Mergers and Acquisitions

Mar 22, 2011

There’s been a lot of wailing and gnashing of teeth statewide over the new proposals the governor outlined in Grand Rapids yesterday, the ones especially that will affect local governments.

He proposes to hold back one-third of the revenue sharing money communities get from the state, and release it only if cities, villages and townships adopt certain reforms. Those would include putting all new hires on a pension plan based on what they and their employer put in, a so-called “defined contribution plan.”

Experts feel that too many places now offer what are known as  defined benefits plans, which are costlier, and which governments are obligated to honor regardless of their ability to pay.

Under the Snyder plan, new local government hires would also have to pay at least twenty percent of the cost of their health care. There would be certain other rules governing things how much money governments contribute and how fast pensions could rise.

These reforms are, in short, all things public employee unions have strenuously opposed. Predictably, Democrats mostly denounced these proposals yesterday. Republicans and business groups praised them .. but so did alliances of local governments.

As the head of the Michigan Municipal League said yesterday, local governments are desperate today for any tools that will help them get a handle on their spiraling costs.

My guess is that these reforms are likely to become law, given the large Republican majorities in the legislature. However, I am not sure the carrot the governor is offering is going to be large enough to give local governments the incentives to get this done.

Consider this: To start with, the governor is already slashing the total amount spent on revenue sharing by a third. That will cut what Detroit is getting, for example, from a maximum of $178 million dollars to $119 million. They can get two thirds of the new amount basically by just promising to try and do better at consolidating services.

Will the city then find it worthwhile to adopt some terribly controversial measures to get another less than $40 million dollars? Well, maybe. But the Macomb County city of Utica might not. Their revenue sharing incentive will be something like twenty thousand dollars, not enough, perhaps to take on the unions.

But the governor proposed some other reforms in Grand Rapids yesterday which got less attention -- but which, in the long run, could be much more significant. For example, he wants to make it much more easy for governments to merge.

Governor Snyder also wants to clear the way for combined city and county governments, as they’ve done in Indianapolis, Miami and Louisville. In the long run, this may be the only solution for Detroit.

He also wants to streamline the process for consolidating services, as when a city and a township decide to share a fire department. We’re bound to see a lot of this happening soon.

Many of the governor’s reforms are controversial, and probably no one is on board with all of them. But nobody can deny that he is proposing a comprehensive set of solutions to our state’s economic problems, something we haven’t seen in a long time. And if anyone is offering any serious alternatives, I haven’t seen them yet.