Prior to 1995, real property in Michigan was taxed at its "assessed value"; that is, at 50% of its true cash value, which Michigan courts deem synonymous with fair market value. This meant that taxes on real property went up or down in tandem with increases or decreases in the property's true cash value.
However, in 1994, Michigan voters approved Proposal A, which amended Michigan's Constitution to require that, starting in 1995, Michigan real properties were to be (i) assigned a taxable value in addition to their assessed value, and (ii) taxed based on their taxable value--an amount that cannot exceed the property's assessed value and that can only increase by the lesser of 5% or the rate of inflation. This is known as the Proposal A Cap. Thus, in a rising real estate market, assessed values will increase in tandem with the market, but taxable values will increase only by the rate of inflation which may be less than the rate indicated by the market.