Guest commentary: Owosso’s budget woes are warning to state policy-makers

By Tom Cook

The city of Owosso has a budget problem -- and has had one for the last five years. Good management, tough policy decisions and sacrifices by residents and employees of the Shiawassee County community have carried the city to this point. But without some further difficult choices and structural reforms, the situation will not improve next year or the year after, even if the economy recovers.

In 2007, Owosso was enjoying several years of modest growth; rising property values translated into increasing revenues for the city. In 2008, a large new grant was secured to help make improvements in downtown. Then the stock market collapsed on Sept. 20, 2008.

The ensuing economic downturn has persisted to the present day. While the national economy is recovering, and employment and incomes are up, property values -- the primary driver of city revenues -- have continued to fall. In addition, state revenue sharing has suffered significant cuts and government grants have dried up.

Owosso responded in three ways:

--Aggressive cuts in city spending, primarily by reducing the number of employees and the benefits of remaining workers.

--A modest 1 mill increase in taxes to pay for city services.

--Renewed efforts at economic development and neighborhood improvement in an attempt to increase, or at least maintain, property values. The graphic at right paints the picture.

The most difficult number is the first one. Owosso’s “equalized value” has declined 30 percent in the last five years. Not surprisingly, tax revenues dropped by $200,000 in the same five years, and are projected to drop another $100,000 this budget cycle. The drop would have been even greater but for the fact that the City Council, in 2010, approved a tax hike from 13.7 mills (tax dollars per $1,000 value) to 14.7 mills (the decimal changes in the table reflect small changes up, and down, due to bond and other obligations).

Years of budget pruning

Budget cutting has been the preoccupation in City Hall. Employee ranks were cut from more than 100 to around 80 now. Workers have seen their benefits reduced and they have stepped up to higher contributions to their health care. Overall, close to $900,000 in spending was cut from the budget.

Making these cuts without drastic reductions in services is to the great credit of talented administration and hard-working employees. Owosso has a history of careful spenders, who kept the lid on employment costs, did not indulge in big projects and always limited services. Fortunately, they also left the city with a healthy reserve and little debt.

MORE COVERAGE: New rankings find fiscal troubles for city halls across Michigan

While the decline in property values has hit the City's budget hard, it has provided some relief to taxpayers in Owosso. The average tax bill paid by a homeowner has declined from $506 in 2007 to $473 last year, and this occurred despite the 1 mill increase in in 2010.

So, now what?

Still, the city faces both an immediate budget crisis and a long-term challenge in ensuring sufficient revenues. For the coming budget year (which begins July 1) the city has only a few options:

--Reduce labor costs through cuts in services. To reduce the cost of government further it will be necessary to have fewer public safety employees and/or less maintenance of roads and parks.

--Delay further equipment purchases. The city has postponed for five years the purchase of new trucks, a streetsweeper and a new ambulance.  At some point the cost of maintaining old equipment becomes prohibitive.

--Increase fees and the property tax rate. Neither of these revenue-generating options is desirable.

--Tap the reserves. This move could hurt, though, the city’s ability to borrow money easily and cheaply.

The council has been seeking alternatives, professional advice and public input. Whatever happens with this year's budget, the challenges will persist. Even if the real estate market recovers in the coming year and property values rebound, property tax revenues will not rise quickly because of the provisions of Prop A that limit the rise in taxable values. Even if property values rise 10 percent in 203-14, or the next year, the city's revenues are likely to rise only 1 percent or 2 percent.

There may soon come a time when Owosso has to decide on more radical measures, such as:

--Significantly scale back or outsource public services, or move to a fee-for-service system.

--Ask nonprofit entities that are exempt from property taxes, like health-care providers and private educational institutions, to make payments in lieu of taxes.

--Approve even more new taxes.

--Get relief from the state, either through revenue-sharing or Prop A changes.

Owosso’s problems are far from unique. Plenty of other communities are in budget crunches. So, what advice do you have for your elected representatives?

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Comments

Joe Zurawski
Tue, 06/04/2013 - 8:48am
I agree completely that Prop. A will have a strong impact going forward. It's impact is being compounded by the "Headlee Amendment". The problem is that Prop. A, as well as "Headlee", was approved by the voters as an amendment to the Michigan Constitution. ANY change must go through that same process. I seriously doubt that effort would be successful. Don't look to the State for any $$$$ either. They are fighting through the same problems.
John Czarnecki
Tue, 06/04/2013 - 8:54am
Life is a matter of priorities. It appears that the citizens of Owosso do not value government services. The citizens of Owosso property taxes went down and the citizens do not appear to want to raise then to the 2008 levels.
Rich
Tue, 06/04/2013 - 9:32am
I'm not sure it is the citizens of Owosso that do not value government, but rather, the elected officials either have a vested interest in keeping so many services or do not possess the leadership qualities to react fast enough to changing situations. Does every community need that extra park that is sold to us with "it's only $xx per day for the average house", or do they really need that extra department that only a minority of citizens ever use? How many citizens attend or watch the local government meetings? How many can even tell you what's on the last agenda? No, in times like these, we need people in charge that are willing to make the hard decisions even if it means they are unpopular. And one should not blame Prop A or the Headlee amendment for all the problems. In the chart above, the SEV declined by 30%, but the tax revenue only declined by 11%. For those that have lived in their homes a long time, their taxes have increased every year during the recent downturn because of the disparity between the SEV and taxable value, and the amount of allowable increase. Prop A only smoothes out the increases and decreases, and should be a means to keep things somewhat stable and easier to manage.
R A B
Tue, 06/04/2013 - 9:59am
Personally, I think it is time for churches to begin paying property taxes. They use public resources and shouldn't be subsidized by getting a pass on property taxes any more than any other entity.
Jeff
Tue, 06/04/2013 - 11:10am
–Reduce labor costs through cuts in services. To reduce the cost of government further it will be necessary to have fewer public safety employees and/or less maintenance of roads and parks. *Is it a function of Government to pick up leaves & brush? Is it necessary to run out everytime there is a dusting of snow with an army of snowplows and salt trucks? What other services are being provided that are not a function of government? What services that are a function of govenrment have ballooned beyond what is necessary? –Delay further equipment purchases. The city has postponed for five years the purchase of new trucks, a streetsweeper and a new ambulance. At some point the cost of maintaining old equipment becomes prohibitive. * "At some point" is usually a lot farther out than you think. It is almost always more economical to maintain the vehicle you own than it is to purchase a new replacement. Is it a necessary government function to sweep streets? –Increase fees and the property tax rate. Neither of these revenue-generating options is desirable. –Tap the reserves. This move could hurt, though, the city’s ability to borrow money easily and cheaply. * These two are the only real choices to be made. This is what every family has to do when faced with a shortfall after cutting expenses to what is required. Either increase income, or tap reserves Borrowing only adds to costs that currently aren't sustanianable and therefore the impact of tapping reserves on the ability to borrow ishould be considerd a minimal consequence.
Tom Cook
Tue, 06/04/2013 - 2:02pm
I appreciate the several suggestions offered to solve Owosso's budget dilemmas, but the point of this article is to highlight the difficult choices facing local governments. Owosso, like other units of local government, has and will make the tough choices between raising taxes, cutting services, using reserves, or other painful options. The best thing for cities, and the State, to do is to invest in community improvements to spur growth and support economic development. However, it is difficult to provide the basic services and maintain the foundational infrastructure when we are struggling year after year just to balance the budget.
Charles Richards
Sun, 06/09/2013 - 4:31pm
Mr. Cook says, "The best thing for cities, and the State, to do is to invest in community improvements to spur growth and support economic development." So, why aren't all cities prosperous as a result of community improvements that have promoted growth and economic development? Seems simple enough doesn't it? Even though this is not a zero sum world, there is a limited amount of growth each year. Is it possible for every community to grow faster than average? No. And can the state make all communities grow by providing them extra resources? Again, no. If all the people in a state raised their taxes and distributed the money to each community, would the state and the commujnities be better off? No, it's a zero sum game. No economic value has been created. Eighty five percent of the commuities in Michigan have fiscal scores of one or two, which is very good. Mr. Cook should have provided Owosso's score.
Mon, 06/10/2013 - 10:12am
I agree with you completely Tom. I am a native of Owosso and read your article with great interest. I am also the finance officer for another Michigan city. We also operate very conservatively and I think we have improved our efficiency due to the lack of State funding and fewer tax dollars in our General Fund over the past 5 years. There is one other fact which needs to be considered with cities financial woes. Older, built out cities without room for expansion are destined to fail due to Headlee and Proposal A because they cannot depend on growth to help increase property values like townships can, despite lowering their costs of doing business. Our community has many of the exact same problems as Owosso - we have cut our budget by about $500,000, we have delayed capital outlays to try to extend the life of our assets, we have reduced our cost for future pension and health care benefits and we have worked with other governments to lower our costs for many years. We are considering consolidation of services with other townships and cities. Our City Council has made the tough decisions to maintain adequate fund balances and maintain our credit rating. We need the help of our legislators to make the same tough decisions on how to fund our communities fairly and consistently, so that we can make our local governments function efficiently. We don't have the option of raising property taxes because of Headlee, but we have reduced the amount of tax dollars spent on infrastructure rather have to reduce services to our taxpayers. We have made infrastructure improvements for over 30 years now. Last year we replaced a water main from 1924. We have a long way to go, but our progress is being restricted by our ability to provide basic services to the City. We (and the legislators) need to look further ahead than our current budget issues and fix the funding problem - stop balancing their (the State) budget on the backs of local government! A closing thought: Don't put too much stock in the State's financial rating system - our school district went from a 1 rating (best) to a 7 in three years. Putting off action can put you in the death spiral very quickly.
Jeff
Wed, 06/05/2013 - 7:35am
The article starts out on point by indicating structural reform and tough choices are needed for the situation to improve. The article ends on point with a request for advice. Mr. Cook's response above "The best thing for cities, and the State..." is quite revealing. This preconceived notion of knowing what is best is what prevents officials fromm enacting correct structural changes and making proper tough choices. Every unit of government in Michigan is working / has worked in the same economy since the stock market adjustment. Some made the right choices from the start, others have seen the pardigm shift in government services and eventually responded albiet some more slowly than others. While others still, already know the "best thing" and are doomed to repeat the same mistakes. Thanks for asking, now do your constituents a favor and listen, or don't bother to ask.
Gary
Sat, 10/26/2013 - 9:03am
The city is trying to save money, right. So why has it not looked at doing what the city manager from some years ago brought to the table. Where the city would have a paid on call fire dept. And outsource the ambulance. The call time and inroute times do not realy support a in house dept. The amount of time it takes the Owosso Fire Dept. to respond, on call dept could do it. When they do respond thay take at least the whole dept. (5) people, that is what they have. With a on call dept you could at least double that responce. Plus you would not have all the over head. If the city does such a fine job, why does it still a level 5 on the ins. The same as Owosso Twp. When the dept goes out they void the contract they have with the city. To leave one ambulance at station for responce to medical calls. No they send everyone and then call Corunna for help.