LANSING — Local governments across Michigan are beginning to lay off and furlough workers as they brace for a “perfect storm” of increased spending demands and revenue shortfalls resulting from the coronavirus pandemic that has ground the state economy to a halt.
Detroit Mayor Mike Duggan, citing an estimated $348 million budget hole in Michigan’s largest city, on Tuesday announced plans to lay off 200 part-time workers, cut hours for 2,200 full-time employees, freeze planned pay increases and cut top official salaries by 5 percent.
“We’re going to see some cuts to services,” Duggan warned residents, noting plans to delay local road repairs, close recreation centers and pause blight removal efforts. “You can’t cut $348 million and not have it affect you … that’s the truth. These are painful cuts.”
Detroit is unique in that it is one of 24 Michigan cities with state authority to assess a local income tax and is heavily dependent on tax revenue from its three casinos, which were forced to close last month under order of Gov. Gretchen Whitmer. But other Michigan cities like East Lansing, Madison Heights and Clawson have also reduced staff in recent weeks.
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Across the country, more than 2,100 cities are anticipating major budget shortfalls this year, according to a recent survey by the National League of Cities that points to expected layoffs, furloughs and local service cuts. Detroit is not planning cuts to police or fire, but more than half of the local governments surveyed said their budget crunch will impact public safety.
Michigan could face longer and deeper cuts than other parts of the country because the state’s “system for funding local governments is broken,” said Tom Ivacko, associate director of the Center for Local, State and Urban Policy at the University of Michigan.
“We’ve known this for a good long time now, and we’re going to pay the price for it now probably more than ever if this pandemic and the economic shutdown lasts too long.”
Michigan local governments have few options to generate revenue on their own — they cannot assess a local sales tax or quickly recover from property tax losses, for instance — making them reliant on the largesse of the state. But state government is facing its own projected budget shortfall of up to $3 billion this fiscal year and up to $4 billion in 2021.
Cities and townships face a daunting challenge as they divert budgeted funds to buy safety equipment for first responders and increase services for vulnerable populations while bracing for sharp revenue losses, said Roseville City Manager Scott Adkins.
“We’re facing this perfect storm in an imperfect way,” Adkins said Tuesday in a press call with U.S. Rep. Andy Levin, D-Bloomfield Township, who is pushing for local government aid in Congress. “We are in uncharted water at this time.”
Madison Heights City Manager Melissa Marsh said her city has already furloughed “many non-essential employees” and has nowhere left to cut except for “key services our residents depend on for their well-being.”
“At a human level, the biggest loser at the end of the day is going to be our residents,” she said.
Federal rescue sought
The $2 trillion federal rescue package signed by President Donald Trump on March 27 included $150 billion for state and local governments. Michigan is getting about $3.8 billion, but only $800,000 is earmarked for locals, said state budget department spokesman Kurt Weiss.
Under the law, the funds can only go to local governments with at least 500,000 residents, meaning Detroit and the state’s four largest counties: Wayne, Oakland, Macomb and Kent. It also appears the federal dollars can only be used to cover new costs resulting from the public health crisis, not to fill budget holes created by the ensuing economic disaster.
“That really is a problem,” Levin said, noting that even larger metropolitan areas like Flint will not qualify for the initial aide. He’s co-sponsored bipartisan legislation that would provide another $250 billion in aid to cities and counties with populations of less than 500,000 residents. “We know local governments need all the help they can get right now.”
Congress is planning to extend an emergency “paycheck protection program” for small businesses, but Democrats and Republicans are at odds over whether to also include new funding for hospitals, states and local governments.
State sales tax revenue that Michigan doles out to cities, villages and townships is expected to plummet as unemployed or underemployed workers curtail their spending and as businesses close. National data released Wednesday show retail sales collapsed in March, dropping 9 percent in what was the largest decline of its kind on record.
Federal assistance is “imperative” for state and local governments, according to University of Michigan economists who are projecting the state will lose 1.2 million jobs during the pandemic, hit a 23 percent unemployment rate and lose $8 billion in tax revenue over three fiscal years.
“Should this help take too long, state-level balanced budget amendments and reductions in revenue sharing will force dramatic cuts in a sector of the economy that only recently recouped its Great Recession-era employment losses, five years after the private economy had done so,” the U-M economists said in a recent report.
At the state level, Whitmer last month canceled $80 million in planned spending, suspended new hiring and restricted all non-essential spending by government departments. Senate Appropriations Chair Jim Stamas this week suggested the governor lay off non-essential state employees, and House Appropriations Chair Shane Hernandez asked department heads to explain how they are monitoring workloads and staff needs.
The National Governors Association is urging congress to appropriate an additional $500 billion in “state stabilization funds” to meet budget shortfalls, on top of additional dollars for local governments.
“The magnitude of the crushing economic impact this virus has had on our states and residents cannot be overstated,” Whitmer and fellow governors from Wisconsin and Pennsylvania told Trump in a Wednesday letter.
“These cuts will undoubtedly lead to continued and major job losses in my state, where over 1 million new unemployment claims have been filed since March 15, a 5000 percent increase over a four-week period, representing roughly a quarter of the state’s workforce,” Whitmer wrote.
‘This is going to devastate us’
Local officials are bracing for some residents to skip fall property tax payments, and they fear that property tax values could drop if shuttered businesses are unable to reopen or jobless residents can’t pay rent or lose their homes.
That’s a particularly frightening scenario for local governments because of a state law that caps annual growth in taxable property values at five percent or the rate of inflation, whichever is lower. If property values fall sharply, it can take years for revenue to rebound.
“We’re used to doing less with more, but this is going to devastate us,” said Clawson Mayor Reese Scripture. Her city “never fully recovered from the Great Recession” a decade ago and has already furloughed 42 part-time employees amid the pandemic, she said.
Longer term, recent stock market losses could escalate pension or retiree health care costs for local governments, said Lansing Mayor Andy Schor, whose city is saddled with roughly $700 million in unfunded debt.
“The pension boards make assumptions on interest and the rate of return, and if those assumptions don’t come in and the pension boards don’t hit the marks they expect, then the city has to backfill that,” Schor said.
In Mt. Clemens, overtime pay for first responders has “just skyrocketed” after the city was forced to quarantine a full shift of firefighters who came in direct contact with an infected patient, said Mayor Laura Kropp. The city also purchased new technology allowing it to communicate with residents by text message or email, which is a “good thing” but wasn’t budgeted for.
At the county level, sheriff departments are paying increased overtime, some have instituted hazard pay for first responders and costs have risen for health departments on the “front lines” of the pandemic, said Stephan Currie, executive director of the Michigan Association of Counties.
The National Association of Counties is backing calls for another $250 billion in local government aid from the federal government and asking for permission to use the money to replace lost revenue from the pandemic, not just cover new costs.
Michigan counties rely on statutory revenue sharing payments from the state and property tax payments from local residents, both of which could be jeopardized. Wayne County, the state’s largest, is projecting up to a 30 percent drop in property tax collections this summer alone.
To date, most Michigan counties have not had to lay off or furlough workers, but “all those things that are sort of unknown at this point are concerns,” Currie said.
In Monroe County, officials are expecting a $1 million to $2 million budget hit this year but plan to tap reserves to avoid staff reductions, said Administrator Michael Bosanac. He’s anticipating revenue from district court fees to decline about 16 percent since all civil hearings for March and April have already been canceled.
Next year is less clear. Whitmer’s proposed budget would have sent $3.3 million to Monroe County next year, but the state’s “ability to share revenues with us I think is going to be severely diminished,” Bosanac said.
“Our financial picture is gonna be not as rosy as what it used to be, but I don’t have a crystal ball,” Bosanac said. “I don’t know how long the local economy and the state economy is going to be impacted.”
Local governments have also seen information technology costs rise as they secure additional laptops so employees can work remotely, and are incurring new legal bills as they attempt to analyze and interpret the maze of executive orders coming from the state, said Otsego County Administrator Rachel Frisch.
“We’re just trying to keep our head above water,” she said.
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