All the risk, none of the rewards for Michigan cities
Lincoln Park’s financial emergency, declared in 2014, inspired some serious rewrites of employee contracts and outsourcing of some city services. Retirees had their health coverage yanked.
Now, the budget is balanced, if spare, and the city is poised to exit emergency management.
But what are the prospects for smoother financial sailing going forward?
Thanks to a triple threat of constitutional restrictions on tax revenue growth in Michigan, the answer is: Not great.
And so it goes for cities across the state.
I’ve been writing for the past month about the extent to which misplaced priorities in local and state government fetishize “low-cost” at the expense of important value considerations. And after the last piece, which focused on the way state law hamstrings cities with draconian limits on revenue growth and a miserly approach to revenue sharing, I heard from three people on the front lines of that battle.
All described, in explicit terms, the difficult choices they’ve had to make — about services, employee staffing levels, pay, retirement packages and more — since the recession.
But nothing they do is really sufficient, because the bounce-back in depressed property values doesn’t translate to revenue growth. Michigan has a general constitutional restraint on the growth in assessments, as well as two others — the Headlee Amendment and Proposal A — that ensure city coffers won’t benefit much from a rebound. The rate is chained to inflation.
In October, the Department of Treasury sent a letter to assessors statewide that the rate for 2016 would be .3%, commensurate with the Bureau of Labor Statistics’ inflation calculations for the year.
Good for homeowners, in dollar-and-cents. But bad for cities, which are left out of whatever recovery is taking place.
That’s the worst kind of false economy. Cities exist to provide services to the people who live in them. Services should keep residents safe, at minimum. Ideally, services create the kind of place people want to live. And from a pragmatic standpoint, services protect homeowners’ investment. Bad services make people move. When that happens, revenue drops further, services get worse. And more people move, in an endless cycle of decline.
I’m not sure how it makes sense to make local governments scrimp and scramble, even in the face of economic growth, while services languish. And I’m even more uncertain why our lawmakers won’t seriously take up the idea of changes, why we continue to employ a system that loves low-cost but doesn’t demand high value.
Homes in Lincoln Park have lost 34% of their taxable value since 2009, meaning millions in revenue has disappeared. That, together with the loss of nearly 20% of the money the city gets in revenue sharing from the state — that’s taxes collected by the state on the behalf of cities, and distributed according to two formulae — is what caused the financial crisis and sunk the city into emergency management.
City officials estimate the worst is over, and property values are projected to grow 1-2% over the next year. But state law will stop the city from reassessing property at anything higher than .3% next year — a fraction of the actual expected growth in Lincoln Park.
In Michigan, cities share in the pain wrought by economic downturns. They are prohibited from sharing in the bounty of growth.
Cities like Lincoln Park, which make tough choices to rebound from financial crisis, are further hamstrung by state policies that keep taxes artificially low in a way that sacrifices the value of effectively delivered services.
“Cost is not the issue,” Brad Coulter, the city’s emergency manager, told a local newspaper in September. “We have a need for revenue.”
Lingering effects of EM
In Lincoln Park, the state’s misplaced policy priorities mean emergency management and the recession may be over, but their devastating effects linger.
The city’s property valuation dropped from about $800 million in 2008 to $524 million in 2015, which meant a 27% drop in property tax revenue.
The city also lost about $1 million in revenue sharing over that time.
That has meant a nearly 40% reduction in full-time staff in a city that hasn’t suffered anywhere near that kind of population loss.
Government is now a bare-bones operation, “tight,” as Coulter describes. The property valuation growth is the result of a marketing campaign that attracted some new residents — but even that growth is subject to the cap. At the current rate of growth, Lincoln Park’s taxable value won’t fully recover until 2036; but tax revenue won’t catch up until much later in this century. Yes — you have to measure that recovery in centennial terms.
The city twice asked residents this year to approve a police and fire millage to stop further reductions. It failed both times.
“The residents have clearly spoken and they are willing to live with poor roads and All the risk, none of the rewards for Michigan cities: