Guest column: Change tax code to feed starving Michigan cities

By Dayne Walling/Flint mayor

In Michigan, cities were the greatest victims of the recent near failure of the economy and the housing market. Michigan is not seeing the same renaissance of returning to the city at a significant rate equal to the national trend.

The problem is that all of the cuts to government here have run downhill to city halls and the resources are simply not sufficient to sustain basic services in an environment with rising costs of everything from health care to fuel.

Faced with this challenge, unfortunately, the state is keeping city governments on a starvation diet of primarily shrinking property tax revenues and uncertain shared revenues. In fact, the state is contemplating accelerating the shrinking property tax values associated with soft real estate markets by phasing out much of the personal property (i.e., equipment) tax.

One approach being tried with urban budgets is to change management authority and cut spending requirements by reforming labor contracts and outdated practices. This has fallen short of offsetting the recent revenue reductions in Flint.

New contracts imposed by the state-appointed emergency manager will make public safety officers some of the lower-compensated in Michigan, despite the extraordinary workload of crime, arson and violence (e.g. 10 times more violent crimes per officer than Ann Arbor) in Flint. Even so, 10 percent of the already minimally staffed Police Department will be laid off and more than 30 percent of the firefighters will be out of a job with the new budget this summer -- unless new grant funds are identified soon.

This fuels a cycle of central city decline, in which prospective city dwellers in the regional housing market can chose to locate outside the city limits and thereby avoid paying the legacy costs embedded in city operations and the higher resident income tax, but still conveniently access core amenities such as universities and museums.

There are alternatives.

What all governments need are fair and stable revenue sources that allow for the expected provision of services. Just as the tax code needs to encourage business growth and expansion, it also needs to offer adequate returns for government services rendered.

Reforming the local income tax is a good place to start. By eliminating the disparity in the local income tax rates for residents and nonresidents of cities, this portion of the playing field would be leveled between cities and suburbs in regards to residential location. This change could generate $100 million for Flint over a seven- to 10-year period at Flint's current resident rate of 1 percent. If the allowable local income tax was equal across Michigan’s cities at Grand Rapid’s rate (1.3 percent for residents), then Flint would see up to $200 million more in revenues.

An additional solution is a broader (not higher) sales tax that is in sync with the current service economy. The expanded funds collected by the state would support increased shared revenues for local governments.

There also are innovative property tax systems such as land value taxation that separates the value of the land itself from the buildings and equipment on it. Set at the optimal rate, this discourages speculation and encourages private investment -- the twin objectives of city real estate market improvement. Pittsburgh, Pa., has a similar approach and is one of the models for Midwest urban redevelopment.

The point is that it is past time to adopt a balanced and healthy fiscal diet for cities. It is a false choice to set good local government and taxes against business growth and development. The table needs to be cleared and set again with equitable and sustainable policies if the goal is to truly grow prosperous cities again in Michigan.

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Tue, 05/08/2012 - 9:44am
Feed the Cities, yes, but first ........ eliminate all the corruption, nepotism, theft, no bid contracts, and all illegal and immoral doings within the governmental entities. And if an entity can not eliminate all that is bad within itself, then let it rot on the vine.
Tue, 05/08/2012 - 10:10am
"Re-Setting the table..." Could start with dissolving 1260 governmental units now known as Townships. We have 83 Counties in Michigan. Those should be the only entity between our Villages, Cities and State Governments.
Tue, 05/08/2012 - 2:57pm
There are many creative solutions to the shortage of funds found in cities and towns across the state. The state keeps track of how much liquor, beer and wine sold in each city. Raising the tax on beer by just a few cents would create quite a pot of money. The state is awash in beer.Every grocery store devotes a full aisle to the various brands of beer. One sees beer trucks all over the place. Raising the tax just a few cents per bottle would not impoverish any beer drinker, but it would generate needed funds. Professional sports tickets should be taxed. Often the venues involved in a sport are paid for with state funds, like the Silverdome. Sports enthusiasts drive on public roads to attend events.Again putting a tax on sports tickets will not impoverish someone who can afford to pay for those expensive tickets, overpriced beer and hot dogs. I bought a new garage opener and had it installed by Home Depot. The cost of the unit and installation was $300., but because it is an in-home install, there was no sales tax. I woulod gladly have paid my $18.00 tax on that install. Extending sales tax to in home installs would generate a lot of cash. Taxing hair cuts would not break anybody. The same would apply to beauty shops. So, there are numerous ways to generate revenue to help cities and towns maintain good services like police and fire protection. Just a little backbone is needed in the legislature.
Tue, 05/08/2012 - 4:38pm
Dayne, if only this Legislature gave a rip about any city in SE Michigan. I get the impression, however, that everyone elected west of Ann Arbor wishes Flint, Pontiac and Detroit would just slide slowly into Ohio and get out of the way.
Wed, 05/09/2012 - 2:32pm
Mayor Walling is to be commended for suggesting the use of a land value tax in Michigan cities. Many Pennsylvania cities, facing bankruptcy and ruin in the 1980s and early 1990s also adopted the land value tax and were able to maintain city services and get breathing time to determine their own future. I would like Mayor Walling to know, that the city of Altoona Pennsylvania became the first city in history the United States to not tax buildings at all. It's property tax revenues have remained stable and taxable building permits, vacant lots has started to trend downwards. The city of Flint is very similar to our Pennsylvania cities. Reliance on the land value property tax coupled with reduction of taxes on wages, commerce and sales have helped the land value tax cities in Pennsylvania retain a firmer foundation for the future. Cities and states that have prospered throughout the recession, such as Texas and New Hampshire relied to a very great degree on the property tax.