Home owners lose in 3 ways

Home owners lose in 3 ways

Taxes can rise, values fall and services shrink
December 3, 2007

BY JOHN WISELY, KATHLEEN GRAY, STEVE NEAVLING and CHRISTINA HALL

FREE PRESS STAFF WRITERS

By springtime, many homeowners in metro Detroit could face an unwelcome and seemingly improbable trifecta:

Higher taxes, lower home values and shrinking services.


Local government finance experts say Michigan's foreclosure epidemic, state budget woes and quirks in the property tax system are conspiring to wound homeowners and the bottom line of local governments, including schools.
Consider:

• Oakland County officials have projected that the county government will experience at least three consecutive years of decline in county property tax revenue totaling $27.5 million.

• In Wayne County, for the fiscal year that ended Sept. 30, property values declined in all 43 municipalities.

• Many communities are anticipating reduced property tax collections in 2008 because of the foreclosure crisis. Here's a sampling: Royal Oak, $760,000; Warren, between $700,000 and $1 million; Farmington Hills, $2.5 million, and Clinton Township, $1.5 million.

• The state faces an estimated loss of $125 million in property, sales and transfer tax revenues in 2008 because of increasing foreclosures. Financing for public schools could suffer.

"With the decline in values, you'll start to see even more of a stretch on communities and schools," Wayne County Executive Robert Ficano said Friday. "In addition, you've got millages for parks and rec, the jail and community colleges."

Oakland County officials, anticipating record numbers of homeowners contesting property tax assessments, are encouraging communities to provide security.

Angry reactions are likely when assessors explain to many homeowners why their taxes will increase even as housing values have plunged, said Robert Daddow, deputy Oakland County executive.

"Explaining that to people is going to be very, very hard," said Frank Audia of Plante Moran, an accounting firm that advises dozens of local governments.

People who have bought a home in recent years could see their taxes decline because their starting point for taxable value is based on the assessment the year the home was purchased.

But those who have been in the same home for many years and taken advantage of a state law (Proposal A of 1994) that kept their taxes from increasing beyond the rate of inflation when housing values were rapidly escalating will suffer the downside of the same law. Their taxes can increase at the rate of inflation until the assessed value reaches actual market value.

Oakland, Michigan's richest county, expects its overall taxable value to shrink 0.4% in 2008 after decades of growth. The reduction will mean less tax money to pay for services such as police, firefighters, parks and libraries.

The hits come after years of local government belt-tightening prompted by declining state aid and skyrocketing health insurance costs for employees. Michigan communities have cut more than 1,600 police officers and more than 2,000 firefighters since 2001, according to state estimates.

"Every community we represent in metro Detroit has contingency plans for more layoffs," said Fred Timpner, executive director of the Michigan Association of Police.

Earlier attention

Some city officials are dealing with finances sooner than usual.

"We're starting our budget sessions early. Our first one is Dec. 8," said Don Johnson, finance director in Royal Oak. "Normally we wouldn't do that until the end of January."

City officials will have to determine what to cut, but Johnson said the $760,000 revenue loss anticipated for Royal Oak is more than the entire street lighting budget. The 0.4% decline in values predicted by the county caught him off guard.

"Last spring, I was still projecting a 4% increase," Johnson said.

Audia of Plante Moran said local officials generally thought they would see an increase of at least 2% to 3%.

"If that's not there, they are going to be shocked," Audia said. "Everybody is panicked about it."

Farmington Hills Finance Director Robert Spaman plans to cut about $2.5 million out of the city's $54-million budget because of lower property values. That could mean leaving city positions unfilled and tapping a rainy-day account.

In Clinton Township, where residential property values are expected to fall 5% to 6%, Supervisor Robert Cannon said the township will lose $1.5 million in property tax revenue. He is to present options for possible cuts to township officials Tuesday.

"We've pared things to the bone and now we're looking at what part of the bone to pare," Cannon said. "There's nothing that we won't be looking at."

That includes not filling vacant positions, delaying capital expenditures and eliminating township-owned cars for some employees.

Other cities vary

In metro Detroit's second-largest city, Warren, where two-thirds of the budget comes from property taxes, the 1.5% decline in assessed values will be difficult to manage, city officials said.

"You still have to put cops and firefighters on the street. You just have fewer pennies to pay for it," said Warren Assessor Philip O. Mastin III.

In Canton, commercial development has boomed, diluting the impact of lower home values.

"The amount of commercial development we're getting is historic," said Canton Township Supervisor Thomas Yack. "It's pretty startling. I thought nobody had any money."

Still, he expects the foreclosure crisis to hit township tax collections heavily in 2009 and is making plans for it.

Contracts for all of the township's 325 employees will be up for negotiation before then and workers, who don't have co-pays on their health insurance, may be asked to, Yack said.

In Wyandotte, a significant gap between assessed and taxable values remains and the city is somewhat protected by its biggest corporate presence -- BASF -- which is expanding operations in the city.

Still, new development has been stalled or canceled, said Finance Director Todd Drysdale.

The city invested more than $1 million to buy and clean an old industrial parcel for a development of 80 homes. After putting up 12 homes and selling just three, the developer has stopped.

"We also have four to five other condo projects that have stalled," said Drysdale. "It's going to take awhile before the actual taxable value is reduced, but that doesn't mean that the housing market isn't a concern."