Now that the Ann Arbor City Council is beginning budget discussions, they are being given information by the staff about what we know is Ann Arbor’s “structural deficit”: the proportion of the property in the city occupied by the University of Michigan, thus not in the tax base; the limitations that the Michigan Constitution imposes on cities for taxation; and the cost of maintaining and advancing city infrastructure and services, greater than the revenue available. In the December 12, 2016 budget retreat, as reported by the Ann Arbor News, the idea of a city income tax was once more brought up for discussion. I hope that this time, the City Council shows some courage and gives this worthwhile idea a chance. Important note: no matter what the Council does, it will take a vote of the people to change Ann Arbor’s method of taxation. And it is actually a choice between income tax and property tax as means to operate our city, not just a new tax.
I’m a bit weary. This is now a thrice-told tale. I was on the committee that met for over a year beginning in 1995 and ultimately recommended a study of a city income tax. The study, by Edward Gramlich of the UM (later of the Federal Reserve Bank) was completed and presented to Council in 1997. As noted by the Ann Arbor Chronicle, there was also a study completed in 2004. Here is an account of the City Council discussion of a tax ballot issue in 2009, also from the Chronicle. There is much interesting information there, including a table showing exemption amounts in various other cities. One way to minimize the impact of an income tax on low-income residents and/or workers is to have a high personal exemption. Note that the link to the 2009 study by Plante Moran does not work. The City has redone its webpage and many historical links are no longer available. Here is the 2009 study.
Here are three posts I wrote in support of a city income tax in 2011. I was astonished when reading them to see how incredibly wonky they are. But this is a green-eye-shades, bean-counter kind of topic. The first tries to lay a basis for putting a proposal on the ballot.
This one lays out a lot of the details of Michigan tax policy and the way the City of Ann Arbor schedules its tax assessments and tax collections.
The final post examines in detail a study that purported to show that income tax was a less dependable means of revenue than property tax for cities. But as I show, the figures are badly flawed and the argument falls apart. This might be very old news, except that it has already been cited in the recent Ann Arbor News coverage.
Some things have changed. All the figures relating to city revenues need to be updated. The Michigan tax law has been revised. Governor Snyder’s changes affect some aspects of city income taxes as they affect taxpayers. If the discussion continues and looks serious, I’ll have to do some more incredibly wonky posts. But now you have the history.
UPDATE: The Ann Arbor News reports that the city income tax is back on the agenda. A special work session is scheduled for September 11.