Headlee Rollback, Truth in Taxation, and Two Exemption Profiles
The City of Lakeridge levied 5.0000 mills for city operating expenses in 2024. For 2025, the city’s taxable value grew from $410 million to $443.6 million, an 8.2% increase. The inflation rate for the 2025 cap is 3.2%. The city council’s proposed budget assumes the full 5.0000 mills. The city’s Headlee maximum authorized rate for operating purposes is 5.0000 mills, but the rollback calculation yields a lower rate. The city also levies 18.0000 school operating mills, 7.5000 school debt mills, and 3.0000 county mills. A homestead has a 2025 taxable value of $185,000; a neighboring qualified agricultural parcel has a taxable value of $240,000. Both have no delinquencies or special assessments.
1. Calculate the Headlee rolled-back operating rate and the revenue at that rate. How much more would the city collect at 5.0000 mills?
Read the worked answer
Use the prior year’s operating revenue as the base and allow only the inflation factor:
- 2024 revenue: $410,000,000 × 0.005 = $2,050,000
- Maximum 2025 revenue with inflation: $2,050,000 × 1.032 = $2,115,600
- 2025 taxable value: $443,600,000
- Rolled-back rate: $2,115,600 ÷ $443,600,000 = 0.00476916 = 4.76916 mills
At 5.0000 mills, the city would collect $443,600,000 × 0.005 = $2,218,000. The excess over the Headlee-limited revenue is $2,218,000 − $2,115,600 = $102,400. The 4.76916-mill rate is the maximum the city may levy without a voter-approved increase; the proposed 5.0000 mills exceeds that limit.
2. What process must the city follow to levy 5.0000 mills? Distinguish the Headlee rollback from Truth in Taxation.
Read the worked answer
The 4.76916 mills is the Headlee rollback rate: the rate that produces only the inflation-adjusted revenue from the prior year. To levy the full 5.0000 mills, the city needs voter approval for the increase above the Headlee maximum. A Truth in Taxation hearing is a separate procedural requirement that applies when a local unit proposes to levy more than the revenue-neutral base rate; it requires notice, a public hearing, and a resolution. But a Truth in Taxation hearing does not by itself override the Headlee limit. The council cannot simply hold the hearing and adopt 5.0000 mills if that rate exceeds the Headlee maximum. The defensible sequence is to levy the rolled-back rate unless and until voters approve the additional millage.
3. Calculate the 2025 tax on the homestead and on the qualified agricultural parcel using the rolled-back operating rate. What would the qualified agricultural parcel pay without its exemption?
Read the worked answer
Both the homestead and the qualified agricultural parcel are exempt from the 18.0000 school operating mills, but both pay school debt, county, and city operating millage. With the rolled-back city rate, the applicable mills are:
4.76916 city operating + 7.5000 school debt + 3.0000 county = 15.26916 mills
Homestead:
- $185,000 × 0.01526916 = $2,824.79
- If the city levied 5.0000 mills instead, the applicable rate would be 15.5000 mills and the tax would be $2,867.50, or $42.71 more.
Qualified agricultural parcel:
- $240,000 × 0.01526916 = $3,664.60
- Without the qualified agricultural exemption, it would also pay the 18.0000 school operating mills: $240,000 × 0.03326916 = $7,984.60.
The qualified agricultural exemption is worth $4,320.00 on this parcel; the homestead PRE is worth $3,330.00 at 18 mills on $185,000. The city operating rollback affects both parcels because it is part of the 15.26916 mills.