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Politics & Government

Dearborn Budget Trends Project Deficit Without Further Cuts

Mayor Jack O'Reilly hopes personnel reductions will help offset spending in excess of revenue.

A closer look at revenue and spending trends–with a focus on projected property tax income–show that even if the city of Dearborn levies the , the general fund will end up in the red by 2015.

A combination of continually decreasing property values and increasing personnel expenses make up the bulk of the problem, poising the city to reach a $7.8 million general fund deficit within three years if further expenditures are not cut.

Expenses will be reduced, and revenues will go up, but the city will still be spending $8.4 million over its annual revenues, and “we’ll still have a problem,” said Director of Finance Jim O’Connor at Monday’s budget session at .

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Problem Lies Largely with Taxable Values

While millage rates continue to rise for Dearborn residents, property values have gone down.

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Taxable values in the city–like much of the state of Michigan–have continued to drop in residential, commercial and industrial sectors. Dearborn’s total taxable value peaked in fiscal years 2008 and 2009, but has continued to drop since. From 2011 to 2012 alone, taxable value in Dearborn has dropped 6 percent–or $4.2 million. As a result, O’Connor explained, millage value has fallen concurrently.

“If you levy the 3.5 (mills agreed upon by voters), you’re losing 1.25 of that because of property value declines,” he explained. “That’s pretty important … and it’s more than what one mill will generate for the library.”

Put in other terms, the property value that generated $1 of tax revenue for the city in 2008 will generate 73 cents in 2013. Taxable values are about where they were in 1995.

Compounding the loss in revenue from taxable value are the possibilities of lost personal property tax–pending a bill expected to be introduced soon in the state legislature; as well as increasing pension and post-retirement health care costs.

But still the biggest hurdle, City Council agreed, was getting the message out to Dearborn residents that their taxes aren’t going up unnecessarily.

“I’m very concerned about becoming an overtaxed city,” said Councilman David Bazzy at Monday’s budget meeting. “We don’t want to be the home for those that are stuck. We want to be the home for people who want to be here.”

Councilman Bob Abraham placed part of the blame on Combined Sewer Overflow debt, which accounts for nearly five mills levied upon residents and will last “for a long time,” according to O’Connor.

“The average household’s tax bill without the CSO would have decreased 10 percent … but the CSO causes it to go up about 18 percent,” Abraham estimated. "But it doesn’t help us in our general fund at all.”

Still, tax rates will go up 23 percent from FY 2012 if the full mills are levied–a fact that hasn't sat easily with Dearborn residents. And since 2008, taxes have gone up 61 percent in Dearborn. That has translated to $87 in actual tax bill increases–a jump of 7.5 percent for the average resident.

Are Personnel Costs the Answer?

Included in 2013-2015 projection is the assumption that city employees–based on new state laws–will now have to pay 20 percent of their health care costs.

Not included, however, are 10 personnel reduction costs that Mayor Jack O’Reilly said he hopes to implement in current contract negotiations with all city unions.

“It’s not in (the budget), and it’s not guaranteed either,” he said. “That’s what we’re fighting for.”

O’Reilly said he believes those cuts–which will also affect police and fire–will help save tremendous amounts in employee costs, and could be implemented in a number of ways–including layoffs, pension contributions, or pay reductions.

All city contracts are currently up for renewal, with the exception of police and fire, which expire in June. However, O’Reilly said that discussions about the city’s most expensive costs–those two departments–would be a priority in coming months.

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