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Press Release


Contact:

Matt Bach
Director of Media Relations
Michigan Municipal League
(734) 669-6317; C: (810) 874-1073
mbach@mml.org; www.mml.org

FOR IMMEDIATE RELEASE: May 25, 2016

New Report Details How State Policies Have Damaged Michigan Cities

Great Lakes Economic Consultants Unveils 'Michigan's Great Disinvestment' Report

 

LANSING, Michigan – A new report released today provides data on how a variety of state policies, from revenue sharing cuts to limits on growth of property tax values, have created a crisis in Michigan cities that is preventing the state from achieving its economic potential.

The report, “Michigan’s Great Disinvestment: How State Policies Have Forced Our Communities into Fiscal Crisis,” was prepared by Great Lakes Economic Consultants (GLEC) using information from state and local records as well as census data. It shows:

  • Since 2002, Michigan has cut state support for cities more than any state in the nation. According to U.S Census data, from 2002 to 2012, the average state increased municipal revenues by 48 percent. Revenues declined in 5 states, including Michigan, where the decline was 57 percent. The next largest cut was in Kansas, which cut support by 14 percent.

  • Michigan is the only state where total municipal revenue declined from 2002 to 2012, an 8-percent reduction before considering inflation. There is little evidence of a rebound.

  • Statutory revenue sharing to municipalities in FY 2016 is estimated to be $585 million below the full funding of the statutory dedication. The cumulative amount of cuts to statutory revenue sharing for cities, villages and townships from FY 98 to FY 16 is estimated to be $5.538 billion. When reductions to counties are included, the cumulative cuts are more than $7.5 billion.

  • The Great Recession starting in 2008 led to the greatest decline in Michigan property values since the 1930s. The taxable value of cities fell 18.1 percent from 2008 to 2012, and property tax collections fell 9.1 percent.

  • The decline in taxable value was partially offset by an increase in the millage rate, as local voters raised the average local millage rate 16.28 mills to 18.07 mills.

  • The ability of cities to respond to the sharp declines in revenues is limited by the constraints and limited revenue flexibility caused by constitutional and statutory limitations.

  • Michigan has lost more public sector jobs than any other state since 2000, mainly at the local level. In 2000, there were 450,000 employees in the local sector, including K-12 education. This number dropped to 354,000 in November 2015. Since 2000, the number of police and fire jobs has declined by over 5,000.

The report concludes:

  • Any city with a tax base much below $20,000 per capita will struggle financially and be forced to levy higher than average property tax rates or income taxes (90 cities are in this category).

  • Cities with low tax bases must levy high millage rates to provide a reasonable levy of services, and these high tax rates encourage residents and businesses to move elsewhere; if tax rates were kept low, the lack of services would encourage residents and businesses to move elsewhere.

  • A strong revenue sharing program, as Michigan used to have, allows communities with low tax bases to maintain a reasonable level of services without needing to levy uncompetitive tax rates. Without revenue sharing, cities are caught in a vicious cycle that results in ongoing serious financial problems as demonstrated by the fact that Michigan has had more communities under state supervision than any other state.

  • Although housing values are recovering from the sharp decline, it will take most cities a number of years to recover their lost tax base due to the constitutional cap on the annual increase in taxable value. 

    • Taxable value in Farmington Hills fell 30.2 percent from 2008 to 2012. Value increased at an annual rate of 0.5 percent from 2012 to 2015. The report estimates the city’s taxable value will not return to 2008 levels until 2038. Adjusted for inflation, it likely will never return to 2008 levels.

  • Michigan’s emergency manager law is ineffective as it does not address the real problem facing cities, the lack of an adequate tax base. The average taxable value per capita of cities under state supervision is $12,060 compared with a state average of about $32,000. The average millage rate is 29.3 mills compared with 18.3 mills for all cities.

“Our conclusion is that the State of Michigan has failed our cities,” said report co-author Robert Kleine, a former state treasurer. “We have a dysfunctional system of local government organization and financing. The entire system needs to be overhauled. We cannot have a strong state without strong communities.”

Joshua Sapotichne, Michigan State University assistant professor of political science, who is studying state municipal finance issues, said Michigan is one of onlyh a handful of states that so aggressively limits the ability of local governments ro raise their own revenues to address their issues, while simultaneously reducing state support. That means state policy is incubating municipal failures, the decline of city services, and the ability of cities to meet the needs of its citizens.

“This is an important report because it lays out in excruciating detail what has happened to cities over the past several years,” said Anthony Minghine, associate executive director and COO of the Michigan Municipal League, which commissioned the GLEC report. “We have built an unsustainable method for funding local government, and unless the administration and Legislature take steps to correct it, we will be damning Michigan’s future.”

“We must reevaluate how we fund the services that matter most and back it with the resources needed to create places that people want. Attracting and retaining the best talent is the only way to truly grow Michigan and restore it to economic prominence,” Minghine said.

Dan Gilmartin, League executive director and CEO, said the state’s refusal to address urban finance issues imperils its ability to be a leader in economic growth.

“We know that we need to retain and attract knowledge industry jobs, which come to communities with large numbers of college-educated persons. These drivers of today’s economy are looking to live in vibrant cities—and Michigan’s state policies are preventing our cities from having the resources needed to be successful.”

More information on the financial crises facing Michigan’s cities and how they can be addressed is available at saveMIcity.org.

Michigan Municipal League is dedicated to making Michigan’s communities better by thoughtfully innovating programs, energetically connecting ideas and people, actively serving members with resources and services, and passionately inspiring positive change for Michigan’s greatest centers of potential: its communities. The League advocates on behalf of its member communities in Lansing, Washington, D.C., and the courts; provides educational opportunities for elected and appointed municipal officials; and assists municipal leaders in administering services to their communities through League programs and services. Learn more at mml.org.

Great Lakes Economic Consulting is a non-partisan firm that conducts fact-based analysis. They provide studies on public policy issues and strategic advice to local governments, school districts, trade associations, lobbying firms, non-profit associations and other organizations. With 60+ years of combined experience, the firm’s principals bring the knowledge, resources, and contacts needed to acquire and analyze information on almost any public policy issue with a fiscal or economic component.

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