I don’t generally take requests, but, seeing as how we haven’t talked for some time about how the tax burden in Michigan is increasingly shifting onto the backs of the poor and middle class, I thought that I’d take this suggestion for a post that was sent in last night, and run with it… Here, before we jump into things…and start debating the distinction between taxes and fees…. is the letter that I received.
As I admittedly don’t know much about this new street light fee, I decided to share this note with a number of folks in the area who are more acquainted with the facts than I am, and see what they had to say about it… And, yes, it’s technically a “fee”, and not a “tax”. Regardless of terminology, though, I still think it’s a subject worthy of discussion.
Our first response comes from Ypsilanti Mayor Paul Schreiber, who had the following to say:
The proposed streetlight special assessment is $99 per parcel. A streetlight special assessment does two things. One third of it pays for the capital expense of installing energy efficient LED light fixtures. This will reduce annual streetlight expenses by $100,000 (or 20% of total costs).
The other two thirds of the streetlight special assessment pays for 80% of the operational costs of lighting the streetlights. Previously, the city paid 100% of the costs out of the general fund that also funds police, fire and other services that city residents depend upon. The assessment for streetlight operational costs will increase revenue to provide these services. Other cities such as Garden City, Romulus, and Flint have instituted a streetlight special assessment for the same reason.
Ypsilanti city council is looking for ways to balance the city budget. The number of city employees has dropped by one third, the property tax revenues have dropped by 20% since the recession, and expenses have stayed stable. General fund reserves are projected to be used up by 2019 with the streetlight special assessment. Without it, the reserves will be depleted by 2018.
I don’t like the streetlight special assessment because it is a regressive fee that charges the same regardless of size of property or income level. However, the city has no other viable revenue increasing options available. As you pointed out, the citizens of Ypsilanti soundly rejected the income tax twice and a Water Street debt millage once.
Next up, we have City Council member Brian Robb. Here’s his contribution:
First of all, it’s not a tax. It’s a fee. This isn’t a game of verbal gymnastics either. The State enabling legislation defines this as a fee.
The creeping fee argument is a little specious too. Fees have been rising for various reasons. Sometimes the fee was not commensurate with the work being performed. Sometimes the fee increase is an inflationary increase. If I randomly select a few categories and compare them from 2007 to 2014, we get:
2007 Kennel License: $75
2014 Kennel License: $78
2007 Plumbing Permit: $47
2014 Plumbing Permit: $50
2007 Zoning Text Amendment: $350
2014 Zoning Text Amendment: $1000
You could do a giant analysis of the fee schedule and find increases, but not to the extent that’s being alluded to in this note.
As far as the shut-in, senior citizen living on a fixed income goes, that too, is a bit much. How Special Assessments are calculated cannot be based on income, wealth, or home value per the State enabling legislation. What is being assessed has to benefit the property not the person. Does the streetlight in front of your million dollar home create light with more benefit than the streetlight in front of my twenty thousand dollar house?
Council had the opportunity to determine the fee residents would pay in a potential Streetlight Special Assessment district based on square footage of one’s lot, but chose to stick with something simple and regressive like a flat fee. Council dropped the ball on this one, and as a result, I am not supporting the Streetlight Special Assessment District.
To make a fun example of Council’s poor decision, all you have to do is look at St. John the Baptist Catholic Church on West Cross Street. They take up the entire block bordered by North Hamilton to the east, Florence to the north, Ballard to the west, and West Cross to the South. Using the methodology the majority of Council favors, the church will pay around $100 in the first year of the district. Roughly speaking, there are about 23 properties that surround the church that will also pay $100 each (or $2300 in total) for those same streetlights. The majority of Council could have done better. It’s a shame they didn’t.
There will always be detractors and people who point out loopholes. Surely somewhere in the City there is a shut-in, senior citizen living on fixed income who has a lot that is giant in comparison to her neighbor’s grand Victorian Queen Anne positioned on a much smaller property.
The person who emailed you has a point about tax fairness, but unfortunately Council can only work within the scope of State law.
Finally, to slyly refer to me as “a certain local billionaire” is mean-spirited and adds nothing to the discussion.
And, I know that he’s not from Ypsi, but I also reached out to State Rep Jeff Irwin, as I thought that he might have something to add, given his Lansing perspective. Here’s what Jeff had to say:
I think that your reader is begging the question: what is fairness? It’s a fascinating question. I don’t think I can get far into that but maybe I can add something of value.
I’m not familiar enough with the tax or Ypsilanti’s budget to take on the specifics, but from a philosophical perspective I’d like to see the burden of providing public services fall more heavily on the folks who benefit most from our civil society. The people who benefit most from our system of schools, roads, hospitals and security are the super rich, aka our benevolent corporate overlords.
So, I can understand your reader’s frustration, I share it. That’s why the first bill I ever introduced in the State House was to provide for a graduated income tax.
Having said that, it seems relevant to mention that, in Michigan, there is a clear difference between a “fee” and a “tax.” A tax can only be initiated by a vote of the people while a fee can be created by a simple act of the legislature or a local government body. Taxes can be designed to be more or less regressive. Fees, however, must be directly attributable to the cost of providing the service. If total fees exceed the total administrative costs or if a particular fee is out of line with the cost of servicing that customer, then the assessment is a “tax” and not a “fee.” This distinction is largely set out in the “Bolt decision“.
So, the city can not choose to charge some customers more than others for providing the same city services unless that assessment is brought forward as a tax proposal that is approved by the people at the ballot box. Our Michigan Constitution prevents it.
I’ll add that our Michigan Constitution also severely limits the taxing authority of local governments in Michigan. For the most part, local units of government can only levy property taxes and, in limited allowances, income taxes (and even then a graduated rate is forbidden). Many other states allow local taxes on sales, gas or event tickets; Michigan does not. As a result, the Ypsilanti City Council is very limited in their options and the State of Michigan has been making the situation worse for local governments for the last decade. (The state has cut revenue both by reducing revenue sharing and by avoiding its responsibility to provide services to state property like EMU and UofM. Our communities have lost millions in what used to be called “fire protection grants” when the state compensated local units for providing fire protection to the universities.)
And, I also reached out to Washtenaw County Commissioner Conan Smith. Here’s his take:
I think the equity of infrastructure taxes is tough to figure out the closer you get to the individual taxpayer, but your reader’s argument that a flat assessment for lighting is regressive is completely accurate. A special assessment appears to be the least equitable but most expeditious approach. That is, Council can just do it and get the project underway. I worry about that approach and about the structure of the assessment.
In communities with widely disparate income strata, progressive tax models are essential to support social mobility. Ypsi is a great example of a community that should be very careful to maintain a balanced tax structure. In many progressive tax models the rate of taxation changes depending on the base. For example, at the federal level, your income tax rate increases as you make more money. We handle community projects a bit differently. For equity in infrastructure financing, we typically attempt to fix the rate and apply it to a variable base. For example, the rich and poor pay the same gas tax rate but different amounts depending on the type and amount of gas they consume. Your water bill is the same: a fixed rate but the amount you pay differs based on usage.
How, though, would you equitably assess for lighting infrastructure? What if you never go out at night; should you still pay? Is there a public safety benefit (yes) that you should be contributing to? The Michigan answer to this issue of fairly distributing the costs of providing a public service has been to use property value as the base. This is what we do for drainage work, for the construction of public buildings, etc. So, in the case of lighting, an ad valorem assessment might be the more equitable way to approach this problem.
You could do this via a millage. However, a millage only applies to those who pay property taxes, and in Ypsi that’s only about 60 percent of the landowners. Public entities (the County, EMU, the schools, etc.) don’t pony up for millages. And, a millage is subject to a vote of the people, while this special assessment isn’t necessarily because it was enabled prior to the adoption of the Headlee Amendment. Council’s decision could still be challenged by referendum, I think.
I’m not a lawyer, but the way I read the statute, I think the city could assess the lighting charges on the basis of property values. Since EMU et al are already exempt, the city could draw the special assessment district so as not to include them, making an ad valorem methodology viable. This would make the assessment much more progressive.
That said, I think the whole special assessment approach in this case is rife with risk. Michigan statute sort of calls out lighting as an unusual case in that a special assessment can be used for the maintenance and operation of the system. The city charter, however, doesn’t invoke this clause in its special assessment section, which I think puts the proposal at risk. Rather, the charter envisions more traditional public improvements, specifically enumerating sewers and streets for example.
If the argument then is that lighting is to be considered a more traditional public improvement, it faces a tough time not being labeled a tax. The intent behind special assessments is that the payees receive a benefit above and beyond that of the community itself. Hard to argue that here, especially since no new lighting is being added to the existing base. Special assessments generally are not to be levied to offset the general expenses of government. Given that Ypsi has had a street lighting system for many years, I think what the city is proposing is that the operations costs of the current lighting infrastructure be offset with a new assessment rather than paid for by the general fund. Also, a special assessment is supposed to result in a measurable improvement in the value of the property being assessed. Again, I think it is hard to make the case that keeping the lights on as they are today results in an improvement (although clearly turning them off could be a measurable harm).
One mediating thing you could do is back out the infrastructure improvement costs. Based on the city manager’s projections, the improvements would cost $556K and save $109K annually. That’s a short, five-year payback period. If it were up to me, I’d just capitalize that work and pay back the funding source with the savings. If the city has cash reserves, this would be a fine use of them (incidentally, property values modestly increased in Ypsi last year so there should be a budget surplus somewhere). Alternately, you could bond for this work, which would drive up the total cost with the inclusion of interest and fees, but probably not extend the payback period more than a year. Or you could partner with any number of alternate financiers, from the State of Michigan which has a revolving loan fund for energy efficiency, to the Southeast Michigan Regional Energy Office which funded a project of this size in St. Clair Shores at zero percent interest.
Street lighting is expensive and necessary, so the city is in an unenviable position trying fund a critical public service in a tough economic and political environment. I think they and the public need to weigh the benefits of expeditious action against the importance of an equitable distributed tax system and a solid and defensible policy. Myself, I’d urge that 1) the assessment be modified to be ad valorem if possible for equity purposes and 2) a charter amendment clarifying the authority of the city to assess for lighting operations be adopted for to address procedural fairness concerns.
And, lastly, we have this anonymous note, sent from an acquaintance who seems to be somewhat in the know:
First of all, it is not a tax. It’s a one time special assessment laid upon users of street lights, in order to replace the existing lights with more long-lasting and energy efficient LED lights. Replacement should produce a cost savings over the long run. However, I’d be more correct to say that it SHOULD be an assessment of users. As it stands, EMU, non-profits, and churches will not pay into this. They should, since they’re all users of the service. And they legally COULD be assessed, as this isn’t a tax. However, something happened, and City Council, or someone (not sure who… maybe Ralph Lange?), has acted like it was a tax, and exempted the non-profits, all of whom nevertheless use the street lights. Already crazy right? But wait, there’s more.
The City has ALREADY gone ahead with installation, as if everything was already approved by the citizens. And, now, after the fact, they’re setting up public input meetings. In fairness, they had to meet a DTE deadline to get the discount/grant from DTE, but they went ahead without the public hearings, and now they’re doing them sort of after the fact, and after exempting the non-profit users, and starting the replacement of the lights.
But there’s still more. The City Clerk’s office mailed the public hearing announcements bulk rate, and the City charter says they have to be mailed first class, so the City has to do the mailing over again… extra labor and extra costs, probably caused by cuts in City staff. (Volunteers or student interns likely did the mailing.)
Your reader who wrote in is correct that we would probably not be doing this if we had passed the income tax, but it wasn’t passed, and so we now have assessments and stupid proposals, like a hybrid police/fire department, etc.
I don’t support this decision by the City, as I don’t think it’s fair to do it on the backs of some of the users, but not all of them… including some really big ones, like EMU and several of the churches and other non-profits.
For what it’s worth, a former Ypsilanti City Council member just wrote to me and said that this is merely “a harbinger of things to come.”
So, what do you think? Are we becoming a nation where street lights are only for the rich?