The Michigan Department of Treasury today released a financial report highlighting how local units of government across the state have recovered since the Great Recession.
Overall, general fund balances have increased, and the number of general fund deficits have decreased through growing revenues and strong financial management by local units.
“The goal is to provide an honest and factual basis that everyone can use as we discuss local government finance,” says Nick Khouri, state treasurer. “Now is the time to address the long-term challenges that continue to stress local units of government. With a balanced approach, we can mitigate risks and ensure that most of our cities, villages, townships, and counties will be resilient to future economic challenges.”
Since 2010, revenues on average have grown faster than spending for all types of local governments in the state. This has led to improved general fund balances, as the number of local governments with less than the recommended level of reserves has fallen from 2012-2016. The number of local governments with a general fund deficit elimination plan has decreased by half since 2010.
In Michigan, taxable values fell 13 percent between 2008 and 2012 before beginning to climb again in 2013. To offset the declines in property tax revenues, some local governments were able to levy higher millages.
Total local government property tax revenues are up since 2012 and have since reached the prior peak of 2008, while local government revenues other than property tax have risen. City income tax revenues and state revenue sharing have increased.
Local governments also have been cutting their numbers of employees since 2009. While cuts were being made, local governments had to reckon with pension growth and retiree health care. Required pension spending in many communities has nearly tripled over the past five years. Pension and retiree health care costs are increasingly crowding out other public service needs.
The improvement is not uniform across Michigan. There are some local governments that have not seen the same level of recovery and continue to face challenges with lower general fund balances and lower property tax values.
The report recommends that entities enact tools for addressing legacy costs, infrastructure funding gaps, service provision deficiencies, intergovernmental cooperation, efficiency improvements, low economic and fiscal capacity, and establishing a stable revenue base as precautionary measures. It concludes that local units of government will be robust and resilient to a possible future recession, natural disaster, or other problem by addressing these future risks.
The full report is available here.