Local governments, officials make funding recommendations to state

By: Kevin Bunch | Roseville - Eastpointe Eastsider | Published November 6, 2013


Local government officials, facing financial problems throughout the state, were tasked by the state to come up with recommendations on how to solve these looming fiscal crises last August.

Eastpointe City Manager Steve Duchane, along with officials from Hazel Park, Grand Rapids, Sault Ste. Marie and Sterling Heights, has formally submitted these recommendations and is optimistic that, if followed, they can keep municipalities across the state from bleeding out red ink and requiring emergency financial managers.

“The task force was formed primarily because of the significance of the myriad of changes, and the impacts on local government operations is that the simple old answers would not be able to provide survivability or sustainability for cities, no matter what you did,” Duchane said. “The ideas of economizing cities, and consolidating (services) are well and good, but the basic idea is that the system of funding local government is broken.”

“While the state is healthier, many local governments can’t project into the future a sustainable system and still have solvent services,” he added.

According to the report, cities, villages, counties and townships are constrained by Proposal A and the Headlee amendment in the state constitution, and are limited in ways to increase revenue beyond new construction. The demand for new construction remains low, however, and the only other scenario for improving taxable value growth is through inflation, which does not help local governments much.

Michigan State University did an analysis of municipal general fund activities in the state between 2008 and 2012 that was utilized in the report. It found that most cities cut expenditures, most notably in deferred maintenance, parks and recreation, and general government. Revenue fell an average of 9.2 percent over that period, while spending has only come down 7.2 percent on average, and the report highlights that deferred maintenance costs mean the amount needed to fix roads, sewers and bridges can increase substantially when work finally does happen.

The report by the taskforce also notes that municipalities cannot grow their way out of these economic straits due to those structural limits by Proposal A and Headlee, which means they cannot collect as much money as they did before the recession, even as property values increase.

“We’re looking at more emergency-manager cities,” Duchane said. “So the question is, ‘How do we help the cities that are doing all the right things but cannot correct their expenditures?’”

Duchane said the representatives from the cities explained to outgoing state Treasurer Andy Dillon that no matter how they sliced the budget, they would simply not raise enough revenues to fund state-mandated services. They were tasked by the state, including representatives from the Michigan Municipal League, MSU, the Legislature and the state Treasury Department, to come up with recommendations on how to solve these problems.

Duchane said their top recommendation was changing Public Act 33 of 1951 so municipalities with populations of more than 15,000 can set up a special assessment district to fund police and fire services, freeing up money in their general funds.

A bill doing just that has passed the Michigan Senate and moved to the House of Representatives for review. The assessments would still be subject to voter approval, but an estimated 278 municipalities could benefit.

Other near-term recommendations included allowing municipalities to do multiyear budgets, requiring certified public accountants to report problems they find with governmental finances, and making sure that legislative fiscal agencies are able to do a robust fiscal analysis on bills passing through both houses.

In the longer-term, the taskforce has also recommended changes to the Headlee amendment so that some properties would get a taxable value increase when it changes hands, allowing municipalities to exceed the 20-mill property tax limit in certain cases, and amending the state constitution to prevent the state from mandating new services without proper funding.

Duchane added that another possibility is creating a statewide municipal employee post-employment benefit pool, alleviating some of the retirement costs municipalities are currently saddled with, and a report by the taskforce is due by Dec. 1. He did note that while the state’s fiscal situation has improved overall, shared revenue to municipalities has remained limited.

Edward Klobucher, Hazel Park city manager, agreed that cuts in state-revenue sharing with local municipalities has been an issue, though no direct recommendations were made in the report pending further study. He said the Legislature had been reducing revenue sharing for years leading up to this point.

“The No. 1 target for cuts to balance the state budget was cutting revenue sharing to the cities,” he said. “They changed the formula, reduced what they were statutorily supposed to give us, and it has had an impact on a mature city’s ability to provide to the public.”

Klobucher did appreciate that the state government is looking at the issue seriously, noting that the recommendations made so far are near-term stopgap solutions to help communities as soon as possible. Duchane said with the state ending the personal property tax, municipalities will need to make up that revenue elsewhere.

Klobucher said the taskforce’s work is ongoing and that it has broken into smaller workgroups to continue researching additional changes that the state could make to ensure local governments are properly funded. He stressed that the legislature needs to take action.

“I’m grateful for the realization on the part of the administration, and I’m grateful they convened a task force, and I’m honored to have been picked to sit on it, but I also hope these subcommittees continue to meet and that we can generate more recommendations, and that these are subsequently acted on by the Legislature,” Klobucher said. “Because if not, Detroit will be only the tip of the iceberg.”

Duchane was optimistic that support in Lansing existed to make changes, noting that he has had positive feedback from Democratic and Republican leaders in both houses, as well as the administration.

“I do believe everybody in earnest will be working on it, because honestly, they have no options,” Duchane said. “We all have no options. The people in public service right now and the ones who follow us have to deal with Michigan’s funding issues because the economic recovery isn’t going to help that on the local level.”