Assessment Report

The poor economic climate of Michigan has caused a downturn in property values in Royal Oak. Annual figures set by City Assessor James Geiermann and approved by the State show that Royal Oak’s total tax base, or taxable value grew to $2,455,393,430 for an increase of $20,688,630.

The percentage increase was much smaller than last year, 0.85 percent compared to 5.86 percent, reflecting a diminished yet still stronger market when compared to Oakland County as a whole.

Since the enactment of Proposal A tax reform plan in 1994, taxable value has been the base for figuring property taxes in Michigan. (See the adjoining box for a history of taxable value).

The 2008 tax rate is 11.4333 mills ($11.43 per $1,000 of taxable value). The rate includes 7.3947 mills for operation, .0213 for publicity, 2.7664 for refuse and recycling, .2912 for fire bonds and .9597 for library bonds.

The State Constitution requires that properties be assessed at 50% of their true cash value. In 1994, Proposal A provided for a limitation on increases relative to property taxes. The intention of this provision is to curb runaway inflation. The limitation is accomplished through a process that restricts increases to the previous year’s taxable value to 5% or the rate of inflation, whichever is less. Next year’s (2009) CPI is 4.4% compared to 2.3% for 2008.

When a property sells, the Taxable Value will be uncapped to its State Equalized Value in the next tax year and the capping process begins anew.

A question most frequently asked is, “If a property has an assessed value of $100,000 (meaning a true cash value of $200,000) and I purchase said property for $300,000, is my new assessed and taxable value going to be half the sale price?”

This example describes the practice of “following sales”, as described in the example, is both unconstitutional and illegal. In explanation, for the purpose of taxation, properties are appraised on a mass basis. Mass appraisal analysis combines a cost approach for every property that is modified by actual sales that occur over a specific period of time.

Buildings are appraised according to their attributes (story height, square footage, etc.) and grouped as neighborhoods. A neighborhood is a group of properties that enjoy and/or suffer from the same influences. Each neighborhood is reviewed annually and adjusted from sales that have occurred over a one-year time frame. Each neighborhood sale is reviewed to determine if it is an arms-length transaction that is representative of normal market activity. Each representative sale within the neighborhood is compared to the previous assessed value to see if the neighborhood warrants any adjustment. Assessed Value of sales are not automatically adjusted to 50% of the sale price.