News Story

Cities, Fiscal Health and Union Contracts

Local governments are in declining fiscal health that many top administrators believe will get worse in the coming year, according to a University of Michigan report.

The report states that "declining state aid, federal aid, and revenue from fees and licenses are also problems across the state."

The survey was conducted by the Center for Local, State, and Urban Policy, which does the survey every two years. The center is located at U-M's Gerald R. Ford School of Public Policy.

According to a press release, the survey was conducted in the spring of 2009 and 2010 and about 1,300 "top elected and appointed officials" responded each year.

"We are not surprised," said Summer Minnick, director of state affairs for the Michigan Municipal League. "This is stuff we've known for years."

Minnick said local municipalities face the most restrictive limitations in the country in terms of raising money." Minnick pointed to constitutional provisions like the Headlee Amendment and to a state Supreme Court decision that ruled fees can't be used to raise revenue but must serve a regulatory purpose.

"This is going to be a problem the local government will face for years. It doesn't really matter if our economy turns around, our revenue streams are really restricted," Minnick said. "... Everybody wants government to function like a business, but they can't."

Minnick said part of the reason was union contracts.

But Jack McHugh, senior legislative analyst for the Mackinac Center, said local government needs to be more "buslinesslike" with those union contracts when compensating employees.

"Local government officials can be more businesslike in determining employee compensation and benefits," McHugh wrote in an e-mail. "They will be, as soon as the political incentives drive them to place taxpayer interests ahead of government employees - and that day may have arrived. The state could help by reforming or repealing the PERA law that forces locals to negotiate with government employee unions.

"It's also true, however, that it may take some time for locals to climb out of the hole dug by years of politicized, unbusinesslike pandering to those government employee unions. Kind of like the hole GM dug. But let's not pretend that local governments exist in some independent universe where the normal laws of economics and employee relations don't apply. Officials just have to lose any confusion they may have regarding whose interests they're supposed to put first -citizens or government employees".

Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.