August 6th Vote:
Special Assessment District for Public Safety
Frequently Asked Questions
What is the ballot question on August 6th?
The Township is asking residents to approve a Special Assessment District (S.A.D.), to encompass the entire township, dedicated to funding public safety. The amount we are asking for is 2.3 mills (equal to $2.30 per $1,000 of your home’s taxable value), however if this S.A.D. is approved the 1.25 mill general tax that is expiring next year will not be renewed. This will result in a net tax increase of 1.05 mills, or $1.05 per year per $1,000 of taxable value. For example, a house with a taxable value of $200,000 would see an annual increase of $210. Keep in mind that taxable value is roughly equal to half of your home’s market value, or perhaps less depending on how long you have owned your home. 57% of homeowners will pay less than $159 per year, while 88% of residents will pay less than $420 per year because of this S.A.D., or just over $1 per day.
You can check how much this S.A.D. would cost you here: (scroll to the bottom of the page) https://www.bloomfieldtwp.org/Government/Funding-the-Budget-Deficit.aspx
Why is the Township asking for a tax increase?
The Township is asking for this increase to fill a structural gap of over $4 million in the public safety budget which has emerged due to a change in the state law regarding the treatment of retiree healthcare obligations (called “OPEB” or “Other Post-Employment Benefits”) and a required contribution to the legacy pension plan.
Where did this structural gap come from?
The history of this request dates back to the 1960’s when the Township compensated employees with a promised pension and lifetime healthcare upon retirement. Unfortunately, the Township leadership did not set aside money to pay the costs of those long-term promises. State law at that time did not require that municipalities pre-fund those liabilities and so local leaders decided not to do so. Bloomfield Township is not the only municipality that did this. Indeed, according to a report by the Mackinac Center for Public Policy, there are at least $17 billion in local government retiree healthcare liabilities.
Up until now the Township operated on a ‘pay-as-you-go’ system whereby the OPEB costs were paid as they came due each year, and this was worked into the annual budget. Nevertheless, current Township leadership recognized the growing problem and over the past 4 years the Township was able to use its budget surpluses to begin funding the OPEB trust. At present, the OPEB liability is 6% funded. However, the state law was changed in 2017 that required OPEB liabilities to be pre-funded by at least 40% within the next 30 years.
To meet this change in the state law, the Township will need to deposit about $3 million into the OPEB trust each year. That money will then be invested conservatively so that within the next 30 years it will be able to cover at least 40% of the OPEB liabilities. Each department in the Township must come up with its share of that annual deposit, determined by the number of retirees and current eligible employees that are included in the OPEB plan, and as such, public safety will be responsible for roughly 2/3 of the annual deposit.
The other source of the structural gap is from the pension plan. Dating back to the inception of the pension plan, Prudential has been the manager of the pension trust and in charge of investing its assets. In 2013 the Township sold bonds to fully fund the pension plan trust. The proceeds from that bond issuance were placed in an equities portfolio designed to supplement the fixed income investments managed by Prudential. Even though the equities portfolio outperformed our expectations, the fixed income portfolio underperformed due to the very low interest rate environment that has been in place for the past few years. As a result, the pension trust is now slightly underfunded and we have to make annual deposits to keep it fully funded. This annual deposit is approximately $3 million and is paid by each Township department based on its share of pension participants. Public safety will be responsible for about 2/3 of this deposit as well.
In summary, the public safety fund (consisting of police, fire, and dispatch) must come up with over $4 million per year to make its deposits into the pension trust and OPEB trust. The other departments can make their required contributions out of their existing budgets. This expense is no longer discretionary; it is mandated by state law. Therefore, that $4 million has to come ahead of other spending that had been in the budget. The Board now faces the decision of either cutting $4 million from the existing public safety budget to be able to make those deposits, or asking the residents for more revenue.
This was a difficult decision to come to the voters and ask them to pay more, but it was felt by a majority of the Township Board that having to cut $4 million from public safety would be too painful for the community as it would require reductions in force in police and fire, the partial closing of one fire station, outsourcing our dispatch services, and other service reductions for our residents.
Why couldn’t these cuts come from somewhere else in the township budget?
The Township’s total budget is $50 million, excluding the Water & Sewer Enterprise Fund, internal transfers, debt payments and special dedicated millages. Of this amount, Public Safety makes up 64%, with the General Fund accounting for 23%, and the Roads Department 10%. Across all funds and departments, employee costs are 62% of the budget. This means that if we had to cut 12% of the budget to meet the pension and OPEB deposits without touching Public Safety or the Roads division, it is just not possible to find enough cuts in the General Fund to meet the $6 million required number while still performing our statutorily required functions.
Taxes go up every year. Isn’t that enough?
Property taxes are ad valorem taxes which means that as your property value goes, so goes your tax liability. In Michigan we have the Headlee Amendment and Proposal A which cap how much your property’s taxable value can increase in any given year regardless of how much your property value actually increases. However, there is no cap on how much it can decrease if your property value falls. In fact, the Township’s aggregate taxable value has not yet returned to its 2008 peak, which means that if you lived in your current home 11 years ago, you are likely paying less in property tax today than you did back then! The Township has been forced to work within these constraints to live on a balanced budget each year. The change in the law in 2017 regarding OPEB liabilities was unexpected and has forced the Board’s hand on this issue.
I’ve heard that the Township is mismanaged financially. Is that true?
That is completely untrue. The township has been run in a fiscally prudent manner under this administration. Efficiencies have been sought in every department and function, and cost savings have been realized. For example, we have 23 fewer employees today than 10 years ago (about 10% of the total workforce) and all new employees after 2011 are now in a retirement healthcare savings account instead of the defined benefit retiree healthcare system that is the cause of our OPEB liability. The defined benefit pension plan was closed to new employees beginning in 2005, instead new employees have a 403(b) retirement savings account, where the Township makes an annual contribution but has no future liability. In addition, the Township has modified the pension plan by eliminating the guarantees from Prudential which will save at least $13 million over time, and also modified the OPEB plan by moving many retirees from an expensive PPO plan to the HRA plan that current employees have; this will save at least $12 million over time.
The Township holds a AAA credit rating on its bonds from the national rating agencies. These national agencies review debt from every corporation and governmental body and compare us accordingly. They regularly note the strength of our fiscal management and the stability of our community as components of awarding us the highest possible credit rating. This is important because it keeps our cost of borrowing low, a cost savings we pass onto the residents who use our bonding capability to improve their roads or add sewers.
We also strive for complete transparency, and to that end, we receive an unqualified opinion from our independent auditors, UHY LLP, that all of our financial statements present fairly, in all material respects, the respective financial position of the Township.
Despite common misconception, Bloomfield Township compares favorably on its tax rates relative to its neighbors. Keep in mind that of your total property tax bill, the Township only keeps about 25% of it; the rest is remitted to Oakland County, the State of Michigan, the school districts, the library, the DIA, the Zoo, etc. The Township’s current total tax rate is 10.236 mills ($10.24 per $1,000 of taxable value). That amount is split between general operations, public safety, roads, safety paths, senior services, and debt obligations. Here is a chart that compares our current tax rates:
City/Town Total Tax Rate Core Millages
Bloomfield Township 10.2360 8.1967
West Bloomfield Township 9.4132 9.1065
Waterford Township 12.7345 9.2953
Shelby Township 9.3049 9.2999
City of Bloomfield Hills 10.6000 9.5000
City of Birmingham 13.1251 11.2099
City of Farmington Hills 14.5797 10.9923
City of Royal Oak 17.6971 10.9943
Note: “Core Millages” defined as millages for general operations and public safety only.
How do our tax rates compare to our neighbors?
Yes, and if the vote does not pass we will be implementing their recommendations. The cuts/revenue identified by the consultants at Plante Moran were:
Institute a 1% Property Tax Collection Fee $1,500,000
Reduce road repairs and pothole patching $1,400,000
Reduce police patrols by cutting officers $1,330,000
Eliminate Fire response at Fire Station 4 $800,000
Outsource Dispatch division $375,000
Eliminate township community programs $300,000
Other miscellaneous cuts $400,000
Eliminate Animal Welfare division $170,000
Outsource Assessing department $140,000
TOTAL SAVINGS/REVENUE INCREASES $6,415,000
The full report is available here: https://www.bloomfieldtwp.org/Government/Funding-the-Budget-Deficit/Study-Session-presentation-12-11-18.aspx
Didn’t the Plante Moran report identify $6 million in potential cuts? Why can’t we follow their recommendation?
It has become a favorite refrain of certain members of the board and public that our full-time elected officials and department heads receive “free luxury vehicles”. The truth is that the Township’s full-time elected officials (Supervisor, Clerk, and Treasurer) and department heads drive township-owned vehicles, but they are Fords and Chryslers, not luxury vehicles, and all of the employees are taxed for any personal use of those vehicles. In 2017 the Board did a deep-dive into the vehicle program and determined that the current program is more cost effective and better for operational security than using a fleet manager or just giving each employee a car allowance. The use of the vehicles serves a governmental purpose as all those employees drive within the township conducting business and to other locations for meetings in doing their jobs. Any personal use of the vehicles is incidental and would be no different than someone using their corporate car or corporate cell phone for personal use. It is a part of the compensation these individuals receive and must be looked at in that context. Either way, eliminating the car benefit altogether would save less than $50,000 per year in total, hardly the “significant annual savings” touted by some.
Why do I keep hearing about township vehicles for elected officials and staff?
You should consult your own tax counsel on this question. But generally speaking, property taxes are deductible if they are levied for the general public welfare and not “Taxes assessed against local benefits of a kind tending to increase the value of the property assessed.” (IRC Sec. 164(c)(1)) Examples of taxes assessed against local benefits would be assessments for on-site sewers, roads, and lights.
Will this Special Assessment be tax deductible like other property taxes?
State of Michigan Public Act Number 33 of 1951, as amended, MCL 41.801, allows townships to raise money for police/fire departments by special assessment and provides for township boards to submit the question of doing so to the voters at an election.