City income tax proposal not likely to come before Ann Arbor voters this fall

The council was up against a Monday deadline to decide whether to approve putting the tax proposal on the ballot. Several council members said they felt there wouldn't be enough time between Monday and November to properly educate voters on the proposal.

“It wasn't as though the council was saying, 'Hey, we can't do this.' What they're saying is, 'We're not prepared to do this,'” said City Administrator Roger Fraser. “We know that we've got additional research to do to better prepare ourselves to make this decision and, if we choose to do it, to prepare the community to consider it.”

The proposal called for a 1 percent tax on income for all Ann Arbor residents and a 0.5 percent tax on income for non-residents who commute to work in Ann Arbor.

Councilman Tony Derezinski, D-2nd Ward, pointed out the city's income tax proposal would have been side-by-side on the November ballot with a school millage, which could have hurt its chances.

Council members said there's still the option of coming back before voters in February or May, the next two election cycles. They indicated that even though the proposal is not being considered for the November ballot, discussions on the merits of an income tax will continue.

If an income tax is approved, the city's charter mandates that the city's operating millage must be eliminated, which would knock tax bills down nearly 15 percent - or 6.2 mills. City officials say some residents would pay more in taxes and some would pay less, depending on their own circumstances.

Councilman Stephen Rapundalo, D-2nd Ward, was in the minority tonight as he pushed for swift action on putting a city income tax before voters.

“I think we owe it to the public to put it in front of them, and I think the sooner the better,” he said. “The fiscal picture is not going to get rosier anytime soon.”

Councilwoman Sabra Briere, D-1st Ward, said the public has heard about the income tax for a long time now, but she's not so sure many people understand it.

City officials said January 2011 is the earliest a city income tax could be implemented, even if it was approved this fall.

About 17 people attended tonight's meeting to discuss the income tax idea. Ann Arbor resident Tim Rhoades said he's owned his own business in Ann Arbor for 15 years, but the idea of an income tax has him looking at moving his business.

“It's a bad idea. This is harmful to the business environment,” said Rhoades, co-owner of Applied Safety and Ergonomics Inc., 3909 Research Park Drive.

Rhoades showed up at tonight's meeting with floor plans in hand for an office space he's looking at in Pittsfield Township, just a stone's throw across Ellsworth Road. He said most of his 25 employees are against a city income tax, and he thinks many businesses would leave the city if one goes into effect.

Tom Crawford, the city's chief financial officer, said an income tax could improve the city's bottom line, but he had no definitive data to share on whether it could create a “doughnut effect” with companies relocating to surrounding townships. He noted Grand Rapids, one of about two dozen communities in the state with a local income tax, has not had that problem.

As an alternative to an income tax, Crawford said the city also is considering a Headlee Amendment override to help close gaps in the city's budget in the coming years.

The city's charter gives the City Council authority to levy up to 7.5 mills for operations, but a combination of two state laws - Headlee and Proposal A - effectively reduces that cap each year. A Headlee override, if approved by voters, would suspend state law and reset the bar to 7.5 mills, which could raise about $6 million in new revenues, Crawford said.

Though projections show a city income tax could increase revenues by $7.6 million, Crawford said it's most likely the money would be used not to grow the city budget or add services, but rather to cover anticipated budget shortfalls and avoid service cuts in the coming years.

Crawford reminded council members tonight that the closing of the Pfizer facility means the loss of $2 million to the city's general fund, and $12 million to $13 million for the total community. State revenue-sharing also is a challenge to the city's budget.

Fraser said it's worth asking Ann Arbor residents whether they would rather see service reductions or increased taxes. He pointed out the city is talking about closing down its senior center, a public pool, and laying off 14 firefighters, in addition to other cuts proposed in the next year.

“We either have to get more income, or we have to make the cuts,” Fraser said, noting that the city may have to cut expenditures by 7 percent by next year.

Ryan Stanton covers government for Ann Arbor.com. He can be reached at (734) 623-2529 or ryanstanton@annarbor.com.

Photo by Ryan Stanton: Tom Crawford, Ann Arbor's chief financial officer, addresses the City Council about the merits of a city income tax.