Behind savings, townships operate in vastly different ways

Michigan’s 1,240 townships are as diverse as the state that spawned them – some little more than a rural framework for delivering the most basic services, others quasi-cities, with ambition to match.

Because of their unique fiscal management, townships frequently carry fund balances – assets and cash on hand – well in excess of expenditures. An analysis by an Isabella County official, Tim Dolehanty, has outlined the gap, which Dolehanty termed "An Embarrasment of Riches."

 Verona: One big piggy bank

But none has carried as much -- percentage-wise -- as Verona Township in Huron County, which in its 2010 audit had an unrestricted fund balance of $1,572,401, pitted against annual expenditures of just $250,011. For a township of only 1,500 households, that’s a pretty big piggy bank. How did that happen?

Township Supervisor Carl Rader says it was mainly a matter of luck and circumstance. The bank accounts began to swell with personal property tax revenues from power companies in the Thumb installing and upgrading equipment as part of the wind-turbine boom.

“Over the last few years, it’s started to build on us,” Rader said. “It wasn’t intentional.”

And now that the township is flush, it’s finding that wealth can make life a bit complicated.

Rader said the township board would like to sign a long-term contract to provide free garbage pickup and recycling to residents, which it could easily afford. But talk at the State Capitol of reforming or eliminating the personal property tax -- paid by businesses on their equipment -- has them worried the well could quickly run dry. There’s been talk in Verona of reducing the local millage, but that would also reduce taxes on the utility company.

“We don’t want to extend a service we might have to take away later,” said Rader. The money, he said, is a “double-edged sword.”

Bad Axe attorney Donald Clark keeps up with municipal business in most of the county's local governments, but even he was unaware of Verona Township's sizable nest egg.

"That is surprising, that they could build up a fund balance like that," Clark said. "It's a mostly rural area, and farm equipment isn't subject to personal property tax. But if the Legislature ends up eliminating personal property taxes, it's something that could go away. I'm not surprised they're holding on to it."

Far more dollars than people

The riches of its neighbor haven’t rained down on Pointe Aux Barques Township, also in Huron County, but it, too, holds a distinction: It’s one of the smallest in Michigan, just 900 acres and 10 residents, although 21 voters are registered at its polling place, the township hall.

In summer, the population swells to 200 to 300, as the Pointe Aux Barques resort, a private community incorporated in 1896 by the Pere Marquette Railroad, fills with seasonal residents. But at this time of year, township Supervisor Clayton Purdy counts his dog, Lulu, among the few beating hearts in residence at the very tip of the Thumb.

“We’re connected with Port Austin for our water and sewer; we use county ambulance service and county police,” said Purdy. “We collect enough taxes to operate the infrastructure. There’s a township board of five, none are paid and we have no paid employees.”

Only about 10 or 12 houses have been built in the township since World War II, Purdy said.

For the budget year that ended March 31, 2011, the township actually spent almost $100,000 more than it generated in taxes and other revenue -- forcing a dip into its cash reserves. Even so, Pointe Aux Barques still had almost $400,000 in unrestricted net assets.

Union takes 'modern' approach

Townships may be one of the oldest forms of government in the United States, but Union Township in Isabella County isn’t staying mired in the past. Its creative thinking -- some might call it “elastic” -- is leading it in some very modern directions.

Public Act 197 of 1976 allowed for the formation of downtown development authorities, special districts with the power to capture small percentages of tax dollars levied by other agencies on property inside the development area. At the time, suburban development and new shopping malls were leading to the deterioration of historic downtown shopping districts all over the country, and the aim was to “halt property value deterioration; to increase property tax valuation in its business district; to eliminate the causes of deterioration and to promote economic growth,” in the language of the law.

In the 1980s, Union Township used a Detroit law firm to help it set up two DDAs on either side of M-20 in Mount Pleasant, which the township surrounds. It wasn’t a traditional downtown, Supervisor John Barker admits, but the money proved useful in extending water and sewer lines into the area to spur further development.

Barker took office in 2008, and said that as the new supervisor, his inclination was to eliminate the DDAs, as they had achieved their purpose. Instead, the decision was made to consolidate them and continue to capture monies for economic development of the township, which encompasses Central Michigan University.

New initiatives now include improving an industrial park, repairing leaking sewers and building a community kitchen, which Barker explains could be used by entrepreneurs doing small-batch production for food start-ups, county extension agents for teaching food preservation through the local-food movement, and an emergency feeding station in case of a natural disaster. They’re leveraging local money to get a matching federal grant for that last project.

“The public purpose of achieving development and keeping it from decay has been met,” Barker said. “But there are still decaying properties that need redevelopment. ... (The definition of a DDA) was stretched pretty far. But it's within the letter of the law.” To him, the challenge is, “How can you as a small community use tools available to you for creative purposes?”

While small, Union has seen rapid growth in recent years, growing from 7,615 residents in the 2000 census to 12,927 residents in the 2010 count.

At the end of 2010, the most recent audit report on the state of Michigan's website, Union showed an "undesignated" general fund balance of more than $1.1 million.

Switching gears near Traverse City

The northwest coastline of Michigan's Lower Peninsula hasn’t taken as many economic hits as the rest of the state. That happy circumstance is reflected in the condition of Garfield Township, the mostly suburban community that abuts Traverse City in Grand Traverse County. Although it’s a charter township -- i.e., more municipal in its operations and financing -- until 2008 it shared a characteristic with more rural, general-law townships: It ran a fund balance at 100 percent of its annual budget.

In 2008, a new, reform-minded board swept to power and set about reforms, said Supervisor Chuck Korn*, who was new to the supervisor post that year. The township was carrying debt for construction of a town hall, a parkland purchase and sewer and water projects. With the fund balance earning less in the bank than the debt was costing, they set about paying down their obligations. They also reduced their millage rate, which now stands at 2.33 mills, which, along with state revenue sharing, funds their annual budget at around $3 million.

Korn described the Garfield board’s mentality as similar to that of other township stewards, with a “focus on maintaining quality of life rather than providing services.” The township concentrates on acquiring land along the Boardman River to maintain its wild character. The area took a hit when an auto-parts plant that mostly served Toyota left town, but the building has since been taken over by a new owner and converted into a recycling plant.

At the end of 2010, an audit showed the township had about $5.3 million in assets available "for spending at the township's discretion." Showing the elasticity of the township model, Garfield had 16,256 residents in the 2010 sense, making it larger than neighboring Traverse City (14,631) and the single largest community in its county.

“The most interesting part of our economy now is people who can work anywhere,” Korn said, describing digital-economy and knowledge-based workers who need little more than a computer, broadband Internet and a fax machine in a home office. “It’s people who are choosing to make their lives here.”

* Correction: Chuck Korn's name was incorrect in the original version of this story.

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Comments

John R. Williams
Thu, 01/19/2012 - 10:24pm
Thank you for so nicely stating what NEEDS to be read, heard and understood! Townships in Michigan are an anachronism that must go away! Formed as a populist form of government in the horse and buggy day, they serve NO purpose, townships only take..they do not give or provide....show me one township with a street plow. Michigan needs strong cities, strong counties. An inefficient layer of unnecessary government is taking untold millions out of the public, for NO good. Townships must go. If Michigan keeps on doing what it has been doing, we keep on getting what we are getting. As long as Michigan legalizes townships, crime is legal, Over 1.200 townships in Michigan. 83 counties that already can and do provide services to the electorate. The strongest and largest lobby is the MTA...the Michigan Township Association.....how much do they pay to keep the scheme going? It is a boondoggle and an embarrassment. Shame on Michigan for allowing this crime continue! Thank YOU!
Janice Thelen
Fri, 01/20/2012 - 11:16am
At a time when all forms of government should be working together to provide the most efficient government for our residents, this article does nothing more than tear us apart and provide an opportunity for uneducated comments such as Mr. Williams. City vs Township is an age old battle over such things as land, additional tax dollars and revenue sharing, one wants what the other has and refuses to play nice in the sandbox! If we are going to take a look at inefficient government, we should place all government under the microscope, not just one persons pet peeve. I for one, enjoy my township government, I have lived in a township my entire life, and coming home, means coming home to a township.
Mac Martin
Fri, 01/20/2012 - 3:37pm
Townships provide the most efficient government of all. The State and Federal governments are bloated and wasteful. The counties are not much better, I like the low taxes and you can keep your city.
Fri, 01/20/2012 - 6:05pm
I have to commend Garfield Township for their forward thinking. Making their township a place where people want to live and work is critical to the health of a community. It is not about spending all the taxpayers’ money and leaving nothing for a rainy day fund. But it is important to use the money wisely on a regular basis to do even the simple improvements that add value to the community. I feel that it is more important to have a plan to make improvement on a regular basis. We have a capital improvement plan in our community but it requires the project to at least $10,000.00. I can think of several improvements that cost a fraction of that but add a lot of value. Keep up the good work Garfield Township board and residents I am sure it will pay dividends for the future of your township and the State of Michigan. Dale Westrick trustee
Bob
Sun, 01/22/2012 - 4:19pm
"Never apologize for a fund balance," is an aphorism that I have often been heard to express. Fund balances in general or special revenue funds in local government can and should be used for more than for cash flow purposes. They are cushioning, rainy day, piggy bank-like accumulations of money that have served and will continue to serve public purposes that benefit the taxpayer. Pity the public schools that typically operate on fund balances that are in the low single digits. It amazes me that Michigan townships are being criticized for maintaining fund balances that are large percentages of their annual budgets. Do the critics think that local officials are going to have a party with this money? To the contrary, fund balances are nurtured and used for many worthy and laudable purposes. I have heard of fund balances that exceed annual budgets. Unfortunately, the townships that I have served never had anything close to that, and I must confess some envy. But I have never begrudged the townships that cultivated or "fell into" large stores of cash that they have carried over from year to year as "Prior Years' Savings." Not all townships, particularly the ones that are urban or suburban and providing many typical public services, enjoy the stability and security that significant fund balances provide. Nancy Derringer's article demonstrates quite aptly how large fund balances come to be and how they are used by responsible, prudent township officials. Now that governments in Michigan are in crisis -- by no means entirely of their own making, perhaps we can learn lessons in frugality, caution, and prudence demonstrated by quite a number of townships -- and some cities. Casting negative aspersions, when healthy appreciation and nodding assent are in order is not worthy of those who really care about local government and its future in Michigan.