What: Proposal A, which was approved on a statewide ballot in 1994, set certain property tax changes into the Michigan Constitution. Proposal A limited the yearly property tax increase to be equal to the lesser of the general price level (Inflation Rate Multiplier) or 5%.

How: The equation for the Inflation Rate Multiplier is mandated in MCL 211.34d. Each year Treasury's Tax Analysis Division is required calculate the rate, using the Bureau of Labor Statistics data. The Inflation Rate Multiplier is equal to the ratio of:

1. the average of the 12 monthly U.S. consumer price indexes for all urban consumers for the state fiscal year directly prior to the property tax year divided by
2. the average of the 12 monthly U.S. consumer price indexes for all urban consumers for the state fiscal year prior to the fiscal year directly prior to the property tax year.

This Year: For property tax year 2009, the inflation rate multiplier is equal to the ratio of fiscal year 2008 average consumer price index divided by the fiscal year 2007 average consumer price index. Again, as a result of Proposal A (and therefore under the State Constitution), a property's taxable value cannot increase by more than the increase in the U.S. consumer price index or 5 percent, whichever is less. In addition, a property's taxable value cannot exceed its state equalized value.

The U.S. CPI increase for 2009 property tax purposes is 4.4 percent.

The State Tax Commission (STC) has issued an STC bulletin providing local governments with the inflation rate multiplier to be used to determine the capped value for all property, homestead and non-homestead alike.

In the Past: For the first decade or more after the passage of Proposal A, most property owners experienced significant and sometimes double-digit "property value" increases while their actual property taxes would increase by between 1 percent and 3 percent (rate of inflation as calculated). In fact, a Department of Treasury analysis shows that since Proposal A went into effect in 1995, home values in Michigan have increased 98.4 percent, while property taxes have only increased 42.9 percent.

Unfortunately, due to various economic factors, the opposite has occurred over the last several years and will occur again in 2009. Property values may be declining (or remaining flat) while property taxes for many taxpayers will increase by 4.4 % (as long as a property's taxable value does not exceed its state equalized value) as mandated by Proposal A.

Property Inflation Rate Multiplier by Year

Other Resources:

• Property Tax Explanation Webcast
• State Tax Commission Bulletin 2008-6
• The General Property Tax Act (206 of 1893)
• Michigan Property Tax Web Page
• Bureau of Labor Statistics, Consumer Price Index