Ensuring A Fiscally Strong Future for Michigan’s Localities

Following the League’s March 21 press conference announcing our efforts to bring the state’s cyclical disinvestment from its communities to the forefront of the legislative agenda, fixing Michigan’s broken municipal finance system became a central theme for the 2016 Capital Conference.

Attendees interested in taking a deeper look at the comprehensive research behind the League’s assessment of local government finance met for a workshop featuring Shanna Draheim from Public Sector Consultants, former Treasurer of the State of Michigan Robert Kleine, and Joe Heffernan from Plante Moran. These experts gave historical context to statutory revenue sharing, evaluations of the current state of municipal finance, and the case for working to ensure a fiscally strong future for all of Michigan’s communities.

Over the last 15 years, both the recession and loss of revenue sharing dollars have thrown the state’s local governments into cyclical and worsening financial trouble. According to U.S. Census data, Michigan is the only state in the nation where municipal revenues show a long-term decline from 2002-2012. Any city with a tax base below $20,000 per capita is probably struggling, according to Robert Kleine, and this growing financial instability can explain why Michigan has more cities under the supervision of emergency managers than any other state.

With property values worth only a fraction of what they were before the recession, local governments find themselves struggling to pull together funds to provide the reliable, high-quality infrastructure that residents expect without operating in the red.

This problem, according to Joe Heffernan, is made worse by the accrual of debt that local governments face through partially-funded retiree healthcare plans. Historically, despite offering comparatively lower salaries than private sector jobs, municipalities were able to attract and retain employees with comprehensive benefit plans. However, healthcare costs continue to escalate while local budgets continue to shrink, leaving a large proportion of municipal benefit plans and retiree healthcare programs unfunded.

So what does this mean for communities?

Shanna Draheim, from Public Sector Consultants, referenced a new report created by her organization – Creating 21st Century Communities: Making the Economic Case for Place. The report shows that a strong correlation exists between traditional indicators of economic prosperity and the eight assets of 21^st century communities. For example, in terms of Physical Design and Walkability, walkable and well-designed communities boast higher property values, income levels, educational attainment, and rates of new business ventures. Similarly, shifting the focus to Environmental Sustainability, green infrastructure such as nature trails, parks, and water resources have a positive impact on community income and employment levels.

But, as both Kleine and Heffernan pointed out, cities struggling to maintain an adequate police force or drivable roads hardly have the financial capacity to consider investing in better green space, walkable streets, or arts amenities. Communities find themselves in a catch 22 of sorts: unable to increase property values without investing in 21^st century assets, but unable to invest in 21^st century assets without property values that provide the adequate resources to do so.

The case for fixing Michigan’s broken municipal finance system is a clear one: it allows local governments to provide the basic, high-quality public infrastructure that residents expect, such as police and fire services, water systems, and roads. Even further, however, choosing to invest in our many communities will empower them to become spaces of activity, innovation, and togetherness, making Michigan a stronger and more prosperous state.

For more information regarding the League’s municipal finance efforts, visit SaveMICity.org!