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Ann Arbor among municipalities struggling with state revenue cuts

Sep 11, 2017

An Ann Arbor city councilmember says the city’s expenses could outpace its revenue as soon as in the next two budget cycles. So the city council is considering a city income tax.

A presentation posted online by city staff makes the case that Michigan’s system for funding local governments “is broken.” The report says it expects the city of Ann Arbor’s expenses to rise by 2.5% annually while revenues are expected to grow each year by just two percent.

“In the next two years we’re going to – if we just project our current expenses – we’re going to exceed out revenues,” said Ann Arbor city council member Jack Eaton. “So you know, we’d have to buckle down this next budget.”

The presentation lists for potential options for dealing with an oncoming revenue crisis in Ann Arbor. The presentation says the city of Ann Arbor has already made “significant” cost reductions, and claims and further major cost reductions would result in a reduction or elimination of valued city services.

According to Eaton and the presentation, state law restricts what kinds of taxes municipalities can impose. The two main options are instituting a citywide income tax, or passing a measure to override the Headlee amendment to increase property taxes. Both measures would require voter approval.

Eaton blames declining state shared revenue funds for putting Michigan municipalities – not just Ann Arbor, in a bind. He says the state has cut shared revenue funds to municipalities in recent years – money he says local governments were counting on.

“It’s really gotten to a point where it’s a serious concern now,” Eaton said. “The shortfall is really what’s causing municipalities so much difficulty in maintaining our infrastructure and services.”

The slideshow to be presented to city council at its meeting tonight claims Ann Arbor has received $52 million less than “full funding” from state shared revenue each year.

Eaton says he thinks there could be areas in the budget that the city of Ann Arbor could stand to cut more. Fellow city councilmember Kirk Westphal says the idea of a city income tax had previously been discussed before he was a councilmember. Westphal says he’d like to see the idea investigated thoroughly to determine whether it’s a viable option.