Cities, counties still losing out on revenue sharing money

By MAXWELL EVANS
Capital News Service

LANSING — It’s no secret that Michigan municipalities aren’t getting much help from the state — since 2002, the Legislature has withheld more than $8 billion in funding earmarked for local governments.

This means local governments have had to make cuts across the board, from services like public safety and public health to institutions like parks, according to Chris Hackbarth, director of state affairs for the Michigan Municipal League.

Revenue sharing distributes a portion of the sales tax collected by the state to local governments, according to the Department of the Treasury.

There are two types of revenue sharing: constitutional and statutory. Constitutional revenue sharing, funded by ten percent of the state sales tax revenues, is guaranteed.

The state constitution calls for about one-seventh of sales tax revenues to go towards statutory revenue shares. However that amount can be — and consistently has been — lowered through the Legislature’s appropriations process.

For example, Benton Harbor saw nearly $1 million diverted from its projected revenue share in 2016, according to the Michigan Municipal League, which lobbies on behalf of cities and villages.

To lighten the load for struggling cities, the state began awarding grant funding in 2015 to financially distressed cities, villages and townships. This year’s grants, totaling $5.4 million, were awarded in March.

The Treasury’s focus for the 2018 round of grants was to improve critical infrastructure and equipment and improve street lighting, according to its website.

Benton Harbor was awarded $799,500 through the program in 2018, marking the fourth year in a row that it received the grant. Many of the 2018 recipients have received grants in past years — despite the program’s stated goal of “moving [municipalities] toward financial stability.”

This $5 million is useful for emergency projects, but is far from sufficient to solve cities’ continuing problems, said Hackbarth of the Municipal League.

In 2016 — the year Benton Harbor’s revenue share was about $1 million below expectations — the city received $425,000 in grant funding for water main replacements and improvements to its police camera system, according to state records.

“They really are one-time dollars,” Hackbarth said. “It’s not like you can fund police officers with those dollars, because you don’t know if they’ll be there the next year.

In total, the financially distressed cities grant represents 0.4 percent of the state’s total 2017-18 revenue sharing funding to date.

“And again, $5 million doesn’t go very far,” he said.

Most cities have seen declining revenue shares without the benefit of that grant, including Holland — whose 2016 shares were $1.2 million below full funding — Marquette, with a $956,000 reduction, and Sturgis, underfunded by $441,000.

While cities and townships struggle to make ends meet, counties face special challenges based on the way state money is distributed, said Deena Bosworth, director of governmental affairs for the Michigan Association of Counties.

Cities receive both statutory and constitutional funding — a benefit not awarded to county governments, Bosworth said. Counties receive funds only from the statutory pool.

Michigan has spent $807 million in constitutional revenue sharing for the 2017-2018 fiscal year, compared to the $220 million counties have received to date, according to the nonpartisan Senate Fiscal Agency.

From sheriffs to treasurers to public health departments, there is a “base level of service” counties must provide despite the disparity in funding between counties and cities, Bosworth said.

“Cities, villages and townships don’t have to pay for the abused and neglected kids in the system,” Bosworth said. “They don’t have to pay for the public health department. Cities serve 100 percent of the population and counties serve 100 percent of the population.

“No one can explain to me why counties are funded at such a lower level,” she said.

Statutory revenue sharing fell by 61 percent from 2002 to 2016, according to Mitch Bean, former director of the House Fiscal Agency.

Such a drop was made all the more frustrating given that local governments gave up local taxing authority in exchange for revenue sharing, Bosworth said.

In addition, the 1978 Headlee Amendment to the state constitution limited annual property tax increases to 5 percent or the rate of inflation, whichever is less — making it more challenging for local governments to recover after a financial crisis like the Great Recession.

“The state can actually recover their revenue a lot faster than locals, because they’re dependent on sales tax, use taxes, income taxes, business taxes — which are not limited,” Bosworth said. “It would be nice if they were actually helping us in recovery as well.

“It’s tragic that the state is not investing in local units of government,” she said.