Will cities, villages and townships lose revenue sharing again?

Jan 17, 2011

The money the state sends to local governments is called revenue sharing.  But "sharing" might not be quite the right word.  It’s actually a promise, a deal the state made with the towns we live in. 

Summer Minnick is with the Michigan Municipal League.  It represents the interests of the cities, villages and townships to state leaders.  She says decades ago, local governments gave up the power to charge their own sales tax to raise money.

“And in lieu of that the state came along and said it would be more efficient, instead of all these local units of government levying these different taxes, for the state to levy a tax and then we will basically collect that for you and share it back to you,” Minnick explained.

The state constitution guarantees part of the state sales tax goes to local governments.  Plus the legislature “shares” an additional amount.  But the legislature has not been “sharing" nearly as much.  That part of revenue sharing has dropped from what was once $1-billion a year to about $400 million this year.

Sales tax revenues are increasing and are projected to go up again this coming year.  So, revenue sharing money for local government should be going up.  But the legislature is thinking about another cut in what it shares with local municipalities. 

On the public TV show, Off the Record, host Tim Skubick asked Senate Majority Leader Randy Richardville if he wanted to cut revenue sharing to help plug the $1.8-billion dollar budget hole.

"Well, I don’t want to, but there’s a pretty good chance it’s going to happen,” Richardville responded.

That’s not what local governments want to hear.  They’ve got their own budget problems.  Summer Minnick with the Michigan Municipal League says unfortunately that’s what’s been happening.

“The state has been collecting that money, but choosing every year to fill their own budget holes rather than to send it back to Tecumseh or to Grand Rapids or to Menominee,” she said.

In Tecumseh, City Manager Kevin Welch is not thrilled about the prospect of losing more revenue sharing dollars.  He says the city has cut everywhere it can.  It’s lost other revenue. Property taxes are down because of the housing bust and revenue sharing keeps shrinking.

“There’s no fat in our budget.  Anybody who thinks there’s fat in our budget has just not looked at it at this point and, we would have to cut services.  At this point in time what those services would be is hard to tell, but there would be an impact to our residents,” Welch said.

In 2009, Tecumseh was named one of CNN-Money Magazine’s top 100 ‘Best Places to Live.’  But Welch says if Michigan wants to attract business and people with great places to live, it cannot keep cutting revenue to its cities.

“Quality of life is really driven by your communities.  If we can’t get the grass cut, if we can’t plow the snow, if we can’t patrol the streets, then that’s going to drive whether people want to live here, whether businesses want to conduct their business here or even move into the state,” Welch said.

And cities like Tecumseh are in better shape than others. 

Mitch Bean is the Director of the House Fiscal Agency.  He’s one of the people responsible for keeping track of the state’s budget.  He says further cuts to revenue sharing will be especially bad for cities that have lost out because of the auto industry’s collapse.  Cutting out the statutory revenue sharing altogether would sink some cities.

“The impact of that would be--  you would have, I would say, at least fifty cities and other units of government that would be going into receivership.  No doubt in my mind Detroit would go bankrupt,” Bean predicted.

Already some local governments are going to new lengths to keep services going.  In that same broadcast of Off the Record, the new minority leader in the Michigan House, Rich Hammel told a story that could be an example of things to come.

“I have a township in my district that had a spaghetti dinner to pay for police uniforms.  And if we’re going to go down that road, then we’re going to have trouble not only at the state level, but at the local level.”

Spaghetti suppers and bake sales.  That’s no way to run city services.  But, if we see any more revenue sharing cuts, that’s exactly what we might be seeing at the local level in more places in Michigan.