‘State Has Failed Our Cities’

“If the state can afford to cut business taxes by $3 billion over the last 5 years they can afford to fully fund revenue sharing.”

That quote from Robert Kleine, former state of Michigan treasurer, during a news conference Wednesday, simply sums up how the state of Michigan over the last 15 years has prioritized state needs over essential services at the local level – namely police and fire protection, schools, road maintenance and much more.

Then Kleine got really blunt: “The state has failed our cities. We have a dysfunctional system of local government organization and financing. The entire system needs to be overhauled. We cannot have a strong state without strong communities.”

Kleine’s press conference statements were part of the official unveiling of a new report he co-authored with his Great Lakes Economic Consulting (GLEC) partner Mitch Bean. The report, “Michigan’s Great Disinvestment: How State Policies Have Forced Our Communities into Fiscal Crisis”, examines changes that have impacted the finances of Michigan municipalities over the past 20 years. It provides data on how a variety of state policies, from revenue sharing cuts to limits on growth of property tax values, have created a crisis in Michigan cities that is preventing the state from achieving its economic potential.

Related links from the news conference hosted by the Michigan Municipal League:

Former state of Michigan Treasurer Robert Kleine speaks Wednesday about a new report from his non-partisan firm.

Former state of Michigan Treasurer Robert Kleine speaks Wednesday about a new report from his non-partisan firm.

Key findings in the GLEC report that Kleine highlighted at the news conference were:

  • Over the last 15 years, Michigan cities have been hit harder than cities in any other state due to the restructuring of the auto industry, the 2008-2009 recession which caused large drops in property values, and sharp cuts in state revenue sharing payments. Almost all cities were affected, particularly cities located in Southeast Michigan, the center of the auto industry. Cities have responded with cutbacks in public services, increased efficiencies, and increasing millage rates.
  • Since 2002 Michigan has lead the way in cuts to municipalities. According to U.S. Census data municipal revenue from state sources increased in 45 states from 2002 to 2012. The average increase was 48%. Revenues declined in 5 states, including Michigan. The decline in Michigan was 57%. The average for the other 4 states was 9.4% with a high of 14% in Kansas. Michigan is the only state where total municipal revenue declined from 2002 to 2012.
  • Statutory revenue sharing to municipalities in FY 2016 is estimated to be $585 million below the full funding of the statutory dedication. The cumulative amount of cuts to statutory revenue sharing for cities, villages and townships from FY 1998 to FY 2016 is estimated at $5.538 billion. (This total increases to $7.5 billion when including counties).
  • Adding to the cities problems was the collapse of the housing and financial sectors in 2008, resulting in the largest decline in Michigan property values since the 1930s.
  • Cities ability to respond to the sharp declines in revenues is limited by the constraints and limited revenue flexibility caused by constitutional and statutory limitations – among the most severe in the nation.
    Cover of a new report about the financial crisis facing Michigan communities.

    Cover of a new report about the financial crisis facing Michigan communities.

  • Michigan has lost more public sector jobs than any other state since 2000, mainly at the local level. In 2000, there were 450,000 employees in the local sector, including K-12 education. This number dropped to 427,000 by 2007, and employment was 359,000 in April, 2016. GLEC estimates that municipal employment has declined about 20%. Since 2000, the number of police and fire jobs has declined by over 5,000.
  • Any city with a tax base much below $20,000 per capita will struggle financially and be forced to levy higher than average property tax rates or income taxes (90 cities are in this category). A strong revenue sharing program, as Michigan used to have, allows communities with low tax bases to maintain a reasonable level of services without needing to levy uncooperative tax rates. Without revenue sharing cities are caught in a vicious cycle that results in ongoing serious financial problems as demonstrated by the fact that Michigan has had more communities under state supervision than any other state.
  • Although housing values are recovering from the sharp decline it will take most cities a number of years to recover their lost tax base due to the constitutional cap on the annual increase in taxable value.
  • Finally, the emergency manager law is ineffective as it does not address the real problem, which is the lack of an adequate tax base. The average taxable value per capita of cities under state supervision is $12,060 compared with a state average of about $32,000. The average millage rate levied by these cities is 29.3 mills levied compared with 18.3 mills for all cities.

Great Lakes Economic Consulting is a non-partisan firm that conducts fact-based analysis. They provide studies on public policy issues and strategic advice to local governments, school districts, trade associations, lobbying firms, non-profit associations and other organizations. With 60+ years of combined experience, the firm’s principals bring the knowledge, resources, and contacts needed to acquire and analyze information on almost any public policy issue with a fiscal or economic component.

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