax Act changes did not specifically define “uncapped values”
(increases resulting primarily from property transfers) as exempt.
Result
Although it might appear that a community with an annual increase in uncapped property values would benefit monetarily, uncapped values are treated as growth on existing property and trigger Headlee rollbacks. For local governments levying at their Headlee maximum authorized millage, rolling back the maximum authorized millage rate reduces the revenue that would have been generated from these increased property values. The increase in the taxable value of property not transferred is capped at the lesser of inflation or five percent. Even though the taxable value of a particular piece of property increases at the rate of inflation, the millage rate for the entire community is
“rolled back” as a result of the increase in the total taxable value of the community. The net result-a less than inflationary increase in the actual dollars received from property taxes. Consequently, the 1994 change to the General Property Tax Act has prevented local governments from being able to share the benefits of any substantial market growth in existing property values.
Based on System Failure: Michigan’s Broken Municipal Finance Model. Prepared for the Michigan Municipal League by Plante and Moran, PLLC
Michigan Municipal League I March 2024
