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Schools to ask for non-residential tax renewal

April 02, 2014 - By Meg Peters

Review Staff Writer

On April 16 Lake Orion School's trustees are expected to vote to authorize the renewal of the 20.25 ten-year non-homestead millage to be placed on the November 4 general election ballot.

The millage would be placed on all non-homestead properties, including industrial, commercial and some agricultural properties, and second-homes like vacation cottages in the Lake Orion school district.

This tax does not affect primary residences. It could be placed on either the August or November ballots, but school officials choosing the November ballot.

If voters approve the 20.25 millage renewal request placed on non-homestead properties, the LOCS district will continue to receive the student foundation allowance in full, about $7,877 per student, from the combination of state funding and taxes raised from the the non-homestead millage.

Each student brings in about $7,877 in per-pupil funding. The first wave of funding comes from the non-homestead millage, about $958 per student or $7 million total.

Because the state assumes the district is levying a full 18 mills on the district's non-homestead properties, it fills in the rest of the funding that is calculated for each district.

If the renewal is not passed, the student foundation allowance will drop from the $7,877 to $6,945, and the state will not replace the lost $ 7 million.

The 20.25 mills is a combination of two existing expiring non-homestead operating millage proposals: 18 mills for the first tax and a 2.25 mill 'cushion' to offset possible reductions in school funding due to the 'Headlee roll-back.' The district can actually only legally levy up to 18 mills but is requesting authorization above that in order to be able to offset any possible "Headlee roll-back" of the authorized millage rate. Both amounts are general fund operating millages.

How it works

The Headlee Amendment was passed in Michigan in 1978 to limit overall state funding each fiscal year. Each year governmental units are required to calculate an annual "Headlee-roll-back factor" when annual growth on existing property is greater than the rate of inflation.

Prior to Proposal A, which passed in 1994 by Michigan voters, municipalities were allowed to "roll-up" their millage rates if growth on existing property was less than inflation, allowing governments to recapture taxes lost due to previous Headlee roll-backs.

Proposal A reshaped school funding, however, shifting a large portion of school funding from local property taxes to the School Aid Fund and capped the district levy to the 18 mills taxed on non-homestead properties.

So the extra 2.25 mills tacked on to that 18-mill tax is to adjust for the "Headlee roll-back affect" related to the authorized millage rate and district property value changes.

"It is basically an inflation adjustor," Assistant Superintendent of Business and Finance John Fitzgerald said. "That's the point of the Headlee law is to keep taxation under control from an actual levy point of view versus how quickly property values were growing."

Fitzgerald said that from the late 1990s to early 2000s, it became apparent to school districts—based on how the state funds the foundation allowance— they were losing money in high property value inflation periods because the state assumes each district levies the full 18 mills. So they began asking for another one to two mills of authorization to create enough cushion above 18 mills allowing them to get their full foundation allowance funding.

Originally the district was going to ask for two separate proposals, but opted to summate them after attaining legal guidance to do so to avoid a confusing ballot, Fitzgerald said.

The underlying point is that although the district can only legally levy 18 mills for the non-homestead tax, voters can authorize the district to levy up to 20.25 to give the extra cushion to adjust for impact of the "Headlee roll-back" during higher inflation periods.

"Inflation will always push the 20.25 mills down through the Headlee amendment, so we never want to fall below the 18 mills of levy authorization," Fitzgerald said.

Fitzgerald said inflation is calculated at a regional and state level, so Lake Orion's rate of inflation will be a little different than rates in northern Michigan. State wide, inflation is at about 1.2 percent, Fitzgerald said, and predicted Lake Orion and the country is headed back into an inflationary environment.

The "Headlee roll back" millage reduction formula takes into account real growth, real tear-downs and real new builds, and adjusts for an appropriate amount of real growth in the tax base.

"It really boils down to assuring the district is going to generate the revenue that the state is assuming we are generating at a local level," he said.

If the school board opts for the November vote, which is likely according to Fitzgerald, they would have to file by August 12. For an August election, the ballot literature would have to be filed by May 13.

After the schools compile the L-4029 tax levy request this spring, they send the form to the seven taxing authorities who in turn send out tax bills on the districts behalf. Those authorities are Orion Township, Oxford township, Oakland Township, Independence Township, Addison Township, Village of Lake Orion, and the City of Auburn Hills.

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