The City of Lowell is short some money, says the Michigan Municipal League.
It’s not that anyone has been embezzling funds. Instead, it’s that the State of Michigan hasn’t been providing the city with what the MML argues is its fair share of revenues. The organization has been tracking the problem since it started in the wake of 9/11. While the economy has rebounded since then, revenue sharing payments have not.
City coffers missed out on $1.4 million in statutory revenue sharing payments from 2002-2012, according to MML estimates. There is also some discussion whether the state has failed to live up to providing the revenue sharing payments required by the Michigan Constitution.
To put that number in perspective, Lowell currently operates on a $2.8 million general fund budget. That covers all basic services provided by the city including the Lowell Police Department as well as much of the Department of Public Works. Water, wastewater treatment and street repairs are funded separately.
Loss of revenue sharing payments is a big problem for small towns like Lowell. City officials say $1.4 million would go a long way to shoring up the city budget and freeing funds for projects. “[Losing that money] has forced us to operate differently,” says Mike Burns, city manager for the City of Lowell. “We have gotten better, but we can’t cut anymore.”
Unfortunately, a solution to the problem is out of the hands of local officials and rests with state legislators.
MML Presentation Outlines Problem
Anthony Minghine, associate executive director of the MML, was in Lowell last month to give a presentation on the problem. While Jim Hodges and Greg Canfield were the only Lowell councilmembers in attendance, the event garnered attention from local officials across the region.
“I was surprised and impressed with the other communities that attended,” Hodges says. The nearby cities of Greenville and Belding were represented, and other officials came from as far away as Hastings, Wayland and Portland.
During his presentation, Minghine laid out the case for why Michigan needs to rethink how it hands out revenue sharing payments. While every other state in the union saw its municipal general revenue grow from 2002-2012, that of Michigan cities was in decline. What’s more, local governments have been left out in the cold during recent economic growth. Overall, State of Michigan revenues increased 29 percent during the ten years from 2002-2012. However, that extra money didn’t trickle down to local governments, which saw their revenue from the state drop 56 percent during that same time period.
As revenue sharing payments have decreased, communities have come to rely more on property tax dollars for their operation. That doesn’t provide cities much flexibility either since Michigan is the second most restrictive state when it comes to how property taxes can be adjusted.
Being able to increase property taxes for more revenue may seem like an attractive option for cash-strapped municipalities, but it’s far from an ideal solution. It’s also one that may make voters balk since Michigan already has the tenth highest effective property tax rate in the nation. That’s according to a 2016 analysis by the Tax Foundation of 2014 data.
Local and State Leaders Look for an Answer
It’s a problem without a tidy solution. Hodges says he met with State Representative Tom Albert who expressed an interest into looking into the issue into more depth. “In Lansing, there has been some talk about how everything is structured,” Hodges says.
Meanwhile, other local officials are taking a different tactic. More than a dozen communities on the east side of the state have created a nonprofit and sued the state over declining revenue sharing payments. The nonprofit, Taxpayers for Michigan Constitutional Government, argues the state has illegally shifted taxes away from local governments.
The City of Lowell is not part of the nonprofit or legal action, but Burns has been following the case. “They have a strong assessment of what is occurring,” he says, “[but I’m] not sure on how it will fall out legally.”
As for what citizens can do, Hodges encourages people to share with state representatives and senators their support for increased revenue sharing payments in the next state budget. It seems unlikely Lowell will ever recoup the $1.4 million the MML says it lost, but the hope is the state will make changes going forward and leave those shortfalls as a thing of the past.
For more information, you can read the MML’s report on the issue.