There are two independent ballot items:
1) An income tax of 1% on Ypsilanti residents and businesses, and 0.5% on non-residents working in Ypsilanti.
2) A property tax increase of 4.7085 mills, to retire the debt from a development project called "Water Street."
- Higher taxes drive down property values and erode the tax base.
- Higher taxes discourage investment in the city.
- An income tax would encourage current and potential residents to choose homes outside the city.
- Neither measure is needed if City Council were open to solutions currently dismissed by ideology.
Additional tax only enables failed policies to continue. Rejecting additional revenue will force Ypsilanti City Council to adopt fiscally responsible measures that it otherwise opposes for ideological reasons.
Cutting employees or services is not the only solution: there are creative alternatives. These include revising pension and benefit structures; changing the operation of tax-increment financing zones; combining or outsourcing services; shedding unneeded assets; and converting city-held land like "Water Street" into taxable property. Other cities have found inventive ways to survive declining property values without higher taxes. A city income tax in particular is a rarity, and where adopted is typically correlated with population flight and urban decay.
"Water Street" was a city-sponsored development project that bought and cleared business properties to create what is now the empty field just east of City Hall. This cost over $30,000,000 (around $750,000 per acre), under terms that guarantee repayment to bondholder investors at the expense of city taxpayers. It is still considered "an investment in the future" by diehard supporters (a dying breed). To paraphrase the opinion of one sitting council member, "we wouldn't be discussing additional taxes if Water Street did not happen."
It is important to note that the strongest supporters of the failed Water Street project are now the very same people advocating for higher taxes (claiming the city will go under otherwise). In its literature and arguments, expect this group to dismiss the idea of "city mismanagement," and to blame the poor economy and falling housing prices instead.
Yes, but this millage is a floating millage, which would allow City Council set the level to whatever it deems necessary. This means it could still collect the entire amount were the new millage to pass, and even raise the millage to pay for additional debt, without a vote of the people. The decision to "cut the millage in half" is not binding and might be a bait-and-switch strategy, to increase the odds of passing the two measures without actually providing relief.
City Council says the sudden ballot measure is needed to quickly clarify what revenues will be available for budgeting. Others suggest that the early spring timing will allow the dedicated proponents of higher taxes to pass the measure before the general population gets wind of it. In any case, holding a special election at an additional cost of about $20,000 is indicative of how the City manages its resources.
Q: Would there be any offsetting property tax relief like the last time the city income tax was proposed?
No. In fact, this time is far worse than the last attempt in 2007. For one, the City Income Tax would not be temporary (as last time), and could be paired with a massive new property tax increase as well.
No. City Council could forgo collection of the income tax at some point, but history suggests that a tax, once adopted, never goes away.
There are a number of obstacles. Water Street supporters emphasize the weak economy and depressed real estate market as the reasons development has failed. While these are factors, as important are the unrealistic restrictions that the Mayor and City Council places on would-be investors.
For example, a fast-food restaurant and grocery store were rejected for "not fitting the vision." Two other developers were run off when they told City Council it was unrealistic to demand only particular types of housing and the exclusion of businesses along Michigan Avenue, even in a strong market. City Council has spent hundreds of thousands of dollars on endless planning, and rigidly specifies not only the businesses it will accept, but even the number of parking spaces or color of stucco on the walls.
Given this "we know best" attitude, Ypsilanti has failed to find a buyer after 11 years of trying, and development is unlikely soon or ever. Even if City Council relaxed its aesthetic requirements, what developer in the world would select land at 95 mills plus an income tax, when it can build in Ann Arbor at 60 mills with no income tax? In the meantime, the empty lot produces no property tax revenue, which inflates the true cost of the project.
- Option 1: Vote "YES" on the debt-retirement millage, and trust City Council to actually spend the new revenue retiring Water Street debt.
- Option 2: Vote "NO" on the debt-retirement millage, and instead work with the bond holders to restructure the debt.
While politically embarrassing to City Council, Option 2 ("NO") provides an opportunity to reduce our debt and an ironclad guarantee against diversion of debt-retirement funds to other uses further down the road.
The same arguments were made five years ago, when the idea of a city income tax was first raised and soundly defeated. The disaster did not come to pass. In fact, the city had a surplus of nearly $10 million dollars a few years after. While revenue trends are challenging, the hand wringing by the pro-tax side is largely driven by ideological objections to solutions that threaten sacred cows.
The housing-inspection program is fully self-funded through inspection fees charged to rental property owners. It is a false argument that general tax revenue is required to protect renters.
Both taxes would increase costs, thereby reducing profitability (in other words, the incentive to operate within the city limits). The city income tax would increase payroll costs, as employers would have to compensate for the tax to compete for labor. There could be indirect costs as well, if higher taxes degrade the customer base by promoting population loss.
The new millage would have less cash-flow impact on long-time residents with taxable home values capped by Proposition A. Likewise, the income tax would affect the retired and elderly less than younger, working residents, because it exempts pension and social-security income.
On the other hand, many seniors counted on their homes as a retirement nest egg. Seniors would see the value of this investment continue to dwindle, as new buyers avoid investment in Ypsilanti because its taxes would be among the highest in the state. Also, seniors would still suffer the other negative effects of higher taxes described elsewhere in this FAQ, including the flight of productive and younger people. There is no "getting something for nothing."
Working, relatively recent homebuyers would shoulder the brunt of the proposed taxes. The new millage would disproportionately affect recent home buyers, particularly buyers of pre-bubble homes. Both taxes would exacerbate the troubles of "underwater" homeowners, by making it even less viable to refinance or sell. The youth demographic is important to sustain a vibrant community.
Higher property taxes increase the cost of operations. Landlords would attempt to pass on this cost in the form of higher rent. Costs that cannot be recovered through rent would reduce the return on investment. A lower return decreases the value of property, just as the stock of a unprofitable company loses value. Moreover, an income tax would encourage resident landlords to become absentee landlords instead.
The debt-retirement millage would be passed on to renters to the extent that the market can bear. The income tax would become a new cost wholly shouldered by renters. Both taxes would create a strong incentive to seek housing elsewhere, such as in Ypsilanti Township, 5 minutes away. The loss of this mobile population would have numerous negative effects on the community.
In addition to the immediate loss of disposable income, higher taxes diminish home equity and the ability to sell, refinance, or take out home-equity loans. Housing values would drop as sellers reduce asking prices, to entice buyers to pay higher taxes than paid to live in comparable houses elsewhere.
Ypsilanti has the highest property taxes in the county, and one of the highest in the state. Currently, it collects 62 mills for homeowners and over 80 mills for non-homestead and business properties. Based on future expected increases in pension costs, City Council predicts the latter to climb as high as 95.2 mills by 2017, if the new property tax is adopted. That is $9,500 in annual taxes per $100,000 of taxable value. By comparison, Ann Arbor is 46 mills for residential homes and 64 mills for businesses.
The proposed City Income Tax would just be frosting on a very sad cake.
That is what was originally promised. Former Mayor Cheryl Farmer, one of the architects of Water Street, repeatedly said that no city taxpayer money would ever be spent on Water Street. To date, the City has spent nearly $3 ~ 4 million of property-tax revenues on Water Street and owes nearly $30 million more. More correctly, the City doesn't owe the money - we do. That is because our city leaders pledged the full faith and credit of the good taxpayers of Ypsilanti to bail them out if this project failed. It did.
This is demonizing EMU employees, rather than accepting responsibility for poor financial decisions like Water Street. EMU employees are paying their fair share, and Ypsilanti would be far worse off it didn't have EMU as part of its community. In any case, the supporters of the income tax overestimate how much the city can realistically collect by soaking our disenfranchised friends at EMU.
Non-resident employees, including those at EMU, can exempt themselves from the tax simply by recording the number of hours or days they spend in meetings, trips, or work outside the city. At tax time, they can claim a reduced number of work days in the city, and thus not pay the city income tax for those days. Ypsilanti will not have the resources to audit these returns, which would require a gaggle of new auditors and tax collectors to investigate personal and business returns. The City of Detroit estimates that nearly half the money due under its city income tax is never collected.
If you don't live in Ypsilanti, it will be very easy to legally avoid much of the city income tax. But residents of the city are stuck: they will pay twice as much as non-residents, and they will pay it on all of their income, regardless where it was earned.
Worse, if you work in a city that already has a city income tax and live in Ypsilanti, you must now file two city tax returns, and apportion the income tax correctly across both communities. Ouch!
Q: Proponents claim that $2.7 million dollars in new revenue can be collected with a city income tax. Wasn’t the estimate higher in 2007?
In 2006, the city spent thousands of dollars to hire experts that estimated the city would collect $4.1 million per year with a new city income tax. Five years later, a new set of very expensive experts said that revenue would be far less, and admitted that the last set of "experts" made "mistakes." Neither number is likely to be accurate, due to widely discrepant assumptions and methodology.
These experts had to guess how many employees and business work in the city or would be subject to the income tax. Many businesses operate out of more than one office, and it is a simple matter to move the official address outside the city, to escape the city income tax. For plumbers, electricians, lawn-service providers, accountants, and more, all it takes is a change of address to owe nothing to the City of Ypsilanti.
All of this makes it impossible to estimate the potential revenue from a city income tax, and shows how wise the voters were to reject this proposal in 2007.
The City says it would need only one or two new employees, at a cost of under $125,000 per year, to administer a new City Income Tax Department. This estimate is wildly optimistic.
If the income tax passes, the city would need to process over 25,000 new income tax returns annually. City Hall would have to buy and update software, build databases, and hire numerous consultants. It would take a massive and expensive upgrade of the aging accounting systems, extensive data migration, new equipment, and training of new and existing staff before the City can collect any income tax.
Experts say that these preparations would cost over $1 million dollars in the first year. Over five years, the City would have to spend well over $2 million to create a massive new bureaucracy for collecting and enforcing the City Income Tax.
Meanwhile, we can expect diminishing returns as income tax payers flee the city.
You bet! Business income would also be subject the City Income Tax, and not just for money earned in the city: all your business income will be subject to the tax. Plus, your employees will have to pay. Not only will corporate business income be taxed, your personal income will be taxed as well, if you make enough to actually pay yourself. The income tax is a double whammy for business owners.
EMU employees are not going to pay half of your taxes. This claim is a distortion of an income tax feasibility study that concluded that 49% of the projected income tax revenue would come from all non-residents, not just EMU employees. Even if that estimate is correct, the share paid by non-residents will certainly fall as they adapt to escape the tax (described elsewhere in the FAQ).
In the meantime, you would be stuck paying more than ever before, and the approximately 500 EMU employees that live in Ypsilanti would would pay twice as much City Income Tax as their non-resident colleagues. That hardly seems fair.
If the City Income Tax passes, A city resident making $50,000 will pay over $400 more per year, or as much as a 19% increase in total income taxes. Depending on your current property taxes, the percentage increase in your total taxes required to live in Ypsilanti might be even higher. And all this before you start paying for the proposed debt millage.
City Council could, but then again that is what was threatened the last time a city income tax was on the ballot, and it never happened. Three City Council members are up for re-election in 2012. If they do cut police and fire protection, you have the power to send them packing in November. Remind them.
The idea of cutting police and fire services is a cheap trick to scare people into handing over their wallets. There are alternatives to controlling costs, as described elsewhere in this FAQ.
There are plans to hold four question-and-answer sessions with representatives from City Council. While these will be informative by no means will the information be fairly presented? These forums are not opportunities to share ideas and make suggestions. It is to convince you that you have no other choice and to scare you in to voting for higher taxes by threatening to cut police and fire service.
It is important to note the event organizer supports both new taxes and has a vested interest in collecting additional taxes and that many council members sit on the organizing committee for the supporters of higher Ypsilanti taxes campaign. There will be no opportunity for others in the community, including SCIT, to discuss the impacts of significantly higher taxes on our community, offer proposals and alternatives, or to answer questions from the audience.