Mayor ProTem Crawford called the meeting to order at 7:40 P.M.

ROLL CALL: Mayor McLallen (absent/excused), Mayor Pro Tem Crawford, Council Members Clark, Kramer (absent/excused), Mitzel (arrived 8:10 p.m.), Mutch, Schmid

ALSO PRESENT: City Manager Ed Kriewall, Finance Director Les Gibson, Parks & Recreation Director Dan Davis, Deputy City Clerk Nancy Reutter

AUDIENCE PARTICIPATION

Dan Davis, Parks & Recreation Director, stated there were questions raised following Council’s meeting from Monday and they would like to take the opportunity to review the independent audit related to the ice arena performed by Joe Heffernan from Plante & Moran. Mr. Davis reported they are preparing a full informational packet for Council’s March 17, 1997 meeting and it will include full feasibility studies, the Plante & Moran review letter before Council tonight, a reduced version of the renderings with the facade, cross sections, the interior, upper and lower levels, sizing and so forth. He added there will also be a twenty-page document defining the scope of the work.

Councilman Schmid asked what is the cost of the building per square foot. Mr. Davis replied it is approximately $90.00 per square foot.

Councilman Schmid asked what the cost of the Farmington Hills building is per square foot. Mr. Davis said they were attempting to compile a direct side by side comparison of the Farmington Hills facility. Further, they also plan to provide comparisons from revenue and expenses as they get into the operation.

Councilwoman Mutch asked who Farmington Hills used during their construction. Mr. Davis is not certain. However, he knows they did perform a feasibility study through the University of Michigan. He added during the same time, Mt. Clemens and Ann Arbor were constructing ice arenas and suggested that Farmington Hills compared their facility to them. He added Farmington Hills also traveled to Montreal to look at their quad facility.

Councilman Schmid asked if Novi contracted the same construction company as Farmington Hills. Mr. Davis replied Novi used the same general company, but Farmington Hills hired another company to construct it. Mr. Heffernan interjected that they hired Leonard Siegel as the architect and Rudolph Libbey Company is the construction manager.

Mr. Davis reported the operating staff at the Farmington Hills facility are all city employees.

Mayor ProTem Crawford asked who provided the financing for Farmington Hills. Mr. Davis replied they voted a GO Bond with the idea that the revenue was going to be substantial enough to pay off the bonds so they would not have to raise the taxes. Mr. Davishas heard mixed reports.

Councilwoman Mutch is concerned about all of the arenas in the area drawing from the same group of people. Mr. Davis believes Novi’s market will attract surplus skaters from Southfield, Plymouth, Farmington Hills and Livonia. They are also looking to the northwest which is the lakes’ area of Brighton and so forth as the additional market area.

Mr. Davis reported they had the feasibility study performed by Center Ice and they wanted to have another review done by an independent party. Consequently, they chose Plante & Moran because of the established work relationship that the City already has with them.

Joe Heffernan of Plante & Moran, reported their review focused on making sure the study was internally consistent. In addition, they felt it might be useful to make sure that the format fit. He advised that CPA’s must use guidelines and since it is a fairly comprehensive guideline, it made sense to make sure that Center Ice met those guidelines. Mr. Heffernan said the only thing in that regard would be to add language near the front informing the user of where the high risk areas are. He reported the high risk area for the ice arena would be the ability to rely upon continued demand for the facilities for the full length of the bond issue. Mr. Heffernan does not think they need a study to know that today or next year there is a fairly high demand for ice hockey, but they do not know that will be true in ten to fifteen years from now. Mr. Heffernan believes there is currently a comfort about the general demand for ice hockey. However, he does not believe anyone should feel confidence that it will still be there twenty years from now. Mr. Heffernan added the only way of financing the facility with no risk to the City would have been just using the City’s name and private financing. However, the City’s legal counsel advised that kind of bond is not saleable on the market and is not a practical solution. Further, the reason it is not saleable is because of the risk surrounding ice rinks. Mr. Heffernan suggested because the projects are currently favorable and can be looked at more comfortably in the short run than in the long run, that perhaps the best approach is to make sure that the rates are set at the market rates. He added they should make sure that the excess money is placed into a bond sinking fund so that the City will not have to dip into its General Fund if the need arises. Mr. Heffernan concluded by stating that their study does substantiate the current need for an ice rink.

Councilman Clark asked if Mr. Heffernan meant that if their office had performed the study, they would have supplied a disclosure statement indicating that there still is a potential for high risk. Mr. Heffernan replied a disclosure statement was added to the Center Ice study at Plante & Moran’s request.

Councilman Schmid recalled when this process began they had a different finance approach. He remembered they were going to use private money and sell bonds. Councilman Schmid asked what kinds of bonds are they using. Mr. Heffernan replied Councilman Schmid is probably referring to EDC Bonds where the City permits a company to use the City’s EDC name to issue revenue bonds. Ultimately, it is resources of that company that would pay for it.

It is Councilman Schmid’s understanding that interest rates would be high on these. Mr. Heffernan replied that is really the same issue. He explained that to sell them, the interest rates would have to be so high.

Mr. Kriewall recalled approximately three years ago, Denny Neiman believed the Building Authority Bonding would be the better way to go. Although it was not a strong majority, he recalled Council said they would just assume that it stay in the private sector and he believes they acted on that basis until it was clear that it was not going to work.

Councilman Schmid asked if they included the maintenance of the arena in the overall cost. Mr. Heffernan replied the survey included forecasted maintenance expenses at 9.09% compared with the industry average of 9.3%.

Councilwoman Mutch understands that Plante & Moran’s review was a review of Center Ice management’s work and not necessarily what they would have done if they conducted the study. She asked whether there is anything else missing or something else they might have looked at in terms of the process. Mr. Heffernan cannot think of anything of substance that they might have missed.

Councilwoman Mutch asked how much of the review included outside concerns. Mr. Heffernan replied he has done approximately four of these types of studies from the beginning and he focused more on the financial side and less of the marketing analysis. He added there is a seasonality cycle for ice arenas and less demand for ice time in the morning than in the evening.

Councilman Schmid believes the building had more amenities at one time and assumed when this was being done that they were reviewing cost at the same time. Councilman Schmid asked why does it seem now at the end that they discovered they cannot afford the building and have to downsize. Mr. Davis replied they began at 84,000 square feet and it has only been decreased by 6,000. He added that time was working against them in terms of inflationary factors and the trades. Consequently, they were unable to put a firm number to the 84,000 square foot building until they got into the time frame of the actual construction. They determined they could still construct a quality facility by downsizing the bleachers and removing parking spaces. He added they have not removed many revenue items from the equation and they are comfortable with the layout of the 78,000 square foot facility. Further, he advised they removed the restaurant feature because Farmington Hills was unable to market their restaurant as a profit center.

Mr. Davis displayed and described the most current architectural renderings for Council.

Councilman Schmid asked if they have compromised the compressor unit. Mr. Davis replied they have not and added that they are using state of the art equipment.

Councilman Schmid asked how do they know it is state of the art. Mr. Davis replied they made their decisions based upon the research performed by the Community Clubs, discussion with other architects and the Rudolph Libbey Company. Mr. Davis reminded Council that Rudolph Libbey built Farmington Hill’s facility and is currently constructing Troy.

Mayor ProTem Crawford added that three quarters of the Community Club’s members have first hand experience with other programs and knowledge of rates and programs for ice arenas.

Mayor ProTem Crawford asked if there is Council consensus to tour Farmington Hill’s facility. Mayor ProTem Crawford asked Mr. Davis to advise Council of arrangements to tour the facility.

Councilwoman Mutch asked if they would hold figure skating competitions at the facility. Mr. Davis replied Detroit Skate Club is the premiere skating facility for figure skating programs throughout the country and is only fifteen minutes away and explained they are not constructing Novi’s ice arena to compete with them. However, if Novi recognizes a growth in that area, they will have room to expand. Further, Mr. Davis stated they will have a full range of other programs.

Larry Czekaj said he would like to offer input from the Building Authority and clarify what their position is in terms of the whole transaction. Mr. Czekaj advised Council has a resolution from them and they are very supportive of the project. Having said that, when the issue first came before the Building Authority last Thursday, they had a matter of four days to digest the whole concept. Further, Mr. Czekaj stated they not only had a limited presentation from staff and the outside consultants, but they have never received the feasibility study. Mr. Czekaj advised that with only Plante & Moran’s report before them, they viewed this as an arithmetic presentation and they were not actually addressing the central issue. They then looked at it as a financing transaction as if they were the lending body for financing the $8.5M project. Although they did not have all the information available, they relied on the representations from the staff and consultants. Further, because the City is the secured guarantor on this loan, they felt comfortable not to stop the process and as the Building Authority, they would like to provide a financing vehicle to allow the project to move forward. Mr. Czekaj stated although they did not review the feasibility study, they saw the contract presented before Council. Mr. Czekaj explained as he understands it, their job is to become part of the Community Clubs because as they will be taking ownership of the property, they will be building the facility as the bonding authority and will have a tenant in the form of the City of Novi. Therefore, Mr. Czekaj believes it is their collective job to negotiate and enter into the various contracts and submit them to Council for review during the process.

Mr. Davis reported that the information for Council packets will also be forwarded to the Building Authority.

Mr. Heffernan advised that this meeting is meant to be an educational session to bring Council up to date on fiscal finances. Mr. Heffernan stated they are going to present an overview summary of the 1996 Revenues and Expenditures first and they will then present the educational part that he and Mr. Walsh believe are the three most important aspects of the City’s finances. Finally, they will compare Novi with the State’s averages to help Council understand how Novi is different.

Mr. Heffernan reported Governmental Operations consist of General Funds, Special Revenue Funds, Capital Project Funds and Service Funds. In other words, it consists of everything except Water and Sewer Operations because that stands on its own. He also advised that they have made it on a net basis. In other words, if they have Parks and Recreation expenditures with program fees to offset it, they netted it down to zero so that it will show no expense to the City.

In addition, Mr. Heffernan stated they have offset Building Expenditures (licenses and permits) and the expenses in Total Grants Received in order to give a true net cost per household. Mr. Heffernan displayed a graph which showed as households and expenditures go up, the City is spending more per household.

Mayor ProTem Crawford asked if it was an example of a $200,000 house. Mr. Heffernan replied it is the lowest expenditure for any given area divided by the number of households. He explained they have the gross expenditure and the amount they are subtracting which is related to program specific type revenues. Consequently, it gives the net cost to the taxpayer and it is then divided by the number of households.

Mr. Heffernan described the 1996 Governmental Operations per household graph under Review of 1996. He explained the top portion is the expenditure side and reported the Public Safety/Fire Operations cost per household is approximately $438.00 from a total of $1159.00. Mr. Heffernan reported this equates to approximately 38%. Further, Public Works is approximately 25% of the total expenditures and recreation and cultural (library and parks and recreation) is approximately 15%. Mr. Heffernan stated the bottom portion of the graph shows where the revenue originates. He explained taxes on residential property is $471.00 and equates to approximately 40% of the total revenues. Tax on commercial and industrial properties is $377.00 and equates to approximately 32%. Mr. Heffernan believes it is fair to say that $471.00 is the average tax. However, he reported $377.00 is not the average tax, but represents commercial and industrial taxes provided by number of households. It does not mean that a commercial industrial taxpayer on average is paying less than a residential homeowner.

Mr. Heffernan continued by stating that State Shared Revenues are $159.00, about 13% and Interest and Other is approximately $180.00, about 15%. He further explained the following page explains the numbers on the graph. He reported the first column is Gross Expenditures and would be expenditures provided in the financial statement. The second column is extra revenue received to offset the expenditures (grants, licenses and permits or other fees) divided by the number of households. Mr. Heffernan reported these numbers actually back up three large numbers. The first is the $1.6M being reduced from the Public Safety/Other which are the substantial number of building permits from the Building and Community Development Departments.

Councilman Mitzel noted they are calling the Building Department, Public Safety. Mr. Heffernan replied the State Treasury Department has their own classification system that they have to follow. Although most people do not agree with it, they cannot find another category that makes more sense.

Mr. Heffernan stated the second large number is for streets at a cost of $7.0M and it includes the gas and weight tax. He explained Novi residents and all gasoline purchasers in the State of Michigan fund most of the street expenditures. Finally, he believes there are some breaks in the $2.0 for Parks and Recreation, but those are primarily for programs.

Mr. Heffernan referred to the Revenues portion of the chart and stated there are approximately $8.0M in Residential Property Taxes, $6.5M in Commercial and Industrial, $2.7 in State Shared Revenues, $1.8 in Interest Earnings and $1.3 for Other.

Mr. Schmid asked how does that compare with a normal community in terms of the residential and commercial/industrial taxes because it seems to be backwards to him. Mr. Heffernan replied they will review that on the third chart because it has changed dramatically in Novi.

Councilwoman Mutch asked what is the average tax paid per household. Mr. Heffernan replied it averages $1,159.00 for City purposes.

Councilman Schmid asked how does that compare to the higher ended homes. Mr. Heffernan replied they would pay higher taxes.

Councilman Schmid asked at what stage of SEV does a house begin to pay for itself. Mr. Heffernan replied they would have to back out cost for commercial and industrial support first. Mr. Kriewall interjected, he believes the Planning Department has that amount.

Mr. Heffernan understands the question to be when a house then starts to pay enough in taxes, the amount is equal to the true cost of the services per house. He guessed it would be approximately $250,000.

Mr. Heffernan described the bar chart depicting the Trend in Net Expenditures per Household and noted that 1992 compared to 1996 has not changed much. Mr. Heffernan explained overall this says that although the Public Safety Expense is the highest expense, it is very stable. Further, Public Works fluctuated the most because of the amount spent on streets during one year versus another based upon the bond issue. He also explained that Recreation and Cultural is the lowest, but has steadily increased because of the parks and recreation, and library expenditures. He noted the two biggest changes are Public Works, and Recreation and Cultural.

Mr. Heffernan described each item on the chart following the graph.

Councilman Mitzel asked if they pulled out the bond issues and treated them as a separate fund for the streets. Mr. Heffernan replied they did, but there is also the municipal street fund. He explained they are spending their own money which comes from the municipal street fund. He further noted they are not road improvement bonds and added they are spending bond money that has an external source of financing. He explained they will include the debt, but not the construction itself and that is not what is causing the fluctuation.

Mr. Heffernan noted they have cut back General Administration since 1992.

Councilman Schmid asked if they have any analytical information about why Parks and Recreation rose dramatically. Mr. Heffernan replied if they took the total expenditures for Parks and Recreation and subtracted their user fees, that would give the net cost to the taxpayer. He added the expenditures have been growing dramatically, but so have the user fees because of the growth of the programs.

Councilman Mitzel reminded Council that they voted in a bond issue in 1993.

Councilwoman Mutch would like the numbers that accurately represent the amount being spent by the City compared with the amount paid by the taxpayer. Mr. Heffernan replied the taxpayer is paying approximately 43% of the total City expenditures.

Councilman Mitzel stated they are comparing contribution only from residential with the expenditures for the entire City including commercial and industrial. They are not comparing expenditures on residential compared to revenue from residential.

Mr. Heffernan explained the third graph depicts the five-year Trend in Taxes per Household and reported total taxes are going up in residential. However, he noted commercial and industrial taxes are decreasing. Although total taxes are going up, the allocation between residential, and commercial and industrial is changing. He explained they are constructing more houses than commercial and industrial.

Mr. Heffernan stated they have just reviewed how the City receives and expenses money. Further, because $17M comes from property taxes, they felt it was appropriate to discuss them and explain how they operate.

Councilman Schmid questioned the small increase in property taxes from 1992 to 1996. Mr. Kriewall stated there has not been a significant industrial or office building constructed.

Mayor ProTem Crawford asked if the 1996 figure is from December 31, 1995. Mr. Heffernan replied it reflects the July 1, 1995 tax bill.

Councilman Schmid asked what would the average tax be for a large restaurant. Mr. Kriewall replied there are two cash values and the average restaurant is approximately $200.00 on a $1M SEV.

Mayor ProTem Crawford said Grady’s or TGIF would then provide approximately $10,000 per year per restaurant.

Mr. Kriewall added that the Hotel Baronette cost more than $14M and resold after bankruptcy for $3.8M. He explained they cannot tax it for more than $3.8M.

Mr. Heffernan stated that managing commercial and industrial is more difficult than residential. He explained although the number of residents may go up or down, the residential taxes tend to be stable.

Councilman Schmid stated one could argue that the bigger houses they have in a community, the better off they are in terms of tax revenue. Mr. Heffernan agreed and added it would be preferable to having two smaller houses that would have more demand in services.

Mr. Heffernan moved on to the Property Tax section and explained property taxes are complicated. He advised the taxable value multiplied by the millage rate equals the property tax bill. However, there are many other factors in terms of the property tax process and they are listed them under the property tax equation. He then described the assessment process and stated one component is limiting the growth in the individual property by 5% or the current inflation rate. He added it can go up if they sell the home or if an addition is added. Further, the Attorney General states that the taxable value should go up at least 2.8%, even if it is below. Mr. Heffernan explained the millage rate can go down, but the taxable value of each property should go up by at least 2.8%. Mr. Heffernan added if the market value increases, the taxable value will increase by the inflationary percentage or 5%. He explained that is what they originally intended with the Headlee Amendment, but is not the way they wrote it. The Headlee Amendment also said taxes cannot increase by more than inflation. However, it did not operate on a parcel by parcel basis. As a result, some houses would actually go down while others would increase more than inflation.

Councilwoman Mutch said that would mean they could not have two identical houses with different tax bills. Mr. Heffernan stated they are not seeing much of a furor about that yet because it has only been three years. Mr. Heffernan explained what will happen is over a period of several years, there will be a larger difference and as houses begin to sell, there will be some unhappy residents. He compared the Headlee with California’s Proposition 13 which was more strict. He advised there was a lawsuit in California that went to the Supreme Court. The Supreme Court agreed it was constitutional although it was not equitable taxation. However, they determined that it met a valid social purpose and that was more important.

Councilwoman Mutch asked if it could have a stabilizing effect. Mr. Heffernan believes it will dampen the effect of moving from one subdivision to another. However, some realtors believe it may help home sells because people feel a certain amount of panic.

In further explaining the equation, Mr. Heffernan stated the millage rate is the second part of the component and there are several things that affect it. He added that understanding that Novi is not a typical city is also important. He explained that most cities have either a 15 mill or 20 mill Charter of Limitation and Novi has a low Charter millage rate. Mr. Heffernan believes with the information he has, that there was concern that mileages in townships have always had relatively low tax rates and cities have high tax rates. He added they did not want to raise their taxes, but wanted to protect their borders. Consequently, they prepared a City charter that gives low tax rates. However, it causes the City to go to a vote for additional millage that they may require and arguably gives voters more of a voice. Mr. Heffernan added that townships do not have mills given to them by a Charter and noted that they have a 15 or 18 mill limit. Mr. Heffernan stated the Constitution created a County Allocation Board in each county and allots 15 mills to allocate between the county, the school districts and any townships. When an area of the township becomes a city, they would vote on a charter and assign its own millage rate under its authority and they were outside the 15 mill allocation.

Mr. Heffernan advised there is another provision on special elections that will provide a 50 mill limitation. He explained there are two different millage limitations; the 15 mill limitation for schools, the county and townships and the 50 mill limitation. The 50 mill states that even with the various special elections; the county, the school and the tax bill cannot exceed more than 50 mills. However, Mr. Heffernan reported Novi is not close to that 50 mill limitation.

Councilwoman Mutch asked if there are other communities where the school districts and county together are asking for so much that cities are strapped because they did not ask first. Mr. Heffernan replied there are, although it does not happen very often. He added Novi does not have to worry about this type of thing.

Mr. Heffernan said they rolled back the City’s Charter maximum millage to 5.3 mills because the 1978 Headlee Amendment operated on a city wide basis. It said if the total SEV increased more than inflation, then the millage rate must decrease. However, they amended that to work both ways. He explained if the total SEV goes up by less than inflation, they cannot roll it off. The 5.3 mills can only go up to its original millage rate if the City were to go back before the people to authorize a millage. Mr. Heffernan explained some people believe they will no longer have a heavy roll back in the millage rate and he does not believe that is true. He agrees they will not have that situation for several years. However, once they begin to get into a situation that several homes with a large difference between the two cash values and the taxable value sell, the total taxable value will then go up by the rate of inflation. Mr. Heffernan does not believe any community will experience this for at least four or five years.

Mr. Heffernan moved on to State Shared Revenues. He stated this has been in the news lately because of the changes with the new proposed budget. Mr. Heffernan explained the first page depicts the way things used to work until September 30, 1996. Until September 30, according to the State Constitution, 10% of the sales tax has to be shared with local government. In addition, the State Legislature took a portion of the Income Tax and Single Business tax and shared it with local government. They then distributed it based upon a formula that is per capita and multiplied by the community’s Relative Tax Effort (RTE). The Relative Tax Effort is the City’s millage rate divided by the State wide average. Mr. Heffernan added Novi is at approximately 80%. He explained this is not fair to communities that are trying to be thrifty and it also penalizes those communities that have relatively high SEV per capita. As a general rule, it is helping those communities that have high tax rates with low property value per capita. Mr. Heffernan explained that was intentional to help those cities that they felt needed more assistance per person.

The first thing they did beginning October 1, 1996 was eliminate the fact that income tax and business taxes are being distributed and use the sales tax as base for all of the State Shared Distributions. The reason they did that was that it helps the community because sales tax is a more stable revenue. Secondly, over the long run it is going to increase close to inflation as opposed to income and business taxes which increase much more than inflation. Further, they could not change anything relative to the constitutional 10% sales tax. Consequently, there is no constitutional sales tax and statutory sales tax which is whatever portion they choose to give the City during that year’s budget and equates to approximately 4-5%. They decided that they will not distribute any growth under the statutory portion on a RTE basis, but they will distribute on a per capita basis. In year three of the plan, any increase from year two will not get distributed and will be placed into an escrow account. As a result, some communities have shown more or less than twelve months of revenue because of the change.

Mr. Heffernan said any growth under the Relative Tax Effort adjustment in year two will be paid out per capita and not RTE. What the Governor just proposed sounds like a shady deal because sales tax is projected to increase by 4.75% in 1998 and the Governor does not want to distribute the 4.75% increase to local government. He would like to increase them by 0.5%. The difference would equate to $30M which the Governor is proposing to move into the road funds. Further, local government would ultimately get a portion of the $30M, but it would be as a gasoline tax. In order to do the current proposal, the constitutional column will go up 4.75% and they cannot change it. In order for the whole pie to only go up 0.5%, they have to decrease the statutory portion. There will actually be in the most recent proposal, an actual decrease proposed as there will be a decrease in the statutory portion. Mr. Heffernan believes they can expect the Governor to be playing with the percentage that is going to be distributed so that they only get something close to or less than inflation and 2.5% is what the Governor is proposing to distribute next year.

Mr. Heffernan reported in terms of property taxes, Proposal A seems to be keeping communities a little bit below inflation. Further, because each individual property is limited to inflation, they will always have some properties that go by less than inflation. Mr. Heffernan reported this is what often occurs in industrial. Mr. Heffernan advised on the average sales tax, State Shared Revenues and property taxes make up about three quarters of most cities’ budgets. Mr. Heffernan believes there is a one year lag between when the houses come in and when the dollars come in with new property taxes. However, there is a two to three-year lag between when the new people move in and the realization that the service level has to be increased. This means as long as a city is growing, they are unrealistically in a comfortable position. Once a city stops growing, the revenues will stop growing from a year to a year and a half before the expenditures stop growing. Mr. Heffernan does not believe Novi is feeling the pain other communities are feeling in terms of revenue.

Mayor ProTem Crawford asked how Novi can prepare for this. Mr. Heffernan replied that the City currently has a comfortable level of fund balance. Mayor ProTem Crawford stated they should then keep an active fund balance.

Councilman Schmid stated it seems as if they are punished for not raising the millage. Mr. Heffernan believes that is true and the same is true for having a low millage rate because in fact, the property value per capita is relatively high.

Mr. Heffernan discussed the impact when they took away the Federal Revenue Sharing Program from communities. Mr. Heffernan feels the same way about the Relative Tax Effort in that they should not take it away in one fell swoop. He believes it should be a slow process in an effort to rebalance the distribution.

Mr. Heffernan reported that the Fund Balance is an important number that gets projected in the budget every year. Mr. Heffernan stated it is a number based on what Governmental Accounting Standards wish to measure in terms of assets and liabilities. He explained they choose to measure those assets that are spendable and they choose to measure them with the liabilities that will be paid for out of existing resources. A better definition would be the amount available to use for the budget in the next year. However, Mr. Heffernan further explained they do not count in the Fund Balance, but they do count receivable, the amount owed to vendors and payroll or accounts payable. He added they do not count assets that are not spendable (i.e., building) and they do not count the liabilities that are not going to get paid out with available resources (i.e., employee vacation days, retiree health care benefits). In addition, he stated long term liabilities would not be counted. He explained the Fund Balance is not cash and receivables that would be coming in currently at the end of the year and they subtract only those liabilities paid from the current resources. He believes the best way to define a Fund Balance would be to say that it is what they have available in the budget for the next year.

Mr. Heffernan advised there are many measurements used to determine what the Balance Fund should be. Mr. Heffernan advised that Standard & Poors and Moody’s tend to use 5% and implement a credit watch. Further, many communities use 10% and that may be a good target for Novi. Mr. Heffernan stated the Balance Fund provides money that does not have to be borrowed and will provide financial stability in terms of revenue fluctuations.

Mr. Heffernan introduced Mike Walsh and stated he will describe Benchmarking in Novi compared with other communities. Mr. Heffernan added that the Michigan Municipal League assembled a data base surveying all the cities and villages of Michigan. Plante & Moran then compared the key statistics of Novi to the State wide averages to get a picture of how Novi differs from the average community.

Mr. Walsh reported they have included the General Fund, Police and Fire Fund, Library Fund, and the Parks and Recreation Fund in their comparison of revenue composition. Mr. Walsh advised Novi’s revenue and sources are more reliant upon property taxes (59%) compared with the State’s average (55%); Intergovernmental for Novi is 18% compared with the State’s average of 23%. Mr. Kriewall interjected, this is where they penalize Novi for their low Relative Tax Effort. Mr. Walsh reported the last revenue of Other is for licenses and permits; Novi is at 23% and the State’s average is 22%. Mr. Heffernan interjected, Novi is slightly more reliant upon property taxes than the State’s average.

Mr. Walsh stated the second graph is a Millage Rate Trend and from 1991 through 1995, Novi has maintained their millage at approximately 10 mills. Mr. Walsh reported the State’s average is stable at approximately 15½% and that the State’s recently updated average for 1995 is approximately 15 mills. Mr. Heffernan noted when he said the average Relative Tax Effort of the State was 12½%, it included all of the townships. He explained the millage arguably is a better comparison than the 12½% and noted that the average city millage is often in the neighborhood of 15½%.

Councilman Schmid asked if the 10 mills includes everything. Mr. Heffernan replied it includes police, fire, parks, streets in addition to the general fund and debt.

Councilman Schmid said if he had a $200,000 house, he should be paying fewer taxes in Novi than in another community. Mr. Heffernan replied they could also argue that the same $200,000 in another community would sell for less than $200,000 and therefore, the SEV would be lower also. Mr. Heffernan explained that is what makes this comparison difficult.

Councilman Schmid asked if they knew what Farmington Hill’s tax rate is. Mr. Kriewall believes it is very close to Novi.

Councilman Schmid is trying to compare because they often hear other communities’ overall property taxes are more or less than Novi’s. He knows Novi’s millage is low, but added its SEV’s are high. Mr. Kriewall stated Farmington Hill’s SEV is almost double Novi’s.

Mr. Walsh stated the next chart depicts the Annual Growth Rate of SEV and Novi has been higher than the State’s average from 1993 through 1995 due to the additional households in the community. He explained they cap everyone at the inflation rate and Novi’s real property additions include new properties. Mr. Heffernan interjected, this would not be true for 1994 where they are almost at 12%. He explained It would not be fair to say that in 1994, the average resident grew by 12% because in fact, this includes all the new property owners.

Councilman Schmid asked what caused the increase in 1994. Mr. Heffernan replied 1994 was the year the assessing freeze went off. He noted 1993 was the year there was a freeze and it included 100% new property.

Mr. Walsh stated the next graph is State Shared Revenue Per Capita and noted Novi’s Stat Shared Revenue is less than half the Sate’s average. Mr. Walsh reported the State wide average for 1996 is $137.00 per capita compared with $85.00 for Novi. Mr. Heffernan interjected, this is taking the dollar per capita and weighting it State wide based on population. Mr. Heffernan believes Detroit has skewed this number.

Councilman Mitzel asked if the median would be a better comparison. Mr. Heffernan replied the median would be much more than the average. Councilman Mitzel asked if it would be a better comparison. Mr. Heffernan replied they will still be more median, but it is not as drastic.

Mr. Heffernan advised they are all aware of the special census and it is important to understand that it is an annual procreation. Further, he reminded Council that during the 1980's the Governor eliminated the special census, so it is not really an assured thing.

Mr. Kriewall added that the Governor only put in 10% of what that number should be for next years budget.

Councilman Schmid asked if northern Michigan communities tend to get a higher State Revenue Share. Mr. Heffernan believes most of northern Michigan is made up of townships and they have very low Relative Tax Efforts. Consequently, he believes the answer to that would be no and added they are penalized much more than Novi.

Councilman Schmid believes it seems the north gets more road work. Mr. Heffernan replied southeast Michigan roads have been suffering for five years and they do not see the same deterioration away from southeast Michigan. Mr. Heffernan is convinced the road formula is based purely on population and miles of roads, and that it does not consider the type of traffic. He explained there are many heavy trucks with a high weight per axle traveling in southeast Michigan and that causes heavy damage to the roads.

Mr. Heffernan believes the central issue surrounding the gas tax is the 6¢ sales tax on gasoline. He explained most other states do not apply a sales tax, but they do apply a gas tax and the gas tax is for the roads. He reported Michigan’s gasoline sales tax goes into the school state aid fund. Consequently, if they look at the sales tax and gas tax on a gallon of gas, they conclude that taxes are high for gasoline in Michigan. Mr. Heffernan reported that Michigan is actually the third highest. He reminded Council if they ask how much is going into roads, they have to remove the 6¢ from the formula, because none of that is going into roads. He added in terms of the dollars per gallon for roads, Novi is about forty seventh in the country. He reiterated that the issue is that most other states do not do that with their sales tax because the total tax on their gasoline all goes to roads. He added the solution is not to convert the 6¢ sales tax to a gas tax, because the schools have become dependent on that money.

Mr. Walsh described the Expenditure Composition chart and reported Novi spends approximately 6% more for police compared with the State’s average of 46% for police and fire operations. Mr. Heffernan interjected, this says Novi is spending more of their resources per capita on police than on public works. Further, in terms of public works, Novi is offering types of public works services that are considered only the standard ones. Mr. Heffernan added that older cities still tend to have rubbish pick up and lawn/leaf pick ups, composting and other additional services that adds cost.

Mr. Walsh stated the final graph is Unrestricted Fund Balance as Percentage of Total Expenditures per year and Novi is above the State’s average. He added the State’s average for 1995 is approximately 13.6%.

Mr. Heffernan hopes they were able to bring Council up to date as they begin their budget process.

Mr. Heffernan made additional comments and reiterated his earlier remarks in regard to the ice arena in response to Councilman Schmid’s question about the ice arena’s feasibility. Mr. Heffernan reiterated that they have not done an extensive comparison.

Councilwoman Mutch stated there was a memo from Mr. Gibson to the Library Director regarding the Library Board’s consideration for some mid-decade census money and asked Mr. Gibson to comment. Mr. Gibson replied he thought it was that the Library would be entitled to it by virtue of the formula that is in place and added they can request anything they want to.

ADJOURNMENT

There being no further business before City Council, the meeting was adjourned at 10:10 P.M.

Transcribed by Barbara Holmes

Date Approved: March 17, 1997