Michigan’s major cities are in a jam.
Troubled by white flight, a loss of manufacturing jobs and, now, black flight, cities have been battered this decade by the economic downturn, the housing crisis and weakening state financial support.
Since 2000, governors and legislators have slashed state revenue sharing aid – by 27.3 percent since 2002, according to the Senate Fiscal Agency. That’s $4.2 billion the state has directed away from cities since 2001, the Michigan Municipal League says.
Gov. Rick Snyder has proposed even deeper cuts, which he says cities can absorb if they share more services and reduce compensation for their employees. Others are not so sure, noting that cities have already jettisoned some 3,000 law enforcement officers and 2,400 firefighters since 2001. They worry that further reductions may damage the quality of life in cities, leading more middle-class families to flee and young college graduates – the lifeblood of such prosperous regional hubs as Minneapolis, Chicago, Austin and Seattle – to shun Michigan.
In his campaign speeches, Snyder often talked about the importance of great cities to Michigan's prosperity. This week, the Center reviews his proposals to help revitalize Michigan’s cities.
The Governor's Plan: Gov. Rick Snyder proposes to kill statutory revenue sharing (currently at $300 million per year) and replace it with a $200 million, incentive-based Economic Vitality Incentive Program. No matter how you slice it, it’s about a $92 million cut to local government, according to Snyder’s executive budget.
1. Do most local governments receive statutory revenue-sharing money from the state now?
Not by a long shot. Every city, township and village receives some revenue sharing guaranteed by the Michigan Constitution. But only 30 percent of the more than 1,800 jurisdictions are receiving statutory revenue sharing this year, including just 40 of 1,240 townships, according to the Michigan Townships Association. The aid is geared toward more populous areas and more complex forms of government that offer more services and greater expenses.
2. How is the statutory revenue sharing divided? Who gets what?
A distribution formula based on population, per-capita property value (poorer communities getting more and millage rates was enacted in 1998. Because property values and taxes vary widely, so do per-capita rates. But Detroit gets the lion’s share – 59 percent of total statutory revenue sharing. Altogether, 31 cities exceed more than $1 million per year in statutory revenue sharing. Those cities accounted for 84 percent of total statutory revenue sharing last year, according to state data. They are:
3. What does the formula reward?
Higher taxes. The idea was to help communities where taxpayers had done what they could locally to finance government services. Critics argue it's a perverse incentive that burdens taxpayers and chases employers away. The distribution of statutory revenue sharing also is need-based. Property values in some communities, such as Detroit and Benton Harbor, are so low that they are incapable of raising adequate resources locally through higher property taxes.
4. Why does Detroit get so much?
The Legislature set Detroit's rate of combined constitutional and statutory revenue sharing at $334 million in the late 1990s as part of a plan in which Detroit agreed to lower its city income tax. For a few years, Detroit was exempt from revenue-sharing cuts. The result: Detroit gets far more per-capita than any other city.
5. Why do so few townships receive statutory revenue sharing?
Townships have historically received most of their funds from constitutionally guaranteed revenue sharing, which is based on population -- and can't be touched by the Legislature. Lawmakers wanted to make across-the-board cuts in total revenue sharing, so communities with less statutory revenue take a deeper percentage hit.
Think of it like this. Every community has a pie, a portion of which (constitutional revenue sharing) can't be eaten. When the Legislature decides to cut a 10 percent slice out of the pie, it has to come out of the unprotected portion (statutory revenue sharing). If you didn't have much statutory pie to begin with, before long it's all gone.
6. Will the formula change under Gov. Snyder's proposal?
Yes. Snyder wants to eliminate aid to communities that were receiving less than $6,000 in revenue sharing. That money will be split among those remaining eligible.
What will affect the distribution is the new census, which shows the population gains and losses of the past decade.
7. Is there enough money in the Economic Vitalization Incentive Program pot to make it worthwhile for local governments to go through all the hoops to get it?
A total of $195 million will be awarded based on three outcomes; communities will get one third of their payment for each one they achieve. (The other $5 million of a $200 million allocation will support jurisdictions planning complete mergers.)
The first third, for improving transparency by such things as putting dashboard performance measurements on government websites, is the low-cost, low-hanging fruit that nearly everyone can grab. A template has been created for communities to use.
8. Will the program lead to consolidation of services?
Snyder's only requirement for this year is that local officials design a "good-faith" plan for sharing services. Many communities, including Grand Rapids, Sterling Heights and East Lansing, say they are already doing plenty and may need to do little more than document their efforts. The degree to which the money accelerates service sharing remains to be seen, especially since the 70 percent of local governments that don't get revenue sharing now can't even apply. Still, if nothing else, the money will cause local officials to think about opportunities to share services.
9. Will local officials take on unions for just the final one-third of a reduced pot?
Snyder's desire to sharply reduce employee compensation — mostly through health insurance and pension benefit cuts — already has drawn raucous protests at the Capitol. Anger will no doubt shift to city and township halls. The relatively small amount of incentive money for these reforms probably won't be sufficient incentive itself to push deep cuts, but it may be added incentive (and pressure) for local officials who already are seeking reforms. And it comes in the context of collective-bargaining changes the governor is pushing that benefit the employer side of public-sector negotiations.
But the question remains: After a decade of previous revenue sharing cuts, does the remaining funding provide enough of a carrot for local officials to pursue big-time change? Consider, for example, Michigan’s second largest city: Grand Rapids. Statutory revenue sharing there totaled $6.4 million in 2010. The city has a total general fund budget of $110.7 million. So, a total loss of statutory revenue sharing amounts to about a 6 percent loss of general revenues. In the end, which would the city rather endure: a revenue sharing cut or the likelihood of labor strife induced by Snyder’s pressure to cut employee fringe benefits and consolidate government services? That’s the key reaction to Snyder’s plan that would play out in city halls across the state.
10. What happens if some communities don't meet the criteria for incentive payments?
That hasn't been settled. There has been talk about putting it into a new fund for local governments. But everyone knows such funds can be raided during budget shortfalls.
Snyder’s accountability measures hinge on local governments’ use of the chart-building tools he released in January.
Snyder spokeswoman Sara Wurfel says the administration has received numerous inquiries from local governments on the tools and the local version of a performance dashboard. She added that they've seen a “generally positive reception.”
However, the administration doesn’t have hard numbers on how many have used the tools.
One possible gauge is how many hits the tools have received online. So far, the numbers are modest. The Chart Builder has received 2,976 unique visits since its rollout, according to the Governor’s Office. The unique downloads for the Citizen’s Guide template is 3,412. However, there have been 19,913 unique visits to the main page for the 2011 Citizen’s Guide to Michigan’s Financial Health, as of March 25.
In contrast, Snyder’s Michigan Dashboard has attracted a much bigger audience, with 108,368 unique site visits, according to state figures.