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$5.5 billion reasons Michigan should stop short-changing its cities

According to a 2016 Great Lakes Economic Consulting report entitled Michigan’s Great Disinvestment, 11 Michigan cities, one township, one county, and five school districts are in official states of financial emergency. Though cities around the country have struggled with municipal finance, especially in the wake of the Great Recession, the problem has been particularly acute in Michigan. This is at least partly due to constitutional amendments that limit the rate at which property taxes can increase (to the rate of inflation), and the rate at which cities can increase millages. These factors combine so city revenues can drop precipitously—say, for instance, during a recession and foreclosure crisis—but cannot rebound as quickly when values start to pick up again. Michigan further ties the hands of  cities to independently raise revenue by levying additional taxes, as, for instance, Philadelphia just did with a soda tax.

But the real gut-punch here has been a set of shell games at the state wherein revenues that statutorily, but not constitutionally, are “supposed” to be allocated by the legislature to cities, villages, and townships (this is known as revenue sharing) are being diverted to cover state budgets. Since 1998, the state has largely failed to fully fund its revenue sharing commitment to local municipalities, causing larger and larger budget challenges for the cities trying to fund police and fire departments, trash pickup, and streetlights. Michigan’s Great Disinvestment estimates that between 1998 and 2016, the gap between the actual funding that Michigan’s local governments received and what would have been the fully funded levels of revenue sharing is $5.538 billion. Between 2002 and 2012, while 45 states have increased municipal revenue from state sources—by an average of 48.2 percent—Michigan led the nation in revenue sharing cuts. #Winning!

(Occasionally you will hear that corruption and waste are the big problems here. Whether intentionally or not, people who say that are offering a smoke screen that obfuscates the reality of state funding declines.)

A recent survey of local officials by CLOSUP (the Center for Local, State, and Urban Policy at University of Michigan’s Gerald R. Ford School for Public Policy) found that 64 percent of Michigan’s local officials say that, “the state’s system of funding local government is broken and needs significant reform.” Further, only 40 percent expect that the current funding system will allow them to continue to provide the jurisdiction’s current level of services. In other words, 60 percent of cities, villages, townships and counties expect to have issues maintaining services in the near future (if they don’t already). And the issue isn’t limited to large cities, a particular region of the state, or to the political party of the respondents. This survey saw across-the-board recognition that we are failing to invest in our local communities in the ways that they need.

Why does this matter? Beyond the obvious (I, for one, appreciate having my trash picked up, roads plowed, and streetlights lit), these budget shortfalls make it impossible for our cities to become the places that attract and retain people who have choices about where they live. If this isn’t your first time on the Michigan Future blog (and even if it is), you probably know that we’re in the midst of a demographic sea change, where college-educated talent—the workforce that employers are looking for—are moving to cities at unprecedented rates. They are seeking walkable downtowns, transit options, and an amenity-rich urban lifestyle. How can we expect our cities to meet these needs while they are struggling to—quite literally—keep the lights on?


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Sarah Szurpicki

Sarah is a partner at New Solutions Group, LLC, a consulting firm devoted to smart, collaborative, innovative approaches for organizations serving the public good.

This Post Has 4 Comments

  1. This is all well and good from your end of the stick. The abuse of taxpayers by government officials which led to the draconian laws (Headlee) was without precedent When I leved in Ann Arbor and was trying to rebuild and old house, the assessor came by every year and raised my assessment based on the building materials I had on site. AA taxes were outrageous to begin with. I complained at city hall as to why taxes were going up 10-12% each year when their base expenses were not increasing at that rate? I was told that the city will tax at the maximum possible rate and find something to spend it on.
    The arrogance of these government bureaucrats sickened me. I welcomed the imposition of limitations on what these government credentialed thieves were able to do.

    If restrictions were lifted, many older folks on fixed incomes would have to sell out because of the “tax man”. The bureaucrats would love this turnover as it would flood their coffers with money they could use for any number of useless projects and fantasies.

    1. One of the reasons property taxes went up in Michigan cities is that they are restricted on other taxes they can impose. Much more restricted than in many other states. What we need is a tax system that allows cities the ability to provide quality basic services and amenities that attract residents but also where high taxes don’t drive residents out who want and value the services and amenities. If you don’t want so much city services and amenities you can choose low cost, low service/amenity communities. The wrong answer is to limit property taxes and not provide cities wth other tax options. That leads to all cities unable to provide the services and amenities that some want and so they move to other states.

    2. Robert, thanks for sharing your experience. I don’t think we’re arguing that there can’t be any restrictions–simply that the current mix of extremely tight limitations combined with the state’s failure to fund revenue sharing is devastating. It’s clear from the CLOSUP report that almost every locality in the state is feeling squeezed right now–and I can tell you that in most of these communities, it’s not because they are spending money on luxuries. They’re barely funding basic services.

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