City of Farmington Hills, Michigan
This page will be dedicated to the many problems, as I perceive them, associated with Farmington Hills.
If you live in the Independence Commons subdivision or your subdivision is scheduled for road improvements in the future, this information may be helpful. If your subdivision was previously the subject of a SAD you may have been assessed too much although the larger the subdivision the smaller the amount. If you find this information helpful, please let your neighbors know.
Any questions, please email me.
I have lived in Farmington Hills for over 43 years. I live in the Independence Commons ("IC") subdivision. There are 334 homes in IC. In 2015, City Council voted in favor of establishing a Special Assessment District ("SAD") for the removal and replacement of the roads in IC. There is no question that given the condition of the roads, something had to be done. However, I and a number of residents questioned the ultimate price tag that ranged from $19,705 for a base lot to $24,631. These amounts represent approximately 80% of the total cost of the project allocated by lot. A base lot has a frontage of up to 120 feet, which is the average frontage as calculated by the City.
There are procedures in place that allow residents to appeal the assessment by filing a Petition with the Michigan Tax Tribunal ("MTT"). Initially 80 residents did just that. While not getting into specifics, prior court decisions set a high bar to overturn a SAD. The burden of proof rests with the resident (Petitioner) to prove his or her case. The MTT found that none of the residents of IC met the burden of proof. I filed a Motion for Reconsideration. The Motion was denied on March 14, 2017.
I spent a substantial amount of time analyzing the City information as well as reviewing applicable sections of the City Charter and City Ordinances. I will share some of my findings as well as offering my opinion on a number of issues. Many of the issues are generic and not all related specifically to IC. These are my personal opinions. Some or perhaps many may disagree with my opinions.
Without established guidelines, it is a waste of time to appeal a SAD to the MTT.
The courts have issued rulings in a limited number of cases regarding Special Assessments. I am not aware of any recent cases where the courts have ruled in favor of a petitioner. I find no rules that establish the guidelines in order to meet the burden of proof. Absent any guidelines, it is all too easy for the MTT to rule the petitioner has not met the burden of proof.
Going one step further, the attorney representing the City before the MTT, submitted rebuttal evidence in all but two cases that stated in part: "It is requested that the Petitioner's evidence be determined to have failed to meet the necessary burden of proof and that the Respondent be reimbursed for its costs and fees so that the many residents of the City do not have to pay for the mistakes of a few. We also ask that a strong message be sent to discourage the perpetuation of the inappropriate methodology utilized in the Petitioner's evidence in subsequent cases."
The City Charter does not limit the City share of a SAD to 20%.
The city position is the City Charter limits the city share of a SAD to 20%. The City relies on language from the City Charter, Section 9.05.
The Council shall have the power to determine the necessity of any local or public improvement, and to determine that the whole or any part of the expense shall be defrayed by special assessment upon the property specially benefited. Provided, that such expense shall, in each case, be substantially in accordance with and in proportion to such benefits derived by such property. Provided, further, that said improvement may be by petition of benefiting property owners or by resolution of the Council. All the costs of local water and sewer improvements shall be borne one hundred (100) percent by the benefiting property. Not more than twenty (20) percent of the costs of local road construction or improvement shall be borne by the City residents at large or by the City General Fund. (emphasis added)
State Law reference— Power re special assessments, MCL 117.4a, 117.4b, 117.4d, 117.5; MSA 5.2074, 5.2075, 5.2077, 5.2084
The City ignores the 2 mill road millage passed in 2014 and the funds the City receives from the State of Michigan from gas and weight taxes collected by the State and distributed to the municipalities. These monies must be used exclusively for roads. The City funded all of its share of the IC SAD from the road millage. The road millage is levied on all personal and real property subject to tax. These funds do not come from "the City residents at large" or from the "City General Fund." The road millage and taxes received from the State are in separate funds that must be used for roads. The 20% is misleading. If all the funds came from the City general fund, the 20% would apply but that is not the case.
In a recent decision in the Oakland County Circuit Court, the Court found: "The Court declines to find that Defendants have waived their rights to challenge the charter's 20% limitation." (Case No. 16-154073-CZ) This action was filed by the City against the residents that chose to challenge the Special Assessment at the MTT. Basically the Court dismissed all of the City's claims in its decision.
I am not challenging the Charter per se, but I do dispute the interpretation. The City can cite the 20% limitation ad nauseam but it cannot ignore the facts. None of funds used by the City to fund the IC SAD were limited by the Charter.
In IC, the City included over $640,000 in construction and engineering contingencies in total costs. This increased the cost by over $1,500 per lot. This information was not provided to residents at a public meeting.
The total costs associated with the IC SAD were estimated by the City to be $8,370,187.85. This included over $1 million in engineering costs and the aforementioned $640,000. The total costs nor any breakdown of the costs were presented at any public meeting. Included in the construction contract and engineering costs were over $1 million in system drainage costs. It would not be a stretch to suggest that some of these costs should have been borne by the City and excluded from the SAD.
Given the dollar magnitude of the total project, I question whether residents should be burdened with another $1,500. I equate the contingencies to a slush fund. Seems it would be all too easy for the City to agree to contractor extras knowing the funds, 80% of which are assessed to the residents, are available.
If "actual" costs for a SAD are 5% or less than estimated costs, the City keeps the excess.
From the City Code of Ordinances:
Sec. 25-22. Excessive assessments.
The excess by which any special assessment proves larger than the actual cost of the improvement and expenses incidental thereto may be placed in the general fund of the city if such excess is five (5) percent or less of the assessment, but should the assessment prove larger than necessary by more than five (5) percent, the entire excess shall be refunded on a pro rata basis to the owners of the property assessed. No excess of less than five dollars ($5.00) shall be refunded in any event. Such refund shall be made by credit against future unpaid installments in the inverse order in which they are payable to the extent such installments then exist and the balance of such refund shall be in cash. No refunds may be made which contravene the provisions of any outstanding evidence of indebtedness secured in whole or part by such special assessment. (emphasis added)
(Code 1981, § 5.300)
The fact that the City may keep the excess of estimated costs for the SAD and the "actual" costs if the excess is greater than 5% is significant for the IC SAD as the City has included over $640,000 in contingencies. Five percent of the estimated total cost is approximately $400,000. The City could keep $400,000 merely by including an unrealistic amount for contingencies. Of course, the residents share is 80%.
I believe the City should analyze all previous SADs and inform the public of excesses, if any, that have gone into the general fund to the detriment of the citizens.
The City adds a 1% fee to the interest cost charged residents.
From the City Code of Ordinances:
Sec. 25-7--Council resolution after hearing.
After the public hearing on a proposed project, the council may, by resolution, determine to make the improvement and to defray the whole or any part of the cost of the improvement by special assessment upon the property especially benefited in proportion to the benefits derived or to be derived. By such resolution the council shall approve the plans and specifications for the improvement; determine the estimated cost thereof; determine what proportion of such cost shall be paid by special assessment upon the property especially benefited and what part, if any, shall be a general obligation of the city; determine the number of installments in which assessments may be paid; designate the district or land and premises upon which special assessments shall be levied; and direct the city assessor to prepare a special assessment roll in accordance with the council's determination. The rate of interest to be charged on such installments shall be one (1) percent above the average rate of interest borne by the bonds issued in anticipation of such special assessment. If bonds are not to be issued in anticipation of such special assessment, the rate of interest on such installments shall be determined by the council. (emphasis added)
(Code 1981, § 5.170)
From the City Charter:
Section 8.03. - Special Assessment Bond
Bonds issued in anticipation of the payment of special assessments may be an obligation of a special assessment district or districts or may be both an obligation of a special assessment district or districts and a general obligation of the City. All collections on special assessment rolls shall be set apart in a special fund and shall be used only for the purpose or purposes for which they were levied and for the payment of the principal and interest of any bonds issued in anticipation of the payment of such special assessments. If there be any deficiency in the special assessment fund to meet the payment of any such principal and interest, money shall be advanced from the general funds of the City to meet such deficiency and shall be replaced in such general fund when the special assessment fund shall be sufficient therefor. (emphasis added)
State Law reference— City authority to borrow money and issue bonds therefor in anticipation of the payment of special assessments, MCL 117.4a(2), MSA 5.2074(2); higher interest rates permitted when there are obligations in anticipation of special assessments. MCL 133.9, MSA 5.3188(12b).
The City by Ordinance is allowed to add 1% to the actual borrowing rate. The IC interest rate is 2.77%. While 1% may not seem significant that's 56% higher than the borrowing rate. The 1% is part of the City Ordinance but that can be easily amended. There is no basis for adding the 1% as the City is protected by a lien placed on all subject property. Delinquent taxes, including the lien, must be paid prior to any sale unless the buyer chooses to accept the liability.
The City Charter (Sec. 8.03) requires all collections of special assessments to be set apart in a special fund. The fund can only be used to pay bond principal and interest.
The City should be required to provide an analysis of this special fund. I presume there is a special fund and no funds were transferred to the general fund or otherwise used in a manner not set forth in the Charter.
Prior to the IC SAD, the City calculated the cost allocated to each lot incorrectly. I pointed out this error. The error resulted in most residents overpaying while a few benefitted.
Prior to the IC SAD, the City calculated the allocation of costs to individual lots incorrectly if the SAD had any lots that bordered on a major road such as a mile road, Inkster or streets such as Drake Road. The City incorrectly reduced the assessment on the corner lots by assuming that at some point in time, the homeowner would be assessed for improvements on the major road. Of course, that would never be the case. Those roads are the responsibility of the City.
While the overcharges might be relatively minor in large subdivisions, the difference is significant in smaller subdivisions.
I reviewed the Special Assessment Roll in a number of subdivisions. Two subdivisions stand out.
Stratton Hills and Lakehills Drive.
I calculated that 13 residents in Lakehills were overcharged at least $750 each while 2 residents benefitted by over $5,000 each. In Stratton Hill, 9 residents were overcharged at least $921 each while 2 residents benefitted by $4,200 each.
The mistakes by the City were obvious. While I do not believe the residents whom were the beneficiary of City mistakes should be required to make up the difference, I do believe the City should refund the excess assessments to all residents in SADs that were overcharged. This is only fair to the residents. I am urging the residents to contact the City.
Special Assessments are not property taxes
Special Assessments are not considered property taxes by the IRS.
Assessments for local benefits. You cannot deduct amounts you pay for local benefits that tend to increase the value of your property. Local benefits include the construction of streets, sidewalks, or water and sewer systems. You must add these amounts to the basis of your property. [This is aside from the issue as to whether the roads increase the market value of the homes in the SAD]
Thus if you itemize deductions for federal income tax purposes and/or use property taxes in the computation of the Michigan property tax credit, you cannot include the amount paid for the special assessment as taxes.
I have not seen a recent property tax bill that included a charge for a special assessment. I told the City it was not reporting the information correctly. I reviewed a bill prior to this year and note there is section for Special Assessments. However the total includes both property taxes and the Special Assessment.
I do know the City includes as part of the Special Assessment, both the tax and interest. This is improper and again I don't know if it has been changed. Actually the interest may be deductible as investment interest but that should be reviewed by a tax expert.
If you have financed your home, you receive a statement annually that includes interest and property taxes. The property tax amount should not include the special assessment, only property taxes.
If the City contines to include Special Assessments as property taxes this could be a violation of IRS regulations.
The City should break out the Special Assessments between principal and interest and report both separately from the property tax statements sent to residents and lenders.
I should note that a charge for recycling is also shown as a Special Assessment. This is legitimately included with property taxes.
Higher Property Taxes?
Will the special assessment increase your property taxes? While property taxes are based on the taxable value and not SEV, the increase in SEV is still important. If you are considering a sale, an astute buyer may look at SEV when looking to purchase if she/he understands that upon sale, the taxable value rises to the SEV.
Therefore selling price might be relevant in the future. Depending on how a sale is structured the seller in many cases pays the special assessment at closing. The City Assessor only looks at selling price that is inflated by the special assessment. The amount of the special assessment shows below the line as an amount due from seller, which of course reduces the proceeds. Every year the City Assessor looks at sales for the 2 year period ended in September of the prior year. In other words for 2017, the Assessor looked at sales for the 2 year period ended September 30, 2016.
For IC the SEV for 2017 did not increase as much as it did the prior 2 years. So the special assessment had a minimal affect on 2017. Only sales after April 11, 2016 may have been impacted. I still maintain it is impossible to determine the impact on market value due to new roads.
Of course how the Special Assessment is handled at the sale can be negotiated between buyer and seller. In cash sales, the buyer may be willing to accept the assessment and pay it off immediately or over the 15 year period. Presumably in this scenario, the buyer negotiated a lower selling price.
The buyer and seller could negotiate a price that involves financing where the buyer agrees to pay off the assessment at closing. This means a lower selling price and will require additional funds at closing.
When the seller pays off the Assessment at closing, commissions are higher.
Example, negotiated sale for $200,000 with seller paying the assessment. Seller in effect has agreed to net $180,000 before commissions and other fees assuming a $20,000 special assessment. City Assessor counts this as a $200,000 selling price. Realtor receives commission based on $200,000 selling price. Seller actually nets less because the net realized is $180,000 but commission is based on $200,000.
I asked the City to provide me the studies that supported the increase in SEV in 2017 for IC. Such studies were provided last year. They refused to provide this year because of "ongoing litigation".
Principal Residence Exemption (PRE)
If you own your home and it is your principal residence, the Principal Residence Exemption (PRE) should be 100%. If you failed to properly fill out the paperwork when you purchased your home or a mistake was made, the PRE will show as 0%. You should review the information on the Farmington Hills website under Finance and Online Property Inquiry & Tax Payments as well as the summer and winter tax bills (grrrrr).
If the property you own is investment property or your principal residence is another location within or out of state, the PRE will properly show as 0%.
There can be circumstances where the status could change. This may require filing a revised form with the City assessor. For instance, you may have sold the property that was classified as your principal residence and moved into what was formerly your secondary residence.
If your PRE is 0% and it should be 100%, you are paying too much in property taxes. The additional millage for 0% is 18 mills. In the Farmington School District there is a school supplemental millage in the 9 mill range (split evenly between the summer and winter tax bills) so this reduces the 18 mills by 9 mills that you would be required to pay. Thus the difference is 9 mills or $.009 multiplied by the taxable value of your property. For property with a taxable value of $100,000.00 the difference is $900.00 per year. If you are in the Walled Lake school district the excess is even greater. There is no supplemental school millage so the difference is the full 18 mills or $1,800.00 per year.
If you believe the PRE is incorrect call the City Assessor. You can change the PRE prospectively and most probably obtain a refund for up to 3 years.
As issues develop I will include those issues here.