Headlee Override General Operating Proposal

A Headlee Override is when the community votes to increase their millage rate above the reduced charter millage rate. 

In 1978, voters approved an amendment (named after Richard Headlee) to the State Constitution which requires a municipality's millage rate to be reduced if property values rise faster than the rate of inflation. As of 2024, Ferndale's original 20 mills has been reduced to 11.4144. 

Since the November 2024 election, the City has modified many aspects to prepare for the May 2025 election:

• Implemented a smaller override request reflecting the feedback from multiple town halls and community engagement sessions
• Included an expiration date in the proposal 
• Reduced the scope of the proposed Martin Road Facility to match that of the grant requirements and is no longer seeking funding for the larger project
• Separated the proposed public safety facility from the operating millage and continued to refine the public safety facility for a future bond proposal

A mill is the term used to identify property tax. One mill equates to one dollar for every thousand dollars of a property's taxable value. A convenient way to estimate your property taxes is through the State Tax Estimator. 

MILLAGE RESTORATION PROPOSAL

This proposal will restore a portion of the City’s operating millage which has been reduced by application of the Headlee Amendment and revenues collected from the millage would be used for general operating purposes.

Shall the limitation on the amount of taxes which may be imposed on taxable property in the City of Ferndale, County of Oakland, Michigan, be increased by 5.4452 mills ($5.44 per $1,000 of the taxable value) for a period of ten (10) years, from 2026 to 2035, as new additional millage in excess of the limitation imposed by Michigan Compiled Laws section 211.34d, to provide funds for general operating purposes? It is estimated that 5.4452 mills would raise approximately $5,398,746.73 when first levied in 2026.

The proposed millage will secure funding to maintain essential public services. If the City were to only rely on the charter millage, the City would face deficits and would need to eliminate approximately $4 million from the annual budget. This would mean significant service level cuts, including to Police, Fire, Public Works, and general public services. For a road map on how these cuts may be prioritized, view the Budget Cut Scenario Presentation. 

Proposal A

The taxable value of your home increases each year. The amount it increases is tied to the rate of inflation with a maximum annual increase of 5%. This is generally a good thing because it prevents people from being priced out of their homes by property taxes that rise faster than income. When homes are sold, the taxable value uncaps and is reassessed. This uncapping often causes significant jumps in annual property taxes for new homeowners. In this way, Proposal A incentivizes long-term homeownership. 

Headlee Amendment

Because the taxable value of individual homes increases each year (either due to sale and uncapping, or annual inflation increases), Headlee mandates that the average increase city-wide cannot exceed the rate of inflation. If the increase exceeds the rate of inflation, then the millage rate must be reduced for all taxpayers so that the amount of money collected by the City is capped at the rate of inflation. (According to the Oakland County Equalization Office, annual inflation averaged 2.33% between 1995-2023; view their presentation to the Finance Committee). A reduction of the millage rate is commonly referred to as a Headlee rollback.

A common misconception is that due to the uncapping of recently sold properties, Michigan cities see a windfall of new tax dollars. However, because of Headlee limiting financial growth, this is not the case. Instead, the additional tax revenue collected from a newly uncapped property is often distributed to other property owners in the form of a millage reduction (“Headlee rollback”) rather than captured by the local government.

Proposal A + Headlee

On their own, both Proposal A and Headlee are reasonable ways to approach municipal taxation; however, there are challenges to the balancing act between them when there is a recession. 

1. Prior to Proposal A, Headlee allowed tax rates to move up and down to try and provide revenue growth equal to inflation. When Proposal A was later implemented by the Legislature, they eliminated the ability for rates to move in both directions. As a result, rates can go down but not back up, eliminating any logical correction that was intended by the original Headlee Amendment. This makes communities and schools more vulnerable in a recession.

2. Home values pop up after a property is sold. However, conflicts between Proposal A and Headlee do not allow a community to benefit from this as they should. In fact, too much real estate activity can trigger a rollback (reduction) in a community’s tax rates. This is especially damaging following a recession. As a result, a community is never allowed to catch up and track with the economy during a recovery. 

Yes. City Council and staff are always working to find efficiencies, save money, and make the most of the resources we have.  

The City Manager's Office recently put out its first annual budget efficiency report, highlighting the City's efforts to achieve substantial cost savings. In it, they highlight two case studies: 

1. The Fire Department found a way to make necessary updates to their fleet and eliminate a high-cost apparatus down the line. They’ll be replacing a fire engine at the end of its service life with a quintuple combination pumper, known as a quint—an apparatus that serves the dual purpose of pumper engine and ladder truck. When the Department’s ladder truck reaches its end-of-life, they won’t need to replace it, saving the City approximately $2 million.  

2. Over the past two years, the HR Department has converted its retirees to a Medicare Advantage plan. The level of healthcare service remained consistent, and the change saved the City approximately $800,000.  

3. Modifying department staffing when vacancies occur

4. Consolidation of election precincts

We invite you to learn more; check out Budget Odyssey: A Journey of Cost Savings.  
 

City Manager Gacioch delivered a presentation to City Council in April: "FYE '26 and FYE '27 Budget-cut Scenario Planning." In it, he offers an illustration of the budgeted program and departmental cuts that could be made if the current Headlee override millage—which is the City's most stable source of operating revenue, responsible for about 30% of property tax revenues—is not renewed. View the video presentation for a closer look. 

There are several other staffing factors to understand and consider:

1. 80% of the City’s workforce is union, including Police patrol, Police command, firefighters, clerical staff, and Public Works laborers. These union contracts will all expire and be renegotiated in 2025. Property tax revenue sources directly impact bargaining around competitive employee wages and benefits. 

2. Annual pension and retiree obligations have increased by 100% since 2021. This is a reflection of the numerous retirements of public safety employees over the past five years.  

3. Numerous retirements mean that our workforce is getting younger and less experienced. Nationally there are fewer candidates for local police and fire service than there are job openings—this makes recruitment competitive and also makes retaining experienced mid-career employees very important. Facilities and competitive wages for our union employees are more important than ever in providing high-level, stable local services. 

Headlee overrides and voted operating millages are not specific to Ferndale—they're a reality throughout Michigan. 

According to a 2024 State of Michigan Treasury report, 138 local governments rely on Headlee overrides, including 12 in Oakland County: the Cities of Hazel Park, Oak Park, Berkley, Clawson, Ferndale, Huntington Woods, Sylvan Lake, Lake Angelus, Lake Orion, Pontiac, Pleasant Ridge, and Wixom; and the Townships of Bloomfield, Novi, Royal Oak, and White Lake.  

Most people would assume that increased property values = increased tax revenue for a city. However, the opposite is often true. The Headlee Amendment requires cities to roll back their millage rates when property values rise faster than inflation. For example, Ferndale’s median property values decreased by 45% between 2008 and 2013. As values began to recover in 2017, the Headlee Rollback prevented cities like Ferndale from fully benefiting from the increased property values, leading to reduced tax revenue. 

The combination of reduced property values and the Headlee Rollback made it difficult for cities like Ferndale to recover financially. Even as property values rebounded, revenue growth remained capped by the rate of inflation. During those recovery years, the average annual rate of inflation was only 1.67%, which slowed the recovery of the budget and forced the City to be more reliant on a Headlee override to sustain staffing and service levels.  

This proposal will expire in ten years, which will give residents another opportunity to weigh in on the service levels they desire to see in the community. However, it is anticipated that the City will need to reduce expenditures over these ten years as it is estimated the revenue generated will not likely keep up with inflation of costs. 

Members of the City Manager's Office would be happy to speak with you, understand your questions, and provide unbiased information. 

• Email us at 2024proposals@ferndalemi.gov
• Call us at 248-546-2360

February 11, 2025 | Deadline for Ballot Proposal to be Sent to the County

January 27, 2025 | City Council Regular Meeting

January 21, 2025 | City Council Special Session

December 17, 2024 | Staff Lead Townhall Session

November 18, 2024 | Council Townhall Session