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Michigan Congress shifts its debts to local governments

HOUGHTON — If the state of Michigan is nothing else, it is consistent in its ability to shift the state’s debts onto local governments.

For instance, an mlive.com report stated: “Over the past decade, lawmakers and governors from both political parties have used some $6.2 billion in sales tax collections to fill state budget holes rather than fulfill a statutory revenue sharing promise to local communities, according to the Michigan Municipal League, which released a city-by-city analysis earlier that month.”

The report went on to state: “The Municipal League says the annual budget ‘raid’ has diverted money that should have been used to maintain city services. It argues that the Legislature has helped cause some of the very financial emergencies that have prompted state takeovers or other forms of intervention.”

This report was initially published on March 30, 2014, over seven years ago.

That report went on to state that the Michigan Constitution requires the state to distribute a portion of sales tax collections to cities, villages and townships. Lawmakers cannot revise that formula without voter approval.

However, the state never fully implemented a secondary distribution formula established in 1999 that would have required an even larger chunk of sales tax revenue go to communities.

“It’s that statutory revenue sharing that local leaders are upset about,” the report states.

Nearly four years later, a Michigan State University report, which was intended as guide for the 2019 Gubernatorial Administration, published on Dec. 20, 2018, found that Michigan has had more cities under state receivership/supervision than any other state, as many of Michigan’s cities are suffering from fiscal stress.

There are three major reasons for this. First, the recent recession devastated property values in Michigan. From 2008 to 2012, the taxable property value of cities fell 18.1%. Since 2012, the taxable value of cities has increased only 0.3% despite the economic recovery.

The main reason for this slow recovery is the constitutional cap on taxable value, which limits the increase to 5% or the rate of inflation, whichever is less. Second, the state cut revenue sharing payments to cities by 14.6% from 2008-15.

Third, Michigan places more revenue raising restrictions on cities than almost any other state.

The MSU report was released three years after the Citizen Research Council of Michigan, titled Reforming Statutory State Revenue Sharing, which was published in February 2015. This study arrived at similar conclusions to the MSU report.

The CRC study found that the prolonged recession that gripped the state from 2001-09 hurt Michigan’s local government finances as much as anywhere in the nation. The end of the housing bubble and ensuing foreclosure crisis was especially significant, because Michigan’s local governments depend heavily on property taxes. The decline in property values added to the challenges caused by the exodus of residents from the state due to the decline of the manufacturing sector during this period. Some municipalities experienced declines in their taxable values in excess of 30 percent.

Municipalities were affected significantly by the drastic reductions in state revenue sharing caused by the state’s diversion of those funds to other state purposes. From FY2001to the present (2015), the state diverted more than $5 billion away from statutory state revenue sharing to help the state appropriate funding for other purposes. This shifted the financial pain of the recession away from the state and down to local governments. It also spread the financial pain away from the geographic areas of the state where the economic declines were the most severe, primarily to southeast Michigan, and on to all cities, villages, and townships throughout the state.

“The relative ease with which the state can alter the statutory payments to local governments,” the report states, “has offered opportunities to use that money to balance its own budget rather than distribute funds as earmarked by prior legislatures.”

One of, if not the most, significant fiscal issues impacting the state government is what it likes to refer to as “unfunded liabilities.”

According to the Municipal Employees’ Retirement System (MERS), in a defined benefit pension plan or retiree health care plan, unfunded liability is the difference between the estimated cost of future benefits, and assets that have been set aside to pay for them. For Michigan, that equates to over $55 billion.

In the next installment, the Daily Mining Gazette will examine how Michigan is using local governments to pay its debts.

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