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Michigan continues to fail its residents

HOUGHTON — Between 2002 and 2018, the Michigan Legislature withheld some $8.6 billion in revenue sharing from local governments, leaving cities, villages and townships to adjust their drastically reduced budgets, which has included across the board cuts to essential services such as police safety, fire protection, and public health, as well as public parks, and leaving institutions like libraries ways to figure out how to become self-supporting.

In Michigan, revenue sharing consists of both constitutional and statutory payments. As stated in a 2019 report released by the Michigan Municipal League, constitutional payments consist of 15% of gross collections from the 4% sales tax distributed to cities, villages, and townships based on their respective populations. This amount is set by the state constitution.

The Legislature must appropriate whatever is calculated. It cannot reduce or increase the constitutional portion of revenue sharing. Constitutional payments to cities, villages, and townships grew by an average of only 1.27% per year from FY 2001/02 through FY 2017/18, less than the annual average inflation rate during the same period.

Statutory payments, on the other hand, have traditionally been distributed by a formula, rather than on a per capita basis. The formula is designed to compensate for the significant variation in local governments’ service delivery needs, infrastructure maintenance requirements, and capacity to generate local tax revenue. This statutory program calls for 21.3% of the 4% sales tax collections to be distributed in accordance with language set in Public Act 532 of 1998.

Funding for non-constitutional formula revenue sharing for cities, villages, and townships (CVTs) declined 69.0% from the peak appropriation of $797.3 million in fiscal year (FY) 1997-98, the “Winter 2016 edition of State Notes: Topics of Legislative Interest” reported.

The statutory payments that should have been phased in in 1998 were never fully implemented due to funding cuts. As a result, the shortfalls in statutory revenue sharing to cities, villages, townships, and counties from 2001 through 2018 — a total loss of $8.6 billion.

The state government shifted the goal post again in 2011, when the Economic Vitality and Incentive Program (EVIP) replaced statutory revenue sharing, but it was never been codified into statute.

A CVT would be eligible for EVIP payment if it fulfilled requirements related to accountability and transparency, consolidation and collaboration, employee compensation issues, and reducing unfunded liabilities. Unfunded liabilities is the term the state prefers for the debt owed to the its pension system, states a Dec. 18, 2018, analysis by the Michigan State University. When EVIP was initiated, only 486 CVTs were eligible for EVIP funding.

Cities, villages and townships (CVT) receive both constitutional and statutory funding from revenue sharing. Counties, however, do not receive constitutional revenue sharing, but rather only receive funding from the statutory pool.

An April 25, 2019, Michigan Association of Counties report stated that Gov. Gretchen Whitmer’s budget contained a 3 percent increase for county revenue sharing to just over $228 million, up from the $221.4 million for the current fiscal year. The governor’s budget recommendations were based on increase revenue for roads, but the Senate appropriators have chosen to not increase revenue along with the budget. However, the proposed increase in statutory revenue sharing for counties, was rejected by the Senate Appropriations Subcommittee on General Government.

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 level of essential services that counties must provide, regardless of state funding policies.

The analysis state that as with CVTs, actual appropriations to counties were routinely below the full funding guideline. Statutory revenue sharing payments to counties were temporarily suspended beginning in FY 2004-05. Instead, counties were required to create reserve funds with own-source general operating revenue.

The Senate Fiscal Agency’s Feb. 27, 2021 Overview of Gov. Gretchen Whitmer’s FY 2021-2022 Budget states that the Governor proposes to increase revenue sharing payments to counties by 2.2% to $231,516,700. County Revenue Sharing would increase by $4,897,800 to $188,097,900 and the County Incentive Program would increase by $89,500 to $43,418,800. Whether the Senate Fiscal Agency will again reject the governor’s proposal is not known.

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