Study Group Urges City Income Tax

Adoption of a local incorrie tax in 1971, an increase in user charges and a streamlining of city government have been recommended by a special "blue ribbon" tax study committee. The "Ad Hoc Committee on Financial Needs and Resources" will officially present its report to the City Council tomorrow I night, following more than a I year of extensive studies and I deliberations. Possibly the most unique phase of the report is that it does not recommend the immediate implementation of a city income tax. In other cities where such "blue ribbon" committees have been formed the purpose has been to gather supporting data ' for an already existing need. Mayor Wendell E. Hulcher, who appointed the committee in the spring of 1967, commented that the committee was not I formed during a "crisis" situation. The mayor met with the committee's co - chairmen - Third Ward Councilman John R. Feldkamp and University political science professor George L. Grassmuck- yesterday. Both Feldkamp and Grassmuck commented that it was unusual that all members of the committee were in agreement with the basic recommendations of the report and that no one voiced opposition to the concept D of an income tax. However, there was some disI agreement over the timing of Isuch a tax.Attached to the comImittee's report is a minority [opinión calling for immediate I implementation of a city income Itax. The report recommends, "The Icity shall proceed to adopt a I personal city income tax which I shall be levied in 1971 in ac[cordance with the state income Itax law upon both residents (one Iper cent) and non-residents (one Ihalf of one per cent) who have I sources of income in the city. [The adoption of the tax shall be laccompanied by a correspondling and significant reduction in Ithe property tax." It was recommendecTfhat the income tax. be enacted after proposed changes in fiscal administration have been instituted, after changes in user fees have been implemented, and after ulereases in state transfers based upon the 1970 censusi have been determined. An income tax levied in 1971' would yield $4.4 million, the committee estimates. This iwould be $897,000 more than accrued from the present 7.5-milll limit for operating purposes, the report states. Therefore, if the income tax were enacted in 1971 and property taxes were reduced six miüs, the city would have a net increase of $1,597,000 in revenues. With a six-mill reduction in property taxes and a one per cent income tax, a person living in a $20,000 home would actually have a lower tax dollar. A person living in the same home with six exemptions could make as much as $9,500 and still pay a lower city tax. In recommending an income tax for 1971, the "blue ribbon" committee noted: - T h e r e are two major sources of general revenue now available to the city: the property tax and the personal income tax. Ann Arbor is now using its permitted property tax at about maximum ra te; -The property tax has definite limitations. It is not necessarily related to ability to pay, and has other inequitable characteristics which are described in our (subcommittee) reports. The personal income tax is more equitable. It is related more closely to immediate ability to pay; -The property tax cannot be applied to those many individual commuters who work in the city and use its facilities and services, but do not pay a proportionate share for them or for their upkeep. The income tax can be applied in part to our non-resident associates, and in the opinión of the committee, it should be; - A large amount of real property in Ann Arbor is tax exempt, and the amount appears to be increasing. A:: a result the pres ent property tax places a con siderable burden on a small portion of the city. - A high property tax occasionally stands as a barrier to new industry and to expansión and annexation. It may be reflected in high rents and high consumer prices. "The committee finds that the income tax has more flexibility than the property tax and can more readily produce inereased revenue. It finds further that the tax load can be made more equitable if we re:luce the property tax signifi?ant]y and levy an income tax which restores the revenues presently provided by the property tax. "Accordingly, the committee recommends that the local personal income tax should be used as the principal source of additional local city revenues once -. ___ we put our fiscal house in order, establish a proper schedule of charges for certain of our servces, and reckon the correct return of state-collected transfers. Orderly planning and preparation for such a reform is best undertaken now under circumstances which do not díctate an emergency crash program to resolve fiscal difficulties," the committee's report states. It also states that the "committee found monetary satisfactiori in the fiscal surplus (from present taxes) projected through the next decade. However, this projected surplus . . i is small in proportion to the; continuing increase in fiscal operations, in fact it is well within the anticipated error of esti mate under these c i r c u mi, stances." The committee said this plus "would give way immedi-l ately to deficit should the 1 cil enact any change of consequence in the general level of municipal services." With current revenues, the committeej termed the next 10 years asi "touch and go" financially. In addition to the income tax, another of the committee's major recommendations regarded user charges. It recommendedl that the city "proceed at oncel to establish a user charge sys-l tem in which service f ees, rates, and other charges are set in ac-l cordance with the cost of these I services." (Related to this recommenda-l tion is a study currently underl way by the city administrationl regarding the increase of water I and sewer rates.) The committee said it "findsj a large discrepancy betweenj the true cost of providing many local governmental services and the charges levied upon the users of these services." It was estimated the cost of services exceed the charges for them by upwards of $450,000. "The committee further sees the user charge approach to redistribution of cost loads as as fair and equitable because ;hose who use services will be charged in proportion to their jenefit," the report states, add;hat such an increase in user charges would also result in a 'marked improvement in the bonding capacity of the city." In the area of administrative structuring, the committee recommended the hiring of an administrative assistant for financial affairs, provisión of sufficient appropriations to cover consultant fees as the city adapts to a program planning budgeting system, and provisión of staff and funds "to establish a modern and effective salary administrative system I which will recognize merit and I superior performance." There were also I ations in the report relating to I capital improvements. The committee estimates the I city will require nearly $50 I lion for capital projects within I thenexáecadeandijecomj