While the financial problems of Detroit have captured the headlines this spring, a new analysis released today on government finance finds that dozens of Michigan communities may be on a course for crisis.
According to Munetrix, a Web-based data consultant in Auburn Hills, dozens of local units of government were in a financial state that is “cause for concern” in their 2011 fiscal years. Computations were drawn from data submitted by local units of government to the state Department of Treasury.
Munetrix’s analysis is a modified version of one formerly used by the Treasury Department in which scores of 5 to 7 placed communities on a “fiscal watch list.” A score of 8 to 10 is considered evidence of “poor financial condition” -- requiring immediate corrective action.
(Complete financial information for 2012 is not expected to be available through the Department of Treasury until July. Munetrix plans to post 2012 data at that time.)
SE Michigan has troubles, but isn’t alone
Some findings come as no surprise and reflect the widely reported financial issues in Southeast Michigan.
Wayne County rated an 8, on a
1 0 to 10 scale in which 10 is close to financial catastrophe. And eight of 23 municipalities rated 6 or worse were in Wayne County. Nearby Flint rated a 7, as did Detroit – which was just described as “insolvent” and in “dire financial straits” in a preliminary assessment by emergency manager Kevyn Orr.
But the Munetrix breakdown also detected trouble in places such as Bangor, a Van Buren County city of 1,885, which earned a 5; the Village of Middleville south of Grand Rapids, a 5, the Northern Michigan city of Gaylord, a 4. The state capital of Lansing rated a 6.
Kathy Roy, a consultant for Munetrix, said the data confirm that fiscal stress is by no means confined to the usual southeast Michigan suspects. She is the former finance director and controller for Novi.
“The problem is bigger than that,” Roy said. “Southeast Michigan was hit harder but the reality is that many communities have seen a decline in their tax base.”
It is worth noting that most municipalities fared reasonably well on this scale. Of more than 1,000 units of government evaluated for 2011, about 85 percent had scores of 2 or 1. Kent County's Wyoming, Walker and Grand Rapids each scored a 1, as did Muskegon. Ann Arbor scored a 2; Kalamazoo posted a 3.
Cities also could take encouragement from jobs trend, with the unemployment rate dropping from 10.3 percent in March 2011 to 8.5 percent in March 2013. And according to the Michigan Association of Realtors, home sales in 2012 reached the highest level since 2005. Prices in the Detroit metropolitan area climbed by 15 percent in the year through February, according to the Case-Shiller home price index. As property values rise, so should tax revenues.
But some communities continue to be pressed by ongoing budget woes, as they resort to everything from slashing police and fire staffing to fee increases.
Capital city struggles with deficit
In Lansing, city officials are exploring a plan to charge residents an average of $46 a year for fire hydrants and streetlights to close a $5 million deficit.
The proposal prompted a Lansing senior citizen named S. Henderson to ask via the local paper, “Why does the city of Lansing always put it on the backs of people in Lansing when they need money?”
He added: “It is time for me to make a decision about living elsewhere.”
In the meantime, Kalamazoo looks to cut 90 employees with an early retirement plan as it trims its work force to less than 700 from a peak of more than 900 in 2001. Saginaw officials are contemplating deeps cuts in police and fire department staff. Statewide, local government employment was cut by 53,600 jobs from a 2006 peak of 438,500, according to the federal Bureau of Labor Statistics.
The Munetrix data reflect a series of blows to local government in the past decade: plummeting property values, rising home foreclosures, deep cuts in state revenue sharing, the limitations of the tax-shift measure known as Proposal A and escalating costs of pension and health-care benefits.
Former Lansing mayor David Hollister foresees even more peril ahead without reform to how cities are funded. Absent that change, he said, many cities – not just Detroit or Flint -- could face fiscal insolvency in “five to seven years.”
“The cities are in a very precarious situation,” he said.
In Hollister's view, the biggest threat is the growing weight of pension and retirement health care benefits, a burden he believes could overwhelm the ability of some cities to meet.
A Michigan State University study released earlier this year found that 311 units of government in Michigan had unfunded liability totaling $12.7 billion for retiree health care in 2011. According to the study, Detroit had unfunded liabilities of nearly $5 billion. It reported that 86 percent of unfunded liability was concentrated in Southeast Michigan, including Genesee, Lapeer, Lenawee, Livingston, Macomb, Monroe, Oakland, St. Clair, Washtenaw and Wayne counties.
Beyond that, cities have been battered by years of diminished property value and shrinking tax revenues. In the four years from 2007 to 2011, Michigan home- and business owners lost $180 billion from the value of their properties. That amounted to a drop of 27 percent when adjusted for inflation.
The fall in value was accelerated by foreclosure filings that consistently placed Michigan among the top 10 in the nation in foreclosure rate. According to RealtyTrac, about 100,000 foreclosure filings were reported in 2011. That was the sixth-highest foreclosure rate in the nation. In 2012, it ranked eighth highest.
State government slashed funds it sent to local government as it labored to balance its books in a decade of economic decline. According to a report issued in April by accounting firm Plante Moran, cuts in statutory revenue sharing to local units have exceeded $6 billion since 2001.
And even when the news is good, clouds gather over city halls. While property values appear headed up, cities are limited in how quickly they can capture that growth. Under Proposal A, approved by voters in 1994, taxable value can only rise by 5 percent or the rate of inflation, whichever is less. In other words, the huge value drops of the last decade only can be made up in small amounts over a long period of time.
Future filled with tough calls
In Ecorse, a Wayne County city of just under 10,000, Munetrix sees a “7” crisis – grim news, though an upgrade from the 8 it earned in the three previous years.
Those years were spent under the control of a state-appointed emergency manager. Under Joyce Parker, Ecorse merged its police and fire departments, privatized EMS service and secured $9.5 million in bonds to pay down its debt.
Now, though, Ecorse is transitioning back to local control by elected officials.
To the north, Saginaw improved to a 2, from a 6 in 2010 and 3 in 2009. Munetrix’s Buzz Brown noted that Saginaw’s budget outlook was bolstered by a significant increase in community development grants and the transfer of $2.2 million from a budget stabilization fund into its general fund.
But it is far from out of the woods.
Facing a $3 million deficit, City Manager Darnell Earley is recommending a budget that would cut its public safety staffing nearly in half, to 55 police officers and 35 firefighters. The Police Department had about 100 officers in 2010 and the Fire Department 67 firefighters in 2011.
“Obviously it's nothing anybody wants to see happen,” Earley said. “But as our revenues have declined, our ability to provide services as a status quo level has declined.”
With public service accounting for two-thirds of Saginaw's general fund budget, Earley sees no other options.
He noted that voters have already twice voted for a special millage to support police and fire. He said he would not ask them for more “until we find a way to reduce the cost of delivering the services.”
Without those cuts, Earley asserts, Saginaw “would be headed down the same road” as cities under emergency financial management.