Headlee Override General Operating Proposal

The City has identified three core priorities for the use of the operating millage funds: 

1. Sustaining quality public safety services 

2. Maintaining and repairing aging facilities 

3. Prioritizing the health, safety, and wellness of its civil service staff 

The proposed millage will secure funding to maintain these essential public services and ensure continuity of existing operations, particularly in the police and fire departments.  

If adopted, starting with the summer 2026 tax bill there would be a 5.4452 mil levy on your property tax bill. This would replace the current 4.2808 mil levy that was on your 2024 Summer tax bill, and which is set to expire this year.  

A simple way to understand the impact is to divide your Taxable Value by 1,000 and then multiple by the millage rate (5.4452) to get the annual impact of the millage on your parcel. Or, if you would like to know specifically about the increased amount, multiple by 1.1644. 

On a home with a taxable value of $100,000 the difference in this rate compared to the previously adopted Headlee Override is equal to $116.44 per year or $9.70 per month. 

You can also estimate your current property taxes through the State Tax Estimator.  

Due to the unique nature of Michigan laws, property tax values may increase from year to year while the total millage rate of a community is also decreasing. This has been the case in Ferndale for the last several years. This decrease in the millage rate is called a “Headlee Rollback”.  The statutory cap on the total millage rate means that as property values in a community increase, the taxing authority receives a smaller and smaller percentage of that value each year. This makes it especially challenging for communities to keep up with inflation over time and meet their cost obligations without either cutting services or seeking to reset the millage rate. 

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. On a home with a taxable value of $130,000 one mil would equal $130 a year or $11.83 per month.

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

In 1978, Michigan 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 necessitating a Headlee override request to keep up with growing operations and program costs. 

Proposal A 

Generally, the taxable value of your home increases each year as the market value of your home goes up. The amount it increases is tied to the rate of inflation capped at 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. The reduction in the operating millage needed to limit the overall tax rate is commonly referred to as a Headlee rollback. 

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 or periods of high inflation.  

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, or period of higher inflation, can trigger a rollback (reduction) in a community’s tax rates. This is especially damaging following a recession. As a result, a community may never catch up or take several years following a recession to align with the economy during a recovery. 

Residents can learn more about the impacts of the last recession on municipal finances by visiting: www.savemicity.org.

The MSU Extension Government program also offers a primer on Headlee, Proposal A, and Headlee Overrides for those that wish to learn more: 

Headlee Amendment: https://www.canr.msu.edu/news/what_is_the_headlee_amendment_and_how_does_it_affect_local_taxes  

Proposal A: https://www.canr.msu.edu/news/a_refresher_on_proposal_a_and_local_property_taxes 

Headlee Override: https://www.canr.msu.edu/news/what_is_a_headlee_override  

Headlee Rollback: https://www.house.mi.gov/hfa/PDF/FiscalSnapshot/Tax_Headlee_Rollbacks_and_Millage_Reduction_Fraction_Jan2023.pdf

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 new millage request is a carefully balanced appeal based on resident feedback following the November 2024 ballot initiative compared against the minimum ten-year operational needs of the General Fund. It seeks to accomplish no cuts in current municipal services while making progress to address the highest priority needs identified in the City Facilities Report generated by the Resident-Led Task Force on Facilities in October 2022. The request also accounts for the anticipated reductions that will occur annually due to Headlee Rollbacks. Any lower of a millage rate is anticipated to necessitated operational cuts and service interruptions before the ten-year mark depending on the rate of Headlee rollbacks annually.

If the City were to only rely on the current charter millage of 11.4144 as of 2024, the City would face a significant operational deficit. The current voted override millage accounts for approximately 14% of the total General Fund operating budget.  Loss of this millage would necessitate eliminating approximately $4 million from the annual budget and dramatically restricting facilities maintenance and repair plans. The City has been highly successful in recent years reducing unnecessary expenditures and identifying cost savings. Given there are limited opportunities for additional cost savings, this would mean additional spending reductions would need to come in the form of service level and staffing 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.  

Yes, and always! The City values a culture of innovative thinking and encourages its staff to seek operational efficiencies whenever possible. It is a top priority of City Council and staff to make the most of the resources we have available.   

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.   

In addition to the case studies above, in recent years the City has sought to modify department staffing when vacancies occur and consolidate election precincts as other examples of cost efficiency measures. 

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

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

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 new proposal would expire in ten years, which would give residents another opportunity to weigh in on the service levels they desire to see in the community. However, the actual impact of the millage over that period of time is still subject to economic uncertainty due to the impact of Headlee rollbacks. Service interruptions or reductions to expenditures may occur if the estimated revenue generated does not keep up with inflation of costs. These impacts would be communicated to the community annually as part of the regular budget cycle.

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

• Email us at 2025proposals@ferndalemi.gov
• Call us at 248-546-2360

We also encourage residents to reach out to us directly or attend an upcoming informational session listed in the web page above.