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Beline Obeid

Property values drive budget


May 15, 2014
CITY OF GROSSE POINTE — Next fiscal year's proposed municipal general fund budget is less than 1 percent more than this year's.

The change is fueled in large part by slightly greater revenue from the continued rebound in property values.

There's no tax rate increase.

The general fund budget forecast for fiscal year 2014-2015, starting July 1, totals $5,491,758.

The figure represents a .34 percent increase from this year, equaling $60,135 more than the projected final budget for the current fiscal year ending June 30.

An average 5 percent increase in residential property values is expected to generate $3,851,098 in property tax revenue next year, up $61,811 from this year.

Property tax revenue represents 74.3 percent of municipal income.

State shared revenue is the second largest revenue source, estimated to be $448,050 next year, or 8.5 percent of the total.

Among expenditures, the biggest is public safety, at 58.9 percent of the general fund; followed by parks and recreation (12.1 percent) and public works (10.1 percent).

"The percentages are fairly consistent year after year," said Kimberly Kleinow, City of Grosse Pointe finance director, during a public hearing on the budget Monday, May 12.

A hearing is required one week before the budget is adopted, according to the city charter.

Despite the routine expense percentages, public safety sticks out.

"The city continues to examine potential options for enhancing public safety service cooperation as we look for ways to deliver fire and police protection most efficiently, yet at the highest service levels possible," Kleinow said.


Residential property values in the city peaked in 2006.

Then the recession hit.

Thereafter, they dropped six straight years, effectively cutting in half the value of residential properties, according to Kleinow.

This year, they're up for the second year in a row.

"Residential values have turned the corner," Kleinow said.

Despite the 5 percent increase in taxable values, the city won't collect a commensurate rise in property tax revenue due to the Headlee Amendment, which caps annual increases in property taxes to an amount that is equal to the rate of inflation or 5 percent, whichever is less.

"The cap is 1.6 percent in the upcoming fiscal year," Kleinow said. "So, while the real estate market is recovering, city finances must still face the stark financial task of dealing with property tax revenue levels that have reverted to those found in the last decade."

It will take more than a decade for the city's property tax receipts to recover to pre-recession levels of 2006, she added.

"Because of the Headlee Amendment, it will take more than a decade to get back to where property taxes were before the great recession hit, City Manager Pete Dame said. ""We're thankful our financial situation no longer continues to decline. But, we're still grappling to deal with our property taxes, which are more than 20 percent lower than what they were at the peak of revenue generation.

The city also is absorbing cuts in state shared revenue.

The cumulative loss between 2003 and 2013 is $1.5 million, Kleinow said, referring to an estimate by the Michigan Municipal League.

Higher costs

Yet, operating costs keep going up.

"Personnel costs are the single biggest expenditure in a municipal budget," Kleinow said. "Many costs related to employees are rising beyond the rate of inflation."

"We're still struggling to deal with unfunded obligations that we weren't able to fully fund even in good times," Dame said. "We are even more hard-pressed now to fund infrastructure and legacy costs, particularly retiree healthcare."

Although the financial outlook is better, cost cutting remains important.

"The city will continue to examine healthcare and retirement-related employee benefits and seek to improve reduced benefit levels on new hires," Kleinow said.

Ongoing review of municipal practices is part of the process.

"The city will need to regularly evaluate its level of services to make sure its limited resources are spent on services the community desires," Kleinow said.

Among recent reductions are:

combining commercial and residential rubbish collection operations and switching to a four-day pickup schedule,

adding a year to the former two-year replacement cycle of rubbish trucks and

keeping public works pickup trucks 10 years or more rather than eight years,

Adoption of the proposed budget is scheduled for the 7 p.m. May 19, city council meeting.

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