Hillsdale Economics Professor Writes About Importance of Revenue Sharing

There is a fascinating and important guest column in today’s Detroit News with the headline “Revenue sharing boosts Michigan communities.” This column by conservative Hillsdale College Economics Professor Gary Wolfram echoes many of the messages in our saveMIcity municipal reform effort. Wolfram  is the William Simon professor of economics and public policy director of economics at Hillsdale College. Please check out his column.

The column is based on an in-depth research study that Wolfram and the Hillsdale Policy Group did in 2014. You can view the full study here.

Here’s an excerpt that is consistent with the saveMIcity talking points the Michigan Municipal League has been discussing throughout the state in the last year:

Michigan has a long history of declaring the importance of local government. …

Unfortunately, since the Great Recession, local units of government have been hit with three major blows, all of which involve the state government. The first, is the major decline in revenue sharing as the state struggled to balance its budget during the recession of 2007-2009.

Statutory revenue sharing, including EVIP and now CVTRS payments, declined from a peak of $684 million in FY 2001 to $210 million in FY 2012 and only recovered to $249 million in FY 2016. Total revenue sharing which fell from a peak of $1.326 billion in FY 2001 has only recovered to $998 million in FY 2016. These figures are in nominal dollars. Imagine what the fiscal situation of cities would be if there had been an additional $400 million in revenue sharing each year.

The second problem is the decline in Act 51 revenues. As the House Fiscal Agency noted in its report last month, road funding has stagnated. “Some local road agencies received a smaller distribution in FY 2012-13 than they did in FY 1997-98.” There is expected to be some increase in funding due to the recent transportation package, however, funding for local roads will still be well below in nominal dollars what it was a decade ago.

The third problem is the unintended consequences of Proposal A’s limit on the increase in taxable value of property. In 1993 it was not expected you would get a severe decline in property values. In retrospect, the language should have allowed taxable values to return to their prior level at the market rate in the case of a downturn. Instead, the taxable value can only go up by 5 percent or the rate of inflation whichever is smaller. This has resulted in a significant decline in property taxes in the local units.

The column concludes with a call to state lawmakers to restore revenue sharing to at least 2008 levels.

It states: Restoring revenue sharing will lead to less state spending on bailouts of cities and result in more secure local government services and in a tax cut for Michiganians as their local governments will be able to reduce property tax rates.

Learn more about our municipal finance reform work at saveMIcity.org.

Matt Bach is director of media relations for the Michigan Municipal League. He can be reached at mbach@mml.org and 734-669-6317.