Cities, townships and villages generally have two options for collecting revenue through taxes: real and personal property tax and an income tax.  Establishing an income tax will allow us to “make up” for the decline in both business and residential property taxes and have additional revenue to repair City streets. Twenty-four cities in Michigan now collect an income tax, and more are considering the possibility.

 
2. What will be the proposed income tax rate?

City residents will be assessed an income tax rate of 1% on adjusted gross income while non-residents who are employed in the City will be assessed an income tax rate of .5% on adjusted gross income. This is in line with similarly-sized communities such as Ionia and Portland.

 
3. Will businesses in the City pay an income tax?

Yes, an income tax rate of 1% on adjusted gross income will be assessed on businesses in the City.

 
4. Will there be a reduction in property taxes?

Yes, if the income tax and the property tax reduction ballot measures are both approved, real and personal property taxes will be reduced by 6.7597 mills from the maximum amount the City is otherwise authorize to levy.  This will begin in the 2021-22 fiscal year of the City.

If approved by the voters, an income tax would be assessed for 15 years beginning January 1, 2020.  At the end of 15 years, the income tax may be extended upon approval of the voters.  If the income tax is not extended, the maximum real and personal property tax millage rate will return to the pre-charter amendment amount.

 
6. Why doesn’t the City just levy additional real and personal property taxes for streets?

Currently, the City assesses property taxes at the annual rate of 15.7 mills for general operating purposes.  This amounts to approximately $102,000 per mill and generates approximately $1.61 million in real and personal property tax revenue to the City general fund.  It represents 49% of the amount of revenue the general fund receives to provide municipal services.  The tax on personal property will completely expire after 2023.  It currently accounts for approximately 4% of the general funds revenue.

 

The City needs $1.2 million per year for the next 10 years for improvements to the City street system, which is rated 91% poor or fair, in order to reverse the decline and bring our streets to 91% rated good. 

 

Without issuing debt, the property tax millage rate would need to be increased 12 mills annually to meet this obligation.  If the City were to issue debt for the street improvements it would require an annual additional property tax millage rate of approximately 10.552 mills for 15-year debt and 14.172 mills for 10-year debt.

 

An income tax is being sought because the City Council believed it would, in most instances, cost the average residential homeowner less than the required property tax increase and, in many cases, would reduce the homeowners overall tax obligation to the City.

 
7. Why can’t the City just live within its current budget?

This City is living within its budget, which is why streets are not being fixed.  The City has continued to provide services to residents that enhance the quality of living in Lowell.  The cost to reconstruct one street of approximately seven blocks in many instances is over $500,000.  Funding for just one street in a budget cycle without cutting services is very difficult. Absent funds from the state and without additional City revenue, we will never be able to tackle our street issues.

 
8. Before asking residents for more money, why not reduce the budget for City employees?

City employees have seen dramatic changes during the past decade.  Full-time staffing in the public works and police departments as well as City Hall staff have declined while the City has continued to provide quality services.  Employees are contributing more for their retirement and healthcare costs.  Retirement options also are being reviewed to reduce current and future obligations.  For many years, employees have seen minimal or no increases in their pay.

 
9. What impact has the gas tax that was passed in 2015 had on the City?

From 2016 to 2021, the City will receive annually an additional approximately $200,000 from the 2015 gas tax.  For the City fiscal year beginning July 1, 2019, the City is expected to receive from the State a total of approximately $433,000 including the additional $200,000 from the 2015 gas tax.  These funds are required to be used not only for street improvements, but for street maintenance.  Currently 75% of these funds must be used for major streets (6.89 miles) and only 25% can be used for local streets (13.39 miles).

 
10. A $0.45 per gallon gas tax is currently being proposed; if enacted how much of this revenue would the City receive?

According to the Michigan Department of Transportation, it is projected in the first year the City would receive approximately $9,000 and in the second year, when the full tax would be implemented, approximately $22,000.

 
11. If the City income tax were approved, how much money would there be for streets?

After replacing the revenues lost by the property tax millage reduction, the approximate following amounts would be available:

 

Fiscal Year	Amount	Fiscal Year	Amount
2021	$777,700	2029	$1,227,583
2022	$825,588	2030	$1,295,806
2023	$875,665	2031	$1,367,075
2024	$928,025	2032	$1,441,517
2025	$982,765	2033	$1,519,263
2026	$1,039,985	2034	$1,600,454
2027	$1,099,788	2035	$1,685,231
2028	$1,162,283

Employers within the City will be required to withhold and remit the tax on behalf of their employees.  City residents working in other communities should work with their respective employer to have the tax withheld. 

 

If the income tax is not withheld and adjusted gross income results in a tax liability of $100 or more, a resident will be required to file quarterly estimated tax payments.  Failure to make the required payments will result in the assessment of a penalty and interest for the late payment.

 
13. What income is exempt from the City income tax?

According to the State of Michigan Uniform City Income Tax Ordinance, the following payments and benefits received are not subject to the tax:

 

• Gifts and bequests.
• Proceeds of insurance, annuities, pensions and retirement benefits.  Amounts received for personal injuries, sickness or disability is excluded from taxable income only to the extent provided by the federal internal revenue code.
• Welfare relief, unemployment benefits including supplemental unemployment benefits, and worker’s compensation or similar payments from whatever source derived.
• Amount received by charitable, religious, educational and other similar nonprofit organizations, which are exempt from taxation under the federal internal revenue code.
• Amounts received by supplemental unemployment benefit trusts or pension, profit sharing and stock bonus trusts qualified and exempt under the federal internal revenue code.
• Interest from obligations of the United States, the states of subordinate units of government of the states and gains or losses on the sales of obligations of the United States.
• Net profits of financial institutions and insurance companies.
• Amounts paid to an employee as reimbursement for expenses necessarily and actually incurred in the actual performance of services and deductible as such by the employer.
• Compensation received for service in the armed forces of the United States.

 

Additionally, individuals who make less than $5,000 annually and do not have a personal exemption because they are claimed on someone else’s taxes would be exempt from the income tax.  This could apply to students who are still claimed on their parent or guardian’s taxes.

 
15. What streets will the City fix?

The first priority will be to address streets that have critical issues with underground utilities, such as water mains and sanitary and storm sewers.  After that, the City intends to develop a plan that systematically addresses needs based on most traveled neighborhood streets and rotated through all sectors of the City with no one area getting all of the attention at one time.

 

If this income tax fails, the City will develop a plan to fix streets with less revenue, which will take longer.  The Storm water Asset Management Grant once approved will allow us to combine our major and local street dollars for improvements.  If the City is still able to transfer $180,000 annually from the general fund to local streets and combine it with our gas tax proceeds after all operating expenditures are complete, we will be able to invest the following in roads. Keep in mind that the cost to reconstruct one street of approximately seven blocks in many instances is over $500,000. 

 

FY 2021 $318,118

FY 2022 $326,658

FY 2023 $325,065

FY 2024 $325,875

FY 2025 $326,568

FY 2026 $327,134

FY 2027 $327,563

FY 2028 $327, 847

FY 2029 $327,973

FY 2030 $327,930

FY 2031 $327,707

FY 2032 $327,291

FY 2033 $326,669

FY 2034 $325,826