Which limitation applies to tax revenues collected by local governmental units?

The limitation that applies to tax revenues collected by local governmental units is that the assessed valuation must not exceed inflation rates. This is rooted in Michigan's property tax law, specifically the Headlee Amendment. This constitutional provision limits the amount of property tax revenue that local units can collect, capping any increase in assessed valuation to the rate of inflation or 5%, whichever is lower. This mechanism is designed to protect property owners from significant increases in their tax liabilities while ensuring local governments have a predictable funding source that keeps pace with economic conditions.

Understanding this limitation is critical as it impacts how local governments budget and manage their finances in relation to the broader economic environment. It ensures that property tax increases remain manageable and tied to inflationary trends, which reflects the financial realities faced by residents.