News Story

Analysis: Incorrect Population Figures Means State Has Overpaid Detroit For Past Decade

City gets more than its fair amount of revenue sharing

One of the common complaints about the state’s management of Detroit’s insolvency is that the situation was preventable if only the state had provided more money.

But Detroit already gets more state assistance than every other municipality in Michigan, and indeed, it receives the majority of state discretionary payment. This is neither justified nor fair to the rest of state taxpayers.

Michigan redistributes state tax money to local governments through its revenue sharing programs. The state constitution guarantees that a portion of the state’s sales tax revenue goes to local governments and this payment is distributed based solely on population.

The state interpreted the population measure to be determined by the decennial census. So from 2001 to 2009, when Detroit was shedding a substantial portion of its population, the state was still paying the city as if it had nearly 1 million people. Reflecting the substantial outflow of people out of the city would have meant that the city would’ve received $86.4 million less in constitutional revenue sharing.

The state’s other revenue sharing program is optional and determined by state statute and approved through the budget. That is, state policymakers are free to alter the terms of the payments however they see fit. Regardless of how policymakers have sliced this pie, however, Detroit received the majority of funding.

In the recently passed budget, Michigan will transfer $235.8 million to cities, villages and townships in this program. Detroit receives 58 percent of this money, despite the city containing less than 10 percent of the state population.

This is not to say that the number of people living in a city should be the sole determinant of the state’s revenue sharing payments. But it does show that Michigan is doing an awful lot to support the city.

The state’s optional revenue sharing programs have been decreasing over the decade. The optional payments to cities, villages and townships fell from $651 million in fiscal 2002 to $236 million planned for fiscal 2014. While these payments are down, Detroit gets a larger proportion of it, increasing from 42 percent in 2002 to 58 percent now.

So while budgetary pressures from the state’s decline have meant fewer payments to the city, it still receives more state money than every other local government. The state has also tried to protect Detroit from its decline more than other governments.

Detroit has a lot of problems. But it’s simply unfair to level the blame on state policymakers that continue to give the city advantages that are not offered to others. The fact that Detroit — and a handful of Michigan’s more than 2,400 local units of government — are broaching insolvency shows that it has less to do with state support and more to do with how local officials operate the city.

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.