By BRIDGET BUSH
Capital News Service
LANSING– Michigan is one of 18 states required to provide the most state-mandated services with the least state funds, according to a recent national report.
Michigan local governments are among the most economically burdened nationwide.
Only Georgia and Montana didn’t feel similar budget pinches in 2016, according to the report by the National Association of Counties.
“It’s important that people realize this is a problem all over — not just in our state,” said Michael Selden, director of member information services for the Michigan Townships Association. “Citizens want more and more, but local units have less and less.”
It’s hard to pinpoint where the problem began, Selden said. Since the recession began in 2008, tax revenues decreased, and legislators reacted by reducing state revenue sharing.
But people want the same — if not more — services as before, he said.
The roots of the problem run deeper than the last recession. Since 1998, the cumulative cuts to revenue sharing for Michigan municipalities has been $5.538 billion, Great Lakes Economic Consulting reported last April. When counties are included, the cuts exceed $7.5 billion.
An initiative examining the changes affecting municipalities’ finances over the past 20 years, called saveMIcity, is underway through the Michigan Municipal League, said Matt Bach, director of media relations. It explores ideas for improving overall fiscal responsibility by addressing structural problems for local governments.
Every township struggles to do more with less, Selden said. Townships must support things like elections and assessments, but they are also are pressured to help counties provide services.
Road repair is one example.
“While townships don’t own or have a responsibility to the roads, townships pay a lot to help fix them,” Selden said.
Stretching for every dollar isn’t new. Policy experts for townships and counties say it’s a structural problem, not an economic one. Municipal revenue from state sources in Michigan has decreased by 56.9 percent from 2002 to 2012 compared to the national 48.09 percent increase in average municipal revenue from states, according to the Great Lakes Consulting report.
The 1994 passage of Proposal A requires property taxes to be calculated from the taxable value of a property. Before that, they were based on a property’s assessed value or an amount equal to half of the property’s market value, said Deena Bosworth, legislative coordinator for the Michigan Association of Counties.
“Proposal A makes us so majorly dependent on property values that drop as fast as the market,” Bosworth said.
Proposal A constricts county funds because the taxable value of a property cannot exceed the rate of inflation or 5 percent.
“It’s the drop in property tax revenue that’s really hurt us, not so much an influx of recent state mandates,” said Alan Terry, Petoskey’s director of finance.
Petoskey is more fortunate than cities downstate that laid off people so they could do more with less, he said. Besides not replacing city retirees, Petoskey hasn’t made any drastic changes, he said.
The list of state-mandated local services includes law enforcement, county clerks, equalization departments, juvenile justice programs and public health departments, Bosworth said. The most expensive service is the court system.
“Other units of government, both at the state and local levels, aren’t mandated this way,” Bosworth said.
Since Michigan depends on income, sales and business taxes, local revenues recover with the economy, Bosworth said. But it will take some municipalities 30 years to return to 2005 revenue levels.
Meanwhile costs, such as the price of health insurance, are rising faster than revenues.
It’s a balancing act for local governments.
Cities with low tax bases must levy high millage rates to provide a reasonable level of services, the counties report said. But high taxes push taxpayers to move.
And yet if taxes are kept low, the lack of local public services might also cause an exodus of those taxpayers, the report said.
Experts see reason for some hope.
“I do believe there will be finance reform over the next couple of years and am hopeful that there will be leadership from the governor’s office,” Bosworth said. Still, she expects no progress before newly elected lawmakers take office in January.
And there is also reason to worry.
There are a “ridiculous number of property tax exemption bills out there, which completely open the door to more problems for counties,” Bosworth said. Properties owned by religious organizations and governments are exempt from property taxes.
And now lawmakers want to add to that list, Bosworth said. A bill sponsored by Sen. Jack Brandenburg, R- Harrison Township, would exempt charitable organizations from property taxes. That includes any organization with a charitable mission, not necessarily only not-for-profits.
Neither Bosworth nor Selden know of any legislators working to fix that structural disparity.
“The state understands the problems, but nothing is being done to fix it,” Selden said. Local governments are left to depend on millages because “even grants that fund projects in the past don’t exist or there’s a lot more competition.
“For now, local governments just have to prioritize what the area wants and allocate resources to provide those wanted services the best they can,” Selden said.
By BRIDGET BUSH