Challenges facing Michigan Local Governments
DOWNLOADMarch 15, 2023 - Eric Scorsone, Michigan State University Extension
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EmailChallenges facing Michigan local governments
General govt. subcommittee: March 15, 2023
Eric Scorsone, Ph.D.
Associate Professor and Director
Current situation
- Federal funds (ARPA/CARES) has temporarily boosted local government balance sheets but only temporarily
- Structural problems remain in Michigan’s local government finance system – State is the primary architect of that system
- Fixes and new tools should be put in place before the next downturn hits to improve local resiliency and stability
Michigan local public finance is a three-legged stool
- Property taxes (1)
- State revenue sharing & other state revenues (2)
- User fees (3)
State of Michigan is the key architect of the stool.
Property taxes: one leg of the stool
- State restricts property tax base and rate
- Michigan amongst the most restrictive in the nation
- Has a major impact on residential and business land use decisions
Ranking state approaches to local government
- States on the lower end tend to penalize local governments with combo of cuts in state aid and property tax restrictions
- Michigan is 46th
PA 202-Legacy costs: pension and OPEB
- PA 202 has had more success in reducing OPEB liabilities
- State pension grant program will help many communities
- State should consider OPEB grant program
Bottom line
- State restrictions have curtailed local government revenue and spending with big implications
- Reduced critical public services
- Deferred infrastructure maintenance and lack of investment
- Not equal across communities, some places have been severely impacted whereas others can afford these state policies
Policy options
- Statutory changes for property tax law to relieve some pressure especially for distressed communities
- Continue to push for fully restored state revenue sharing and revenues for county programs
- Need long-term plan to stabilize infrastructure funding (water and sewer) to ensure rate affordability
Local government pension grant program
- Very important program to help stabilize local finances especially for those communities most harmed by previous state policies
- Program may come up short for some communities to reach 60% funding mark
- $170 million cap may be an issue
- Consider supplemental funds to ensure target is achieved for everyone
- Program expansion to OPEB funding should be considered as well
- Even a small amount of pre-funding for communities can reduce annual payments and improve budgets
User fees and charges: policies
- State should take action to consider policies for ongoing and long- term support for water and sewer infrastructure
- Water and sewer affordability issues are rising rapidly
Emergency manager law changes
- Law does not work as written – major revisions needed
- Fails to ensure long-term stability, balances budget in short-term only
- No need to remove local democracy
- Tools already exist (or can be strengthened) for Treasury to monitor local government finances
- New state oversight board for DEP’s
- Craft a new stand-alone municipal bankruptcy law for extreme cases
- Consent agreement process can be added to existing laws such as unform budget act and municipal finance act
