News Story

Money Rolling In, But Cities With Hands Out To Lansing Claim 'Broken' Finances

Largest Michigan communities collect 4 percent more on average

A lobbyist organization funded by local governments held a press conference in the state Capitol this week to urge lawmakers to send its members more in state taxpayer dollars. The event took place as legislators are preparing to pass a state budget for next year, and was cast as an invitation to discuss how local government funding is “broken.”

Given that message, it may seem ironic that the host city of Lansing collected more tax dollars than it expected for a third straight year and had a surplus.

The group is called the Michigan Municipal League, and its members want legislators to focus on what they call “a horribly constrained municipal finance system.” To make that case, the event featured a consultant who produced a study called, “Michigan’s Great Disinvestment: How state policies have forced our communities into fiscal crisis.”

However, they may find it hard to persuade lawmakers, because Michigan’s most populous municipalities on average are experiencing revenue gains, some of which are substantial.

Michigan Capitol Confidential examined the General Fund budgets of 15 out of the state's 20 most populous communities, using the 2014 and 2015 fiscal years. On average, they experienced a 4.3 percent increase in revenue in 2015.

Three of the 15 — Flint, Southfield and Wyoming, in Kent County — did collect less, but the decline was below 1 percent.

The data was taken from the municipalities’ audited annual fiscal reports. Detroit, Kalamazoo, Waterford Township, Shelby Township and Canton Township were not included because they have not yet released their 2015 audited reports. The General Fund is the name most governments give to the account from which they pay routine operational expenses.

Some city governments saw large increases from the prior year.

In Sterling Heights, 2015 General Fund revenues rose 11 percent, from $80.4 million to $89.5 million. Westland experienced a 10 percent gain, or $5 million above its 2014 revenue of $53.7 million. In Dearborn, the city had $8 million more to spend in 2015 than the $100.9 million it collected in 2014, an 8 percent gain. Lansing collected nearly $3 million more.

“It is not surprising that tax revenue in local governments has been increasing,” said James Hohman, the assistant director of fiscal policy for the Mackinac Center for Public Policy. “Property values are recovering and income is increasing. Even the state’s payments to local governments have generally been increasing since 2012.”

Michigan Municipal League’s Associate Executive Director Anthony Minghine said in an email that while some communities have growing revenues, local municipalities are struggling overall.

“Communities that are fortunate enough to experience new construction have an opportunity to grow revenues, those that can’t, suffer,” Minghine said. “The communities with the biggest gains also have a local income tax which actually tracks with the economy. There are 22 of those statewide. Overall, we have seen a precipitous decline in the financial stability of local government for a decade plus that is a direct result of a horribly constrained municipal finance system.”

In 2001, the state sent local governments $1.56 billion, an all-time high that has not been seen since. Last year $1.25 billion state taxpayer dollars were redistributed to locals. This change is part of the argument that municipal finance in Michigan is broken.

State revenue sharing accounts for a small part of local budgets, however. The cities with local income taxes collect nearly half a billion dollars annually from them, but by far, the largest revenue source for local governments is the property tax, which yielded $13.48 billion in 2015.

For example, the city of Dearborn collected $72.8 million in property taxes and received $9.1 million in state revenue sharing for its General Fund in 2015.

Property tax receipts were down for five years in a row from 2008 through 2012 in the wake of a real estate collapse. But since 2012, they have rebounded and increased three straight years.

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.