Financial struggles in cities- it’s not always what you think

State of Michigan An article on the state of Michigan’s role in the struggling finances of cities penned by my colleague Tony Minghine is earning some increased play on social media because of the travesty in Flint and the governor’s recent budget announcement recommending flat funding for municipalities while adding to the state’s rainy day fund.

The Great Revenue Sharing Heist details how the state of Michigan has balanced its own budget on the backs of its municipal partners for over a decade. Every community is suffering as a result, but large urban centers are particularly hard hit because they have greater legacy costs and they are essentially “built-out”, and lack open land for new growth.

The cuts from 2003-14 topped $6 billion, including Detroit $732M, Grand Rapids $72M, and Flint $54M. Two cities that have spent time in receivership, Pontiac and Hamtramck, were cut by a combined $53M during the same time. All the cuts continue today.

How can this happen, you ask? First, a little history lesson. Municipal finance law in Michigan limits the ability of local governments to raise their own funds locally. In an effort to streamline tax structure in Michigan, local communities long ago forfeited their rights to levy certain taxes in return for a share of the state’s revenue. The law worked well for six decades. Differing opinions on how to distribute the money resulted in changes to the formula in the 1970s and 1990s. The program was a huge success and the Michigan model was the envy of other states. Here is a fact sheet if you want to know more.

Then came the late 1990s/early 2000s when state government decided to dole out huge tax breaks at a time when the economy went upside down. The result was even greater pressure on the state to balance its own budget. Unable, or unwilling, to make the appropriate cuts to match decreased revenues, the state turned to its model revenue sharing partnership with local governments for a remedy. You see, when it comes to appropriating money in Michigan, no matter what the statute says, all decisions are made on an annual basis in accordance with budget rules. Since it was a large line item in the budget, it made for an easy target. Then Gov. John Engler proposed that revenue sharing to local units be cut and the dollars reallocated to cover the state’s short falls in other parts of its own budget.

The “Heist” was born.

It has continued through two more governors and several legislative sessions. In years when state finances were at their worst, the argument was that everyone had to share in the pain. In good budget years, like this one, state officials contend that they must build-up their own rainy day fund, rather than restore cuts to communities. All the time trumpeting their own financial stewardship.

So municipalities are stuck between a hostile state government that yanks revenue and a citizenry that demands quality police departments, fire service, transportation and more.

Something has to give. The state’s culpability in the Flint water crisis is drawing intense international criticism, but its abandonment of Flint started years ago. The same goes for places like Pontiac, Hamtramck and Jackson. The result of this policy impacts public safety, quality-of-life and economic competitiveness everywhere in Michigan. The state is, after all, a collection of its unique places- no better, no worse. We can do a lot better.