The meeting is dedicated to the topic of city revenue and the idea of implementing a local income tax.
Ann Arbor officials have discussed the idea for many years, mostly in the context of finding a way to generate tax revenue from the tens of thousands of people who live outside Ann Arbor and commute here for work, including many University of Michigan employees. UM has a large footprint in the city and does not pay property taxes.
The idea of a city income tax reemerged at a city budget retreat last December, where there were talks of updating a 2009 feasibility study and putting a proposal on the November 2018 ballot.
State law requires letting city voters decide whether to implement a local income tax.
Ann Arbor’s city charter also requires that, if an income tax is adopted, the city’s general operating millage must be eliminated.
The city millage that would go away is a roughly 6-mill property tax. It costs about $600 per year for the owner of a home with a $200,000 market value and a $100,000 taxable value.
The total homestead tax rate in Ann Arbor for 2016 was about 48 mills, so eliminating the city’s general operating millage would amount to about a 13 percent property tax reduction for homeowners.
For Ann Arbor, the maximum city income tax rate allowed under Michigan law is 1 percent for residents and 0.5 percent for non-residents, and that’s what the city has been considering — along with some exemptions, including a minimum income level before a city income tax is applied.
Hypothetical options presented last year showed $20,000 as the minimum income level before the tax is applied.
Under different scenarios, the city estimated it could raise between $5.1 million and $11.3 million in new annual revenue.
How the numbers would work out for individual city residents, and whether it would be a cost savings or cost increase for them, depends on the size of each person’s income and property tax bill.
For example, for retirees who own a home in Ann Arbor and don’t have much income, it could be a cost savings because of the property tax reduction. For working professionals renting apartments in Ann Arbor, it could be a cost increase, as there’s no guarantee landlords would pass along the property tax savings in the form of reduced rent.
City income tax proposals have been twice rejected by Ann Arbor voters. In 1969, 61 percent were against the idea. In 1972, 59 percent were against it.
One of the reasons for a lack of support for a city income tax over the years is that a large percentage of Ann Arbor residents are renters.
City officials have described a city income tax as a way to shift some of the city’s tax burden onto non-resident commuters who benefit from city services and infrastructure and don’t currently pay city taxes.
However, a 2009 feasibility study conducted by a city-hired consultant showed that, while a city income tax could general several million dollars in new revenue from non-residents, it also could increase the overall amount of taxes city residents pay by millions, while significantly lowering taxes paid by corporations in the city.
The city’s chief financial officer further weighed the pros and cons in a memo last October, acknowledging there also could come a future date when an income tax would generate less annual revenue than keeping the general operating millage on the tax rolls. And since non-residents would be taxed less than residents, workers in Ann Arbor would have some incentive to live outside the city.
“For the city organization itself where some employees already find it challenging to afford to live in the community, an income tax may make it more challenging financially,” the memo stated.
The Sept. 11 work session starts at 7 p.m. inside the council chambers on the second floor of city hall, 301 E. Huron St.
The city also is planning a Sept. 12 workshop on economic development with community stakeholders And on Sept. 13, the city’s staff plans to engage in a brainstorming session with a team from the Bloomberg Philanthropies Mayors Challenge.