Guest column: Michigan cities firing flares over funding

By Tom Ivacko/Center for Local, State and Urban Policy

Michigan local government leaders are waiving a red flag, warning that the state’s system of funding local government is broken and that we can expect fewer public services in the future if the system is not fixed.

In recent days, both Flint’s emergency manager, Edward Kurtz, and Lansing’s former mayor, David Hollister, have issued public warnings about the broken funding system and its dire community outcomes.

These latest warnings reinforce the key findings of the most recent Michigan Public Policy Survey on local fiscal health, which finds that 58 percent of Michigan’s local leaders (including 77 percent in the largest jurisdictions) think the system of funding is broken.

Tom Ivacko is an administrator and program manager at the Center for Local, State and Urban Policy at the University of Michigan.

These concerns come at a critical time. Over the last few years, many of Michigan’s local governments have been in retrenchment mode, cutting services and staff, shifting health-care costs increasingly to be paid by their employees, cutting pay rates and looking for ways to share services with neighboring jurisdictions. They have also been delaying infrastructure maintenance for some day in the future when more money is available.

This recent period of retrenchment has been driven most directly by falling revenues and rising costs for service provision. The funding decline, which started with ongoing cuts to state revenue sharing in the early 2000s, was significantly worsened by the housing sector collapse and the Great Recession around 2008.

The resulting fiscal crisis has played out unevenly across the state, helping (with other factors in some cases) to drive some of our largest cities to emergency financial status, even while some communities have chugged along fairly well (especially small jurisdictions that have no full-time employees and that provide few services). Many jurisdictions fall somewhere in-between, having managed their way through the fiscal squeeze by making tough choices and right-sizing to live within reduced means, thereby helping to preserve their fiscal health.

And so we have emerged from the Great Recession to a new normal of smaller local government – employment levels are down about 8.6 percent since their peak in the early 2000s. Our communities today have fewer services, fewer public employees – including now police and firefighters – and degraded infrastructure.

But despite their reduced size and an improving economy, less than half (43 percent) of Michigan’s leaders think they will be able to maintain today’s package of services into the future, based on the current funding model. In the largest communities, just 22 percent think they will be able to maintain today’s services. The outlook is even worse in terms of improving services, perhaps things like faster police and fire response times, or patching more potholes in the streets.

Among the leaders who think the funding model is broken, overwhelming majorities think each major part of the system is broken, including the gas tax, the sales tax, the Headlee Amendment and Proposal A, revenue sharing and more.

As they have through the recent period of retrenchment, many local leaders will continue to look for cost savings, efficiencies, and opportunities to boost intergovernmental approaches going forward. They’ll surely find some, but they’ve been working these fields for a while now, and the low hanging fruit has been plucked already. Without significant reform to the funding system, our local leaders see a new round of retrenchment in the future, with fiscal health preserved largely by increasingly difficult cuts.

Is that the future we would choose? Perhaps, perhaps not. But we ought to talk about it before it’s too late.