State imposed oppressive funding scheme for municipal operations hurts all communities, not just Flint

Here is an excellent article that appears in today’s Detroit Free Press from my colleague Tony Minghine, further evidence that Michigan’s system for funding cities is broken and must change. Take a look.

Michigan’s way of funding cities set stage for Flint water crisis

For more information on this topic in the coming days, including a searchable database that provides numbers for all Michigan cities and villages, follow me on Twitter at @dpgilmartin and look for the hashtag #SaveMICity.

 

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Flint Water- for every action there is a reaction

Flint WaterMany outsiders look at the situation in Flint, Michigan with bewilderment. They ask, how can an American city essentially poison its own citizens with lead laced water? What kind of process leads to this type of outcome?

First, let’s track how Flint got to where it is. Once a thriving industrial power that belched opportunity from the smokestacks that dot the urban landscape, Flint began losing jobs (mostly auto based) in the 1970s when international competition challenged the status quo of American industry.  In the decades that followed, job loss kicked into full gear, leading Flint to lose half its population- and its ability to maintain a solid quality-of-life for its remaining residents. Schools suffered. City services declined. Businesses moved out, people did too.

In short, the place went upside down.

This is the point in the story where it turns from an unfortunate tale of a (largely) post-industrial city to an indefensible account of a state government turning its back on one of its pillar communities.

Beginning in the late 1990s the State of Michigan began de-funding local governments across the state. A decades old revenue sharing partnership between the state and its local partners was raided to cover shortfalls in the state’s budget. The raid continues today, topping $7 billion in cumulative loss to all cities, villages and townships.  According the U.S. Census Bureau, from 2002-2012 Michigan was the ONLY STATE IN THE U.S. to see total municipal general revenue decline (the state’s general revenue increased by about 30% during this period). Struggling cities like Flint were hit the hardest.

With declining revenue from property taxes that reflected lower values in the city and the state’s cutting revenue sharing, the city became a prime candidate for Michigan’s emergency manager law. The law allows the state of Michigan to replace the city’s elected leadership by appointing one person to make decisions on behalf of the entire municipality. The goal of the emergency manager is to balance the budget. He is answerable only to the state treasurer and ultimately, the governor.

A February guest editorial from Kary Moss in the Detroit Free Press describes the situation like this:

“Little has been said however about the law that made this possible, a law that gives a political appointee unfettered power to make decisions that will affect a community, without democratic accountability. This lack of check and balances on government is a civil rights issue.’

“The law does not require that an emergency manager have any expertise outside the financial arena and, to that end, allowed him to elevate the financial bottom line above all else. It enabled a revolving door of emergency managers in Flint with no ties to that community and yet unfettered power to make decisions that affect them. The suspension of democracy in these largely African-American communities makes this a civil rights issue.’

“We can now see the dire consequences. The absolute powers granted the emergency manager enabled him to stay the course in contravention of complaints about the water and adverse environmental reports, subverted the scientific processes, and led to the manipulation of that data to achieve the desired results.”

So here is a clearer picture of how poor decisions were made in Flint- 1) a once mighty city falls on hard times; 2) the state unilaterally obliterates its only remaining steady revenue option; 3) the state appoints an emergency manager to balance the books, apparently at any costs, and; 4) harmful decisions happen.

What we need to fix this problem in Michigan is a true urban policy that provides resources for infrastructure. We also need an actionable urban policy at the federal level.  I’ve been provided an opportunity to do a congressional briefing on this topic in DC later this week, where I intend to go into greater detail on the facts of this matter. I’ll let you know how it goes.

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The Prosperity Agenda: Overcoming Obstacles to Make Placemaking Happen

prosperity-agenda-thumbWhen it comes to creating 21st century communities, we often know what a successful community looks like, but communities can face many hurdles to creating the actual places they want to be, whether those challenges are financial or the result of poor public policy.

On this month’s Prosperity Agenda radio show on News/Talk 760 WJR we’re discussing some of those hurdles and what can be done to eliminate them so Michigan residents and visitors can enjoy communities that are unique and interesting places to live. Cities are striving to embrace the amenities residents want today, whether that’s walkability, better schools, arts and culture programs, good access to high-speed Internet, or an openness to entrepreneurs.

My co-host for this show is the Michigan Municipal League’s Luke Forrest, program manager and placemaking expert. We are joined by Robert Kleine, partner with Great Lakes Economic Consulting and former Michigan treasurer; Steve Maun, a developer working in Detroit on the Wurlitzer Hotel development; Fenton Mayor Sue Osborn and Fenton City Manager Lynn Markland.

The Michigan Prosperity Agenda is a monthly radio show that challenges listeners to help make Michigan a better place to live, work and play by creating vibrant and prosperous local communities. It has aired on News/Talk 760 WJR since 2010. The hour-long radio program is hosted by me, Dan Gilmartin, CEO of the League. The show is sponsored by the League and the Michigan State Housing Development Authority (MSHDA). The League’s next show airs at 7 p.m. Wednesday, Feb. 24, 2016, on News/Talk 760 WJR, but you can listen anytime at the League’s website or by subscribing to the FREE iTunes podcast. Learn more about the League’s placemaking work here on this blog.

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Increasing Home Ownership by Combating the ‘Appraisal Gap’ in Detroit

The appraisal gap is a problem in cities like Detroit. The effects of years of economic decline and depopulation continue to wreak havoc on the real estate market, despite hot markets in several neighborhoods in the city. So the gap between what the market bears and what traditional lenders will underwrite in loans is slowing the comeback.

House For SaleMayor Mike Duggan, with help from the Obama Administration, local banks, non-profits and philanthropy, formed the Detroit Home Mortgage to make it easier to buy and renovate properties in the city. Here is the strategy:

“Previously, federal lending guidelines did not clearly allow banks to loan borrowers enough money to cover necessary repairs because the loan amount was limited to the low, appraised value of a house. Many potential homebuyers have good credit scores and stable incomes, but could not get a large enough mortgage because the appraiser could not find a similar home nearby with a comparable sales price. Houses across Detroit remain inexpensive to purchase relative to homes just outside the city limits, but the lack of financing forced many families either to pay cash or to rent instead of building equity and investing in their futures. Some homebuyers use expensive credit cards to pay for renovations, or do the renovations piecemeal over several years.”

I’m excited to see what this does for the home buyers market in Detroit. Everyone involved is to be commended for their work. If you want to view available properties in the city visit these listings from two friends who know the market inside and out.

City Living Detroit

O’Connor Real Estate

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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.

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