Funding local government in Michigan: a broken system?closup.umich.edu/files/presentations/...funding_local_government.pdf · Funding local government in Michigan: ... Green: < 25%

Funding local government in Michigan: a broken system?

Gerald R. Ford Presidential Museum March 28, 2013

The Michigan Public Policy Survey • Census survey – all counties, cities, townships,

and villages (72% response rates); twice/year

• Respondents – chief elected and appointed officials

• Topics – wide range, such as fiscal health, budget priorities, economic development, intergovernmental cooperation, employee policies, labor unions, state relations, environmental sustainability, citizen engagement, much more.

2

Warning Signs

“Within five years all of our urban cores are going to be where Flint is at today, unless some significant changes are made.

The way we finance cities today is broken.”

- Ed Kurtz, Emergency Financial Manager, City of Flint (Michigan Radio, 1/30/2013)

3

Warning Signs “We cannot continue to do all things for all people

like we have done in the past.

We tried doing more with less. That worked for a while.

Doing more with less has kind of reached its limits, and now we’re suggesting we’re going to do less with less.”

- David Hollister, former Mayor of Lansing, chair of blue ribbon committee on Lansing’s finances (Lansing State Journal, 3/15/2013)

4

Presentation Outline

• Era of Local Government Retrenchment

• A 2nd Retrenchment Looming?

• What Local Leaders Say Should Be Done

5

A Decade of Funding Cuts

6

Revenue sharing cuts

7

% of jurisdictions with declining state aid

Declining Revenues

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

< 1500 1500-5000 5001-10000 10001-30000 > 30000

2009 2010 2011 2012

Population Size

Declining Revenues

8

% of jurisdictions with declining property tax revenues

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

< 1500 1500-5000 5001-10000 10001-30000 > 30000

2009 2010 2011 2012

Population Size Population Size Population Size Population Size Population Size Population Size Population Size Population Size

Rising Costs

9

% of jurisdictions with rising health care costs

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

< 1500 1500-5000 5001-10000 10001-30000 > 30000

2009 2010 2011 2012


Rising Costs

10

% of jurisdictions with rising pension costs

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

< 1500 1500-5000 5001-10000 10001-30000 > 30000

2009 2010 2011 2012

Population Size Population Size Population Size Population Size

Government Actions

11

% of jurisdictions increasing debt

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

< 1500 1500-5000 5001-10000 10001-30000 > 30000

2009 2010 2011 2012

Population Size Population Size Population Size Population Size Population Size Population Size Population Size

Government Actions

12

% of jurisdictions increasing reliance on GF balance

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

< 1500 1500-5000 5001-10000 10001-30000 > 30000

2009 2010 2011 2012


Government Actions

13

% of jurisdictions cutting staff levels

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

< 1500 1500-5000 5001-10000 10001-30000 > 30000

2009 2010 2011 2012


Government Actions

14

% of jurisdictions shifting health care costs to employees

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

< 1500 1500-5000 5001-10000 10001-30000 > 30000

2010 2011 2012


Government Actions

15

% of jurisdictions increasing inter-gov’t cooperation

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

< 1500 1500-5000 5001-10000 10001-30000 > 30000

2009 2010 2011 2012


Government Actions

16

% of jurisdictions cutting service levels

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

< 1500 1500-5000 5001-10000 10001-30000 > 30000

2009 2010 2011 2012

Population Size Population Size Population Size Population Size Population Size Population Size Population Size Population Size Population Size

Spreading Fiscal Problems

17

2009: less able to meet fiscal needs, by county

Jurisdictions within County

Green: < 25% Yellow: 25-50% Red: > 50%


18



Green: < 25% Yellow: 25-50% Red: > 50%

Easing Fiscal Problems

19



Green: < 25% Yellow: 25-50% Red: > 50%

Easing Fiscal Problems

20



Green: < 25% Yellow: 25-50% Red: > 50%

Status of Fiscal Health Today

21

• General Fund Balance o 66% say levels are about right or even too high o 23% say too low (41% in largest jurisdictions)

• Cash Flow o 91% say not much of a problem or not a problem at all o 18% in largest jurisdictions say somewhat of a problem

• Package of Services

o 79% are very or somewhat satisfied with package of services still delivered today





22

Concerns Going Forward

23

% that can maintain services in current system

8% 6% 2% 1% 1%

30% 27% 37%

48%

67%

16% 21%

17%

13%

10% 46% 46% 44%

38%

22%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

< 1500 1500-5000 5001-10000 10001-30000 > 30000

Can Maintain

Neutral

CannotMaintain

Don't Know



24

Able to maintain services, by county


Red: < 50% Green: > 50%


25

% of jurisdictions with increased human service needs

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

< 1500 1500-5000 5001-10000 10001-30000 > 30000

2011 2012



26

% of jurisdictions with increased public safety needs

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

< 1500 1500-5000 5001-10000 10001-30000 > 30000

2011 2012



27

% of jurisdictions with increased infrastructure needs

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

< 1500 1500-5000 5001-10000 10001-30000 > 30000

2011 2012



28

% that can improve services in current system

12% 9% 3% 1% 1%

37% 38% 46%

61%

79%

26% 26% 24%

17%

6% 25% 27% 27%

21% 14%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

< 1500 1500-5000 5001-10000 10001-30000 > 30000

Can Improve

Neutral

CannotImprove

Don't Know

Population Size Population Size Population Size Population Size Population Size Population Size Population Size Population Size Population Size Population Size Population Size Population Size


29

Able to improve services, by county


Red: < 50% Green: > 50%





30

Support for Funding Reform

31

% that believe significant reform is needed

9% 6% 3% 1%

17% 16%

17% 14%

10%

23% 22%

19%

15%

13%

52% 56%

61% 70%

77%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

< 1500 1500-5000 5001-10000 10001-30000 > 30000

Reformneeded

Neutral

Reform notneeded

Don't know

Population Size Population Size Population Size Population Size Population Size Population Size Population Size Population Size Population Size Population Size Population Size Population Size Population Size Population Size Population Size Population Size


32

% that believe significant reform is needed

5% 7% 5%

18% 12% 14%

22%

18% 19%

55% 63% 62%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Republicans Independents Democrats

Reform needed

Neutral

Reform notneeded

Don't know


33

% that would target specific funding elements to reform

26%

27%

32%

37%

30%

36%

38%

42%

35%

16%

20%

32%

41%

50%

45%

44%

41%

54%

Regional taxation

Local income tax

Economic Vitality Incentive Program

Personal Property Tax (PPT)

Constitutional revenue sharing

Proposal A

Headlee Amendment

Sales tax

Gas tax

Not Important at All Somewhat Important Very Important

6%

12%

9%

8%

15%

15%

12%

37%

29%


34

Suggested reforms

• Property taxes: o Eliminate Headlee and Proposal A o Ease revenue caps o Lower/ease the automatic millage rollbacks o Allow automatic millage rollups

Quote:

“I would revise Proposal A to get rid of the tax rate differences between homestead and non-homestead and eliminate the caps. I would revise the Headlee amendment so that millage rates could both be rolled back and rolled up without a vote of the people.”


35

Suggested reforms

• Sales taxes: o Increase the sales tax rate o Increase the sales tax base (add services, food, internet

sales, etc.) o Allow local sales taxes, or local control of state sales tax

Quote:

“It’s a bit like a three-legged stool. Right now we only have the ability to collect revenues from one leg of the stool and as a result the whole system is unbalanced. Making it possible to levy a local sales tax – or easier to levy an income tax – would re-balance the stool and allow us to reduce property tax rates.”


36

Suggested reforms

• Revenue Sharing: o Stop the cuts; provide more stability and predictability o Eliminate EVIP and move all funds into Constitutional program o Make more jurisdictions eligible for EVIP o Stop penalizing jurisdictions through EVIP that already took “best

practices” actions

• Personal Property Tax: o Provide full replacement funding

• Gas Tax:

o Base the tax on sales price, not volume o Change distribution formulas among local governments

A Broken Funding System?

38

key findings

• Long period of fiscal squeeze: falling revenues and rising costs.

• Local governments were very active in responding: have largely preserved fiscal health and tried to protect services.

• However, only 43% believe current system of funding will allow them to maintain their current package of services in the future; only 26% think it will allow improvements or provision of new services.

• 58% say significant reform is needed. Among them, overwhelming percentages say each major piece of the system needs reform.

• But there is no particular consensus on the fixes.

• It is time to discuss the system of funding local government.

Funding local government in Michigan: a broken system?

Gerald R. Ford Presidential Museum March 28, 2013

www.closup.umich.edu

Funding local government in Michigan: a broken system?closup.umich.edu/files/presentations/...funding_local_government.pdf · Funding local government in Michigan: ... Green: < 25%

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