Guest column: Change tax code to feed starving Michigan cities

By Dayne Walling/Flint mayor

In Michigan, cities were the greatest victims of the recent near failure of the economy and the housing market. Michigan is not seeing the same renaissance of returning to the city at a significant rate equal to the national trend.

The problem is that all of the cuts to government here have run downhill to city halls and the resources are simply not sufficient to sustain basic services in an environment with rising costs of everything from health care to fuel.

Faced with this challenge, unfortunately, the state is keeping city governments on a starvation diet of primarily shrinking property tax revenues and uncertain shared revenues. In fact, the state is contemplating accelerating the shrinking property tax values associated with soft real estate markets by phasing out much of the personal property (i.e., equipment) tax.

One approach being tried with urban budgets is to change management authority and cut spending requirements by reforming labor contracts and outdated practices. This has fallen short of offsetting the recent revenue reductions in Flint.

New contracts imposed by the state-appointed emergency manager will make public safety officers some of the lower-compensated in Michigan, despite the extraordinary workload of crime, arson and violence (e.g. 10 times more violent crimes per officer than Ann Arbor) in Flint. Even so, 10 percent of the already minimally staffed Police Department will be laid off and more than 30 percent of the firefighters will be out of a job with the new budget this summer -- unless new grant funds are identified soon.

This fuels a cycle of central city decline, in which prospective city dwellers in the regional housing market can chose to locate outside the city limits and thereby avoid paying the legacy costs embedded in city operations and the higher resident income tax, but still conveniently access core amenities such as universities and museums.

There are alternatives.

What all governments need are fair and stable revenue sources that allow for the expected provision of services. Just as the tax code needs to encourage business growth and expansion, it also needs to offer adequate returns for government services rendered.

Reforming the local income tax is a good place to start. By eliminating the disparity in the local income tax rates for residents and nonresidents of cities, this portion of the playing field would be leveled between cities and suburbs in regards to residential location. This change could generate $100 million for Flint over a seven- to 10-year period at Flint's current resident rate of 1 percent. If the allowable local income tax was equal across Michigan’s cities at Grand Rapid’s rate (1.3 percent for residents), then Flint would see up to $200 million more in revenues.

An additional solution is a broader (not higher) sales tax that is in sync with the current service economy. The expanded funds collected by the state would support increased shared revenues for local governments.

There also are innovative property tax systems such as land value taxation that separates the value of the land itself from the buildings and equipment on it. Set at the optimal rate, this discourages speculation and encourages private investment -- the twin objectives of city real estate market improvement. Pittsburgh, Pa., has a similar approach and is one of the models for Midwest urban redevelopment.

The point is that it is past time to adopt a balanced and healthy fiscal diet for cities. It is a false choice to set good local government and taxes against business growth and development. The table needs to be cleared and set again with equitable and sustainable policies if the goal is to truly grow prosperous cities again in Michigan.