Local governments’ fiscal distress worsened by state’s actions

I am concerned about what seems to be a significant decline in the fiscal health of local governments in Michigan. That decline is due in part to the 1990s recession and plummeting property values – the effects of which are exacerbated by the consequences of Headlee limits on taxation and spending and Proposal A caps on taxable values.

However, the decline in local fiscal stability also was exacerbated by the dramatic reductions in state support for local governments in the last decade or so and major tax-policy changes.

For example, cumulative reductions in statutory revenue sharing (money from the state to local governments) exceeded $4.4 billion from 1998 through 2011. In addition, nearly all of the major tax-policy decisions the state has made in recent years have hurt local government funding.

When the state enacted the state sales tax, local governments were not allowed to levy one of their own, as local governments can in many other states. Local options were not allowed because the state concluded it could collect and distribute some of the revenue in a much more efficient and equitable manner.

Limits also exist on the personal income tax, with only 22 of Michigan cities with their own local version.

Until the early 1990s statutory revenue sharing was funded through earmarks from the personal income tax, sales tax, Single Business Tax and the Intangibles Tax.  The Intangibles Tax was repealed without replacement revenue, and during the 1990s recession, statutory revenue sharing experienced cuts, as you might expect.

But those cuts pale in comparison to what happened just a few years later.

When the recession of the early 1990s ended, most of those cuts were not fully restored.

In the late 1990s the prior cuts were rolled into a new baseline and a new statutory dedication based on sales tax collections was enacted.  The problem for local governments is that since 1998 this new system has been fully funded just once – in 2001.

At roughly the same time, at the start of the 21st century, the Engler administration and Legislature agreed to use up about $3.2 billion in surpluses and one-time revenue fixes for state spending – while they were still busy cutting taxes.

Everyone who understood the budget knew they were setting up future administrations and future Legislatures for a problem. Term-limited lawmakers knew they wouldn’t be around to face the problem – and some of them wanted to “starve the beast” anyway.

Let’s fast-forward 10 years and look at how times have changed for your city, village and township leaders.

The fiscal 2012 legislative budget negotiations led to another cut to local government of about $140 million – via the elimination of statutory revenue sharing – and the creation of an Economic Vitality Incentive Program, or EVIP.

EVIP rolled all the previous cuts in state aid into a new baseline. The name “Economic Vitality Incentive Program” is certainly a bit of a misnomer, since it hasn’t brought much vitality to local communities.

And citizens should want some vitality in their local governments so they can protect local services. Services, such as public safety. A community and an economy cannot thrive if citizens are afraid to live there. Local police and fire services are essential.

Infrastructure is also essential. That includes roads and bridges, but it also includes the resources to remove derelict structures and the resources to repurpose old-use structures to new-use purposes.  It also means maintaining the historical and cultural identity of cities and neighborhoods by restoring historical residential and commercial sites.

The quality of life for Michigan residents is impacted daily by choices made by local governments. The ability of local government to make quality decisions has been significantly and negatively affected by state government decisions in recent years. State government should provide local governments with the necessary resources.

And if state government doesn’t want to provide the resources, they should eliminate restrictions they’ve placed on local governments and give them the tools to do the job themselves.

Term-limited politicians have made too many poor decisions. The problem is that while politicians may be term-limited, the consequences of their actions are not.

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Thu, 05/23/2013 - 9:19am
"Term-limited politicians have made too many poor decisions. The problem is that while politicians may be term-limited, the consequences of their actions are not." And term limits lead to less and less expertise along with a reliance on outside special interests. We need to end term limits.
Thu, 05/23/2013 - 8:33pm
I am curious of how term limits affects the quality of decisions legislators make. What special training or learning do the legislator gain from when they pass the trem limit period? How much better is the US Congress doing without term limits. As best I can recall those who have been in Congress were the ones telling their collegues not to read legislation before voting for it. It maybe worthwhile to offer criteria for voters to consider when electing legislators than complaining about how along they are allowed to be in office.
Thu, 05/23/2013 - 9:29am
The concerns in this article are well-stated.
Thu, 05/23/2013 - 11:17am
Property values won't go up until wages do, and we know wages are never going up the way things are set up right now. The need for labor is declining in this country, and unless you mandate a shorter workweek, unemployment is going to stay high. When people are more desperate for jobs, companies can pay less. Between technological advances and sending work elsewhere (more the former, in my opinion) there will continue to be more and more workers displaced. We just don't have the need for workers, and the more we up productivity per hour of human labor, we'll need less and less people working 40 hour workweeks. Unless we find some way to spread the work around, there just won't be any need for companies to hire people. The incentive is in cutting them, and with the advances and the global markets available, they can do that more and more as time goes on. Our political parties need to understand this and understand that the goal should not be to "create jobs/work," but to have people working less hours for more money, which would take care of many of our tax revenue issues and give people more time to improve their families and community (middle-class people don't skirt their taxes and a lot of societal problems stem from less hours spent in the family and the community).
Thu, 06/06/2013 - 7:49am
Brent: When YOU own a business, YOU can give all the shortened weeks and higher pay that you want. It's apparent you've NEVER owned a business NOR understand economics.
Charles Richards
Thu, 05/23/2013 - 2:07pm
Mr. Bean says, "The name “Economic Vitality Incentive Program” is certainly a bit of a misnomer, since it hasn’t brought much vitality to local communities." Mr. Bean's faith in the power of government programs is touching. In a time when we are trying to recover from an economic catastrophe, did he really think a program to share state revenue with localities would cure all ills? He says, "State government should provide local governments with the necessary resources." Isn't it obvious that "necessary resources" is an ill-defined and open ended term? When an external source is providing funding, a lot of things become "necessary" and "essential." He is on firmer ground when he says the state should give localities the tools to do the job. But a sales tax, although preferable as a tax on consumption, has disadvantages, unless levied on a county-wide scale.
Thu, 05/23/2013 - 8:42pm
All Mr. Bean is whining about is getting more money for the members of his association. Does Mr. Bean offer any description of core functions the government organizations he represents should be spending that money on? No! Does he offer any consideration for the people's whose money he wants to be given to his memebers? No! Does he offer any metrics the people's money he wants his members to get can use to evaluate whether their money is being spent wisely? No! All it seems Mr. Bean seems to be interested in is more of other peoples's money without accountability for its spending.
Sun, 01/11/2015 - 12:00pm
As a part time resident of Michigan who has considered moving both business and personal assets to the state, I simply observe that it seems that the practice is to tax those who cannot vote - out of staters - as is the case with school taxes. And why move a business to Michigan? Nowhere is the idea of spending less or spending wisely mentioned. I can't believe the number of expensive new trucks on the roads of our little neighboring communities or the dollars spent on replacing 5 to 8 year old sidewalks at the local school.