As the tragedy of Flint reminded us all, up to date infrastructure is an essential ingredient to livable communities. Transportation, water, energy and digital communications systems need to be world class for Michigan communities to compete for talent. Our new report, “Creating places across Michigan where people want to live and work” goes into detail about how we can stop undermining and start supporting local communities and their infrastructure needs.
For more than a decade, Michigan has been undermining local government budgets and the ability of its communities to be successful. The primary reason is an inaccurate belief that low- tax places have the best economies. Not surprisingly, while many cities around the country—even those that have also experienced decades of population decline—are now growing, Michigan’s major cities are not.
Michigan needs to reverse course and invest in the growth and development of its regions and local communities. When in June 2018, Highland Park exited emergency management, it was the first time Michigan had no cities or school districts under emergency management since 2000. Though municipal finance has been a challenge in cities around the country, it seems especially widespread and acute in Michigan.
Michigan’s municipal funding crisis occurs at the crux of three state policies, that, taken together, have been devastating. One set of policies constrains the rate at which property taxes can grow; another prohibits municipalities from levying taxes not enabled by state law; and the third has cut revenue sharing to local communities precipitously over the past nearly 20 years. We will add to this that Michigan’s emergency management approach to fiscal distress is too little, too late given the convergence of the aforementioned policies, and thereby increases the likelihood that local governments end up in trouble.
Michigan needs to transform its system for funding local government. The current system structurally leaves regions and local communities with inadequate resources to fund the infrastructure, basic services and amenities require to compete for talent.
As we documented in our State Policies Matter report, Minnesota has the Great Lakes’ best economic outcomes and the highest taxes in the Great Lakes. Minnesota ranks 46th in the latest Tax Foundation state business tax index; Michigan ranks 12th. High taxes have not prevented Minnesota from having the economic outcomes all Michiganders want: third in the proportion of adults who work, 14th in per capita income and eighth in employment earnings per capita. Michigan on those measures ranks 40th, 32nd and 36th. One can make a strong case that the increased public investments those higher taxes enabled is a major reason for Minnesota being the most prosperous Great Lakes state.
Substantial increase in returning state revenue from the state and local governments in a way that encourages regional cooperation.
The big idea here is something that might be thought of as super revenue sharing. Returning a substantial proportion to Michigan regions of the state taxes raised from each region to pay for basic services, infrastructure and amenities. Not just revenue sharing, but also transportation, water, parks and outdoor recreation, housing and any other state funding streams that involve the provision of local/regional infrastructure, basic services and amenities. The funds should be returned with little or no state mandates on how the funds can be used. The goal is to allow regions to develop and fund their own strategies for creating places where people want to live and work.
Removing restrictions on local government taxing authority, including a local/regional sales tax option.
Michigan clearly needs to rethink its restrictions on property tax increases. The inability of local communities to share in the increase of property values is a major impediment to creating places where people want to live and work.
Click here to read the full report.
Photo credit: Kenneth Sponsler/Shutterstock.com.
