How is the maximum authorized rate affected when property assessments rise faster than inflation?

When property assessments rise faster than inflation, the fraction used for millage rollback becomes smaller. This is due to the nature of the millage rollback mechanism designed to protect taxpayers from significant tax increases resulting from quick rises in property values.

In Michigan, when property values increase significantly, the millage rate is subject to a rollback calculation that ensures the effective tax rate does not exceed the prior year's rate adjusted for inflation. If property assessments rise at a pace that outstrips inflation, the rate at which the millage can be adjusted down (the rollback) is reduced, leading to a smaller fraction for the calculated rollback.

In essence, this means that more revenue can potentially be collected by local units of government without exceeding the maximum authorized rate because the new assessments have pushed the allowable limits of property taxes against inflation's constraints. Thus, taxpayers may face higher tax rates than what might be expected under a normal inflationary increase scenario. This concept is central to understanding how local governments can manage funding while balancing taxpayer interests in the face of fluctuating property values.