UNDERSTANDING PROPOSAL “A” IN A UNDERSTANDING PROPOSAL “A” IN A DECLINING MARKETDECLINING MARKET

DWAYNE G. MCLACHLAN CMAE 4 CITY ASSESSOR

CITY OF MADISON HEIGHTS

PRESENTED BY

SEV / ASSESSED VALUE = 50% TRUE CASH VALUE

CAPPED VALUE = (PRIOR TAXABLE VALUE – LOSSES) x(1+CPI + ADDITIONS)

TAXABLE VALUE = LESSER OF SEV OR CAPPED VALUE UNLESS THERE IS A TRANSFER OF OWNERSHIP. IN THE YEAR FOLLOWING A TRANSFER OF OWNERSHIP, SEV = TAXABLE VALUE

KEY PROPOSAL “A” DEFINITIONS

CPI - CONSUMER PRICE INDEX, INFLATION FACTOR ALL URBAN CONSUMERS

IMPORTANT CONCEPTS

TAX DAY DECEMBER 31ST, 2006 (FOR 2007)

CONSUMER PRICE INDEX (FOR 2007 - 3.7%)

24 MONTH SALE STUDY APRIL 2004 - MARCH 2006ACTUAL SALE PRICE IS NOT TRUE CASH VALUE

SALES NOT CONSIDERED

MORTGAGE FORECLOSURES

RELOCATION COMPANY RESALES

SALES FROM ESTATES

SALES BETWEEN RELATED PARTIES

ANY TRANSACTION INVOLVING DURESS

WHAT DOES ALL THIS MEAN ?

HOW CAN MY ASSESSMENT GO UP WITH THE CURRENT MARKET CONDITIONS ?

For 2007, the time period of the sales study for assessment review is April 1, 2004 through March 31, 2006. Sales occurring after March 31, 2006 are not typically reviewed until the 2008 assessment cycle.

In determining assessment adjustments for a neighborhood, the sale prices of homes are compared to existing assessed values to determine the level of assessment. State law requires this level to be at an average of 50% of value for the time period under review.

Individual market areas within the City tend to appreciate (or decline) at different rates. As such, it is possible that, even with current market conditions, assessment reviews of sales indicate levels of assessment in certain areas of the City at levels less than 50% and increases in 2007 assessments are necessary.

HOW CAN MY TAXABLE VALUE GO UP WHEN MY SEV / ASSESSED VALUE GOES DOWN OR STAYS THE SAME ?

WHAT DOES ALL THIS MEAN ?

Remember that the definition of Taxable Value is the lesser of SEV or last year’s Taxable Value (adjusted for physical changes) times the CPI. (3.7% for 2007)

Since the beginning of Proposal A in 1994, overall increases in SEV have generally been greater than the increase in Taxable Value capped at the CPI.

The longer a property has been owned and capped by the CPI, the greater the gap between SEV and Taxable Value.

Even with no change in SEV for 2007, or with a decrease in SEV for 2007, if there is still a gap between SEV and Taxable Value, and the 2007 SEV is greater than the Taxable Value in the previous year the Taxable Value will increase to the limit of the CPI cap.

If however, the 2007 SEV is lower than the calculation of last year’s Taxable Value multiplied by the CPI, then the 2007 Taxable Value will be the same as the 2007 SEV.

SEV Capped Taxable CPI1995 31,770$ 31,770$ 30,960$ 2.60%1996 33,100$ 33,100$ 33,100$ 2.80%1997 34,830$ 34,020$ 34,020$ 2.80%1998 40,700$ 34,930$ 34,930$ 2.70%1999 47,990$ 35,480$ 35,480$ 1.60%2000 57,150$ 36,150$ 36,150$ 1.90%2001 56,050$ 37,300$ 37,300$ 3.20%2002 63,150$ 38,490$ 38,490$ 3.20%2003 62,360$ 39,060$ 39,060$ 1.50%2004 62,700$ 39,950$ 39,950$ 2.30%2005 77,950$ 40,860$ 40,860$ 2.30%2006 72,650$ 42,200$ 42,200$ 3.30%2007 70,260$ 43,760$ 43,760$ 3.70%

In the following example, the property experiences a loss in the SEV from 2005 to 2007. Although the loss was due to market conditions, the Taxable Value continues to increase by the CPI during 2005-2007. The Taxable Value will continue to increase at the CPI until the SEV falls below Capped Value.

SALE UNCAP

DECLINE IN VALUE

$-

$20,000

$40,000

$60,000

$80,000

$100,000

SEV Capped

Expressed graphically, the blue line (SEV) represents market value trends, while the red line tracks annual inflation rates. The difference between these two lines represents the GAP between SEV and Taxable Value

With no change in SEV for 2007, or with a decrease in SEV for 2007, if there is still a gap between SEV and Taxable Value, and the 2007 SEV is greater than the Taxable Value in the previous year, the Taxable Value will increase to the limit of the CPI cap, (3.7% FOR 2007) and property taxes will increase as well.

IN CONCLUSION

Further information may be obtained by calling the City Assessor’s office at

(248) 583-0820

Monday – Friday 8:00 am – 4:30 pm

or on the City’s web site at

www.madison-heights.org