News and analysis from The Center for Michigan • http://thecenterformichigan.net
©2014 Bridge Michigan. All Rights Reserved. • Join us online at http://bridgemi.com

Original article URL: http://bridgemi.com/2012/01/big-township-bank-accounts-draw-concern-defense/

Public sector

Big township bank accounts draw concern, defense

We all know Michigan’s local governments have been struggling because of a plunge in tax revenues caused by the Great Recession and the housing collapse, not to mention shrinking state revenue-sharing payments.

Or do we?

A controversial new study by Isabella County Administrator Tim Dolehanty claims there is, in fact, an “embarrassment of riches” at many local governmental units, mostly townships and villages.

The study raises prickly questions about the structure and financing of local governments at a time when the state is demanding that they operate more efficiently and at a lower cost, experts say.

“It’s a hot potato topic,” said Tom Ivacko, administrator of the University of Michigan’s Center for Local, State and Urban Policy.

Dolehanty examined the finances of all 1,856 local governmental units in the state “as an exercise in curiosity.” He found that many have hefty savings.

“I started looking at fund balances and was astounded at what I was seeing,” he said.

Dolehanty’s study, which focused on the 2009 fiscal year, found that townships were in the best shape of all local governments. They had, on average, an unrestricted fund balance equal to nearly 150 percent of their annual operational budgets.

Unrestricted fund balances are monies that are held in reserve, but are available to spend for a variety of uses.

Villages had an average unrestricted fund balance of 100.96 percent of annual operating funds in the year Dolehanty studied, while cities had an average balance of 31.21 percent. Counties’ average fund balances were 20.15 percent of annual expenditures.

The Government Finance Officers Association recommends local governments maintain an unrestricted fund balance equal to two months of operating costs, or 16.6 percent, according to Dolehanty’s study.

Nearly two-thirds of the state’s 1,240 townships have enough money in reserve to operate for more than a year without collecting any taxes or other revenues, he said.

Townships weather revenue storms

Villages, townships, cities and counties amassed $1.2 billion in unrestricted revenue, according to Dolehanty’s study. That has occurred as local governments saw property tax revenues fall by $900 million since 2007, according to a December Bridge analysis of Treasury Department data. (Much of that impact of that decline, however, occurred after the fiscal year Dolehanty studied.)

About 60 percent of all local government unrestricted fund balances were in township coffers in 2009.

But critics say Dolehanty’s study offers a misleading picture of local government finance, particularly for townships. Despite healthy looking averages, critics say there are wide disparities in financial pictures of local units. Some see Dolehanty’s study as a thinly veiled attempt to get additional revenue-sharing payments for counties, which his study showed have the lowest fund balance rates.

“It’s very, very frustrating to me. His methodology is just painfully flawed,” said Larry Merrill, executive director of the Michigan Townships Association.

One of Merrill’s biggest gripes involves what he says is the way Dolehanty calculated unrestricted fund balances using the various fiscal years of local governments.

Township fund balances appear inflated, Merrill said, because nearly 60 percent of townships collect property tax revenues at the beginning of their fiscal years and have yet to spent much of that money.

Cities collect their taxes in the summer when most are well into their fiscal years.

“He’s comparing two different units of government with vastly different cash flows,” Merrill said.

But even if that’s the case — and Dolehanty is not conceding the point –adjusting for differences in fiscal years would still have left townships with a bulging $540 million in unrestricted fund balances, Dolehanty said.

Eric Lupher, director of local affairs at the nonprofit Citizens Research Council of Michigan, said townships and villages tend to have higher fund balances than cities or counties because of the way they fund large expenditures.

“Cities usually go to the bond market to borrow money for capital improvements,” he said. “Townships tend to save up the money for when they need to buy things. They’re making wise use of the taxpayers’ dollars.”

Do-it-yourself financing in Cooper Township

Such is the case in Cooper Charter Township in Kalamazoo County. Supervisor Jeffrey Sorensen said the township has used hundreds of thousands of dollars in its fund balance over the past few years to pay for a variety of expenses, including a fire truck, land for a cemetery expansion and a new roof for the township hall.

“If you don’t plan ahead and build a fund balance, you’d have to go to the voters for a millage request,” Sorensen said. “We don’t do that.”

While Cooper Township has been able to buy with its savings, the nearby city of Kalamazoo is shrinking its public safety staff. Declining revenues from property taxes and state revenue sharing resulted in a recent early retirement buyout of 221 city employees, including 54 public safety officers.

Cooper, with an annual budget of about $1.1 million, had an unrestricted fund balance of $1.6 million for its fiscal year ending March 31, 2011. The Kalamazoo City Commission on Jan. 3 adopted a 2012 budget of $159 million, down from $171 million in 2011. The city had only a $1.8 million general fund balance at the end of its fiscal year on Dec. 31, 2010.

“It’s easy to have a 100 percent fund balance when you aren’t providing services or doing such things as planning and zoning work,” said Dan Gilmartin, executive director of the Michigan Municipal League.

Providing police and fire services typically is about 50 percent of a city’s budget, but most townships “don’t spend a dime on public safety,” he said.

Cooper Township — population 10,111 — has a paid, nonunion, 26-member fire department. But the township relies on police protection from the Kalamazoo County Sheriff’s Office, which is supported by a countywide millage.

Merrill pointed to a 2010 survey by the Michigan Townships Association which found that 1,132 of the state’s 1,240 townships operated their own fire departments, provided fire protection jointly with another jurisdiction or purchased fire protection from another local government. The survey also found that 319 townships provided or paid for police protection for residents.

Gilmartin, though, provided a document from the Treasury Department that shows 579 townships spent nothing on police services in 2010 and that an additional 262 townships spent under $10,000. 

Merrill cited a number of other reasons why villages and townships generally are financially healthier than cities and counties.

Tax collections are rising in some rural townships because of a recent run-up in the value of agricultural property, he said.

Township employees, if there are any, tend to be paid less than city employees and are mostly not unionized.

“We have less legacy costs and fewer service contracts,” Merrill said. “For the most part, I think townships have controlled their spending pretty well in a declining revenue stream.”

Townships fear money grab by counties

Merrill said he is worried about the potential economic impact to the state caused by struggling cities surrounded by healthier townships.

“No unit of government is an island to itself,” he said. “Declining cities bring down the entire region.”

State emergency managers are running Benton Harbor, Flint and Pontiac. Detroit, which Dolehanty’s study showed had an unrestricted fund balance of negative $331.9 million in 2009, is trying to avoid a state takeover.

But Merrill said he views Dolehanty’s study as the first salvo in an attempt by counties to grab a larger share of tax dollars for services they provide to smaller local governmental units.

“His conclusion is the state should take money from townships and give it to counties,” Merrill said.

Dolehanty said his research is merely fodder for a needed public policy discussion on local government finances.

“I’m not under the illusion that this is going to change the structure of local government anytime soon,” he said. “But I think there are philosophical questions here that we should be asking ourselves.”

12 comments from Bridge readers.Add mine!

  1. Al

    Mr. Haglunds ignorance of the truth or reality may make for good writing and support cities and counties in their quest to shift money to them from townships. It also shows his lack of knowledge of township government. He uses only the townships that have a goodfund balance. What about the many rural townships? If they have fund balances it’s because they are saving funds for a specific reason. according to any good accounting principals all townships should have at least an unrestricted fund balance of 125% at the beginning of their budget year.Why doesn’t he explain how much road or street mony comes to the townships? How much does the cities,counties and villages get? Mr. Ruglands article is just misguided.

  2. David Werner

    Since when has saving for a rainy day become a sin. I applaud those townships who have enough wisdom to set aside money for the days when we know the state legislature will let us down and fail to keep funding promises, like they have done with public schools. Having these funds on hand helps tempers future cuts.

  3. Chris

    The section of the article where Mr. Merrill cites the MTA survey, “The survey also found that 319 townships provided or paid for police protection for residents.”

    And then you follow-up with, “Gilmartin, though, provided a document from the Treasury Department that shows 579 townships spent nothing on police services in 2010 and that an additional 262 townships spent under $10,000. ”

    This exchange makes it seem like you are using Mr. Gilmartin’s figures contradict Merrill’s and thus invalidate Merrill’s point However, the 319 cited by Merrill seems to contradict Gilmartin’s earlier point that townships don’t provide fire or police service. Merrill cited information that SOME indeed do provide those services.

    If I didn’t know better I’d say you were slanting the article to make the townships look bad.

    I think Mr. Dolehanty is correct, there needs to be a larger philosophical discussion. And, perhaps that discussion should start with the cities looking at how the townships are run and learn something. The cities don’t need more money they need to learn how to better manage the funding they currently receive.

  4. Chuck Fellows

    The study appears to have made a classic error, presenting a data point without the context to support it.

    The study and its conclusions are meaningless.

    Unfortunately there are too many of a similar myopic perspective who want to use meaningless “stuff” to justify actions to obtain money and power.

    Politics and politicians as usual.

  5. Brent Larson

    Oh, no. Units of government that may have planned ahead, acted prudently, developed a rainy-day strategy, avoided running on the brink of fiscal danger? That’s not fair. That’s not right. If they have money set aside, it needs to be spent, taken away, redistributed. What have we come to when we assume that if some do things differently, and do better, that they need to be addressed or put under a microscope to certainly find something amiss? Is that the case in every instance? No. Is the discussion worthwhile? Yes. But, there seems to be an assumption in here of, “Oh, no, someone’s getting ripped off if everyone isn’t broke.” We need to adjust our bias to want all to do well, not to assume that if someone isn’t and someone is, someone must be to blame among those who did better somehow. Times have been and are still tough. We need to help each other learn from best practices, not look for places where the pain isn’t present and assume there must be wrongdoing. A wise saying from the not-for-profit world is, “No margin, no mission.” If saving money is wrong, then we’d better do something about all these commercials that preach retirement planning, IRA’s and 401Ks. And if a surplus in government is wrong, then we’d better start a whole different kind of conversation, real soon.

  6. John Q. Public

    Let’s assume for the sake of discussion that the conclusions in the study are valid. Where does that leave us? The prevailing arguments are that we should get rid of twonships because they’re “irrelevant.” The political class and the chattering class advocate eliminating the one municipal structure that shows some financial acumen.

  7. Eric Schertzing

    As County Treasurer I have seen very significant fund balances in our small townships. 1 or 2 years of operating revenue in reserves was common. I’m not saying this is good or bad, but I do think it is interesting to levy taxes when your level of fund balance is this large. I grew up in a small township on the family farm. There is nothing pristine about township government and any taxpayer that has a concern with government should have a concern with this level of fund balance anywhere.

  8. Larry Merrill

    Townships are not embarassed to be the most financially well-managed units of government in Michigan.

    The Government Finance Officers Association (GFOA) website discussion on fund balances is http://www.gfoa.org/index.php?option=com_content&task=view&id=1450e.

    Mr. Dolehanty misquotes the GFO recommendations, which is to maintain a minimum fund balance of two months of operating expenses. Also ignored is GFOA’s observation that larger entities need smaller fund balances because they are better positioned to predict contingencies and they have more diverse revenue sources.

    Townships collectively spend over $600 million per year on public safety. They have also recently increased spending on roads from $90 million to $160 million to fill the gap in road spending due to reduced spending by other jurisdictions.

    Approximately 800 townships perform planning and zoning. Rural communities with little change in land uses do not need to spend money on a function that has no value, or that can be more efficiently performed at the county level.

    Entities that have no crime have little reason to spend money a lot of money on law enforcement. That’s the beauty of township government. Each adjusts its expenditures to fit local circumstances.

    I appreciate Mr. Haglund’s effort to present both sides of a complex issue.

  9. Duane

    “His conclusion is the state should take money from townships and give it to counties,” Merrill said.

    That sure has sense of credibility to it. The cities and counties have not been as fiscally respsonsible and Administrator Dolehety seems to be jelous of those who have been responsible and the cash on hand.

    I surely know that Administrator Dolehety was satisfying his curiousity on his own time and on his own system and not at the expense of Isabella County/

  10. Bob

    Many of the comments to Haglund’s article seem to reflect the sense that a fair and focused discussion would be a worthy undertaking. From 30 years of experience in administering township government, I have come to observe that the first thing that those who are not really well versed in the structure and functioning of Michigan townships need to know that there is a huge diversity among these 1,240 units of municipal government. “One size does NOT fit all” when analyzing or making pronouncements about the fiscal circumstances and management of townships. I am disappointed and disturbed at the apparent animus of some county and city officials toward township government. Although I understand that this has been a two-way street, it ill-becomes local government officials to engage in the kind of beggar-thy-neighbor discourse we are seeing now in these times of severe threats to municipal government, home rule, and quality of life in our cities, townships, villages, and counties. Knock it off and be constructive, rather than antagonistic. Together we may have a chance to survive the present troubles; divided we will surely fall.

  11. Lois

    The MTA Director indicated that Township Fund Balances are inflated at the beginning of the year. True, but audits and statistical analyses are done on year end figures.

  12. Bill Anderson

    Most townships have fiscal years that end on March 31. Since townships collect their property taxes on the winter tax bill, collections are completed on March 1. So fund balances are reported days after collecting a year’s worth of property taxes. Cites on the other hand report their fund balance as of June 30 the day before they send out their annual property tax bill on July 1. If you were paid once a year and someone asked you how much cash you had on hand the day after your annual payday as compared to the day before, you would would give two very different answers.

    We know townships operate on about $2.5 billion per year. This report indicates townships have a 145% fund balance, which would be just under $4 billion. But the report says the township fund balance is $700 million. Cites operate on about $13 billion per year and according to this have a 31% fund balance, which would be $ 4 billion. However, all local governments have a total unrestricted fund balance of $1.2 billion according to the report. How were these averages calculated? Do I average a tiny township with a 1000% fund balance with Detroit and get a 500% average. We could then conclude that Detroit is in great fiscal shape. Do I add up the fund balances of cities and show a smaller number because three cities have a combined negative $300 million fund balance that offsets $600 million in the other cities?

Leave your comment...

Your email address will not be published.

Invest in non-partisan journalism.

Donate to The Center for Michigan.Find out why.