City revisits income tax option

Home City News City revisits income tax option

The income tax initiative, voted down in 2012, is back on Hillsdale City Council’s road-funding list.

In order to fund fixing the city roads, council compiled a list of options and included an income tax as one that should be re-evaluated.

“There are really only two options left: the millage and the income tax,” Councilman Brian Watkins said. “In theory, the income tax is as fair as we’re going to get in paying for the roads.”

Watkins pointed out that many Michigan cities are dealing with the same problem of poor roads and little money to fix them.

This is because Michigan cities’ two primary revenue sources, property taxes and state revenue sharing, have significantly decreased since 2004, according to a Citizens Research Council of Michigan publication.

“Michigan’s prolonged economics recession is creating fiscal stress for many local governments and causing city government officials to seek alternative revenue sources,” said CRC in its publication, “Local-Option City Income Taxation in Michigan.”

City Financial Director Bonnie Tew said that the tax would be one percent for those within the City of Hillsdale, and a half percent for those working within but living outside the city. Tew supports the income tax, as she watches the city’s extra fund balance decrease.

“You have to have something you can fall back on,” Tew said. “You are either going to have to increase your revenues coming in or decrease your expenses going out. The only way we have of doing that is to lay people off. Something is going to suffer when you get rid of people. To maintain the level of services we have, we need the people we have.”

Due to state restrictions, state grants for road funding must be used on major roadways. This leaves Hillsdale responsible for maintaining all but six roads.

“Local units of government are where we should focus,” said Gary Wolfram, professor of economics and consultant on the income tax initiative.

Wolfram advised that the best solution to raise road-funding revenue is still an income tax earmarked for streets with a seven to 10 year expiration date that exempts business owners. He estimates that the tax would generate approximately $1 million per year.

That $1 million would fix about one road each year.

Wolfram said that the city would have to better educate the voters about the income tax if it has any hope of passing in the future.

“The income tax would have been earmarked for roads,” he said. “But the ballot didn’t say that, so people went in to vote and were asked if they wanted the city to levy an income tax, so they said ‘no.’”

Councilman Patrick Flannery said that an income tax should not be currently considered, because the voters already voted it down.

“To me, the voters said ‘no’ by 70 to 30 percent. So we should not consider it, because to me, that’s going against the will of the people to even reconsider it at this time,” Flannery said. “In a certain period of time, I’d say that it would be OK to look at it again, but that would be five to 10 years from now. But even then, I’d only feel comfortable if it was the people coming forward and saying, ‘We think an income tax is something we want.’”

Flannery suggested that a combination of smaller options be considered to fund the roads, such as reassesing fees, special assessment projects, closing unnecessary roads, and looking for ways to cut the budget.

“I don’t think the road funding is going to be one, big magical thing,” Flannery said. “It will be us reducing the expenses we have and looking at the fees that we charge people and taking a look at a lot of little things, and they will all add up.”

Some of the main objections to the income tax are that it is an extra burden on families and that it does not promote economic development, according to local attorney Bethany Miller. Miller campaigned with a group against the income tax in 2012.

“It’s a well-known fact that taxation doesn’t encourage economic development,” Miller said. “It discourages business.”

According to Wolfram, improved roads could raise property values enough to offset the income tax’s cost for families within the median income range.

“It boils down to how badly people really want the streets done,” Watkins said. “Because one way or another, they have to pay for them.”