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Layers of government inhibit the regional cooperation we need

Nov 25, 2015

The Next Idea

There are a handful of things we in Michigan are proud of and value about ourselves and our state.  We work hard. We make things. We love our Great Lakes and outdoors.  We are proud of our education institutions and what they represent.

We want to be proud again of our Michigan communities as great places to live, work and raise a family. In order to get there, however, we have a big problem that must first be fixed. Many of our communities, particularly our older core cities and suburbs, are literally falling apart, with no way to pay for their rebuilding.

Public transportation stands to benefit from a more shared regional vision in Southeast Michigan.
Credit Sarah Hulett/Michigan Radio

Detroit Future City’s final “Ideas for Innovation” community conversation focused on regional approaches to moving Detroit and Southeast Michigan forward. Besides complex racial dynamics, one of the major barriers to much-needed regional cooperation -- not just in the Detroit area, but all across our state -- is the way our cities and towns are funded.

Put bluntly, Michigan’s municipal finance model is broken. This governor -- and most likely our next one, too -- must lead a fundamental overhaul of how we pay for local government services: police, fire, sanitation, lights, roads, and water.

Here's a summary of how we got here:

Michigan, like all Midwest states, was laid out by Thomas Jefferson's Northwest Ordinance, which was designed to build lots of local governments that were close to the people. Hence the thousands of cities and townships we have delivering public services. Certainly this was a good idea at the time and worked well, as Detroit, Flint, Saginaw, Battle Creek and other cities grew as the centers of work, life and commerce.

But Michigan has seen intense decline in population and wealth from its core cities and, more recently, older suburbs.  These communities, with lots of built infrastructure from their heydays and big legacy bills to pay (pensions and health care for retired workers), face continuing costs after residents and tax-paying businesses leave.

Those left behind are poor, majority-minority communities that are least equipped to raise the resources to maintain basic city services, much less pay the bills run up during the good times. 

As now deposed Flint Mayor Dayne Walling once put it, this is akin to running out on the check in a restaurant. We ordered up a lot of police, fire, parks, libraries, water mains and buses, but many of us left the table before it came time to pay.

Beyond the race dynamic that drove much of white flight, it’s hard to fault businesses and citizens for seeking greener pastures.  All the incentives of our state’s current municipal finance structure encourage abandoning our existing communities, with their higher taxes and legacy bills, for cheaper locations elsewhere.

Or as Dan Gilmartin, head of Michigan's Municipal League puts it: "This is not economic growth lifting all boats, this is a zero sum game of development, where it is cheaper to leave and build new.”

If we truly ran our governments like a business, no business would abandon its built assets and start over, nor let plants and equipment continue to fall apart. We need a new model in Michigan.

Newer communities end up winning for a while, until they have to pay the piper for newly built roads, sewer, police and fire service and tackle their own health and pension costs. 

It's the municipal finance version of lather, rinse, repeat.

Michigan communities get money to pay for services in just a handful of ways:  local property taxes (roughly half); revenue-sharing from the state (a quarter); and local fees and fines that make up the rest.

Look at what's happened. During the Great Recession property values collapsed almost everywhere. Property tax revenues (capped at 20 mills) also plummeted 30-40% or more. Even with property values now going up again, state law keeps them taxed at their new lower assessed value for years.

Meanwhile, we have eviscerated state revenue sharing, cutting it by $600 million a year for years, and we are still cutting. You can't write enough parking tickets or hike up rates for trash and water to make up for these giant revenue losses.

And as we have seen, things can get worse when financially strapped cities get assigned an emergency manager. Their job is to balance the books, not rebuild communities. Take the examples of Detroit and Flint. Their water systems were built for twice the current population. To balance the books, they can charge more, or switch to a cheaper water source.  This has the perverse effect of pricing water, needed for life, out of reach of poor people (in the one state literally surrounded by the most freshwater on earth) -- or worse, unwittingly poisoning them, as in Flint.

If we truly ran our governments like a business, no business would abandon its built assets and start over, nor let plants and equipment continue to fall apart. We need a new model in Michigan.

So what’s the Next Idea?

Some obvious solutions are just politically nigh-impossible in Michigan. There is the fierce civic pride and protection of local control. And the racially-charged distrust and balkanization among local communities is more intense than just about anywhere else in the Midwest.

We could consolidate local governments, let county governments run everything, or do as Minnesota does, and spread revenue from new developments over many local units of government. 

While it might be good to get there, all these destinations are extremely hard politically. A Governor would have to spend a lot of money and probably all his or her political capital to get anything to happen. 

More practically, but still purposefully, here are some new ideas to rework our shop-worn municipal finance model:

Let’s create Service Delivery Districts that would prevent the need for up-and-coming communities to build new infrastructure and whole new service departments. Under such districts, areas that experience new commercial and residential development could connect with nearby municipalities to more cheaply extend existing water, police, fire, and sanitation services, instead of financing their own.

We could also consolidate some services while maintaining the identities of existing communities. For example, my home town of Ann Arbor and neighboring Ypsilanti will likely never merge to form Annlanti, or YpsiArbor; but many basic service functions could be managed more efficiently and equitably on a shared basis. 

Another approach to deal with the biggest expense these municipalities face --the legacy costs of employee pension and health care -- is to create a state incentive plan to subsidize locals move to lower cost plans, or generalize and spread the costs, as we have done in education.

Any new solution requires state leadership and likely state incentives to put them in play. A pot of state money or a formula for enhanced revenue sharing that rewarded communities for creating Service Delivery Districts, consolidating administrative services, or rebooting legacy costs could drive reform, remake our municipal finance system and begin to rebuild communities. 

As we have seen, emergency management doesn't accomplish the task. Even if it did, we can’t emergency manage hundreds of Michigan cities and towns.

Only a 360-degree turn in our municipal finance model from "Leave and Build" to "Stay and Grow" will create more regional connections and solutions  and put our communities on a stable path for the future.

John Austin is the president of the Michigan State Board of Education and director of the Michigan Economic Center at Prima CivitasThis essay emerged from Detroit Future City's "Ideas for Innovation" series of community conversations and the views expressed are solely the author's. 

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