Michigan Suburbs Struggling Financially

The world of local government finance has seen better days, to say the least. I find communities across the country are struggling to make ends meet. We have been working in Southfield, MI and have some insight into a recent news story describing what a large number of Michigan suburban communities are wrestling with. Call it the "first suburb effect," if you like. It's not good.

A greater, and hopefully new financial consciousness needs to emerge in local government. This new consciousness must go beyond just cutting services and reducing spending. Local governments must continue innovating on new ways to finance their responsibilities and new ways of working with their neighbors and state government. Regionalism is a reality that more suburban communities must come to accept. Look for more on this issue in the near future.

If you are a Michigan suburb, here is a taste of what you are up against:

• Voter-approved Proposal A, which limits increases in a property's taxable value to the inflation rate or less until a property is sold. Only then does it increase to the market value.

• The voter-approved Headlee Amendment, which limits revenue growth in local governments to the inflation rate unless there is new development in a community.

• Since 2001, the state has cut more than $400 million annually from the sales tax revenue it shares with local governments, a funding source that provides as much as one-quarter of all revenue in some communities.

• State law requires binding arbitration in police and firefighters' salary disputes, saddling some communities with costs they say they cannot afford.

• Some city charters require minimum staffing of police and firefighters, squeezing the rest of the budget.

• Retiree health-care costs have been rising by 10% or more annually and exceed what many communities pay to insure active workers

Some communities have raised taxes, but that can require complicated city charter amendments. More than half of Michigan's cities levy the maximum tax allowed under their charters, the Michigan Municipal League says.

"The current funding model for local government is unsustainable," said Paul Tait, executive director of the Southeast Michigan Council of Governments (SEMCOG).

Many communities have been tapping rainy day funds to cover deficits, but that can't last forever. Auditors recommend 10% to 20% of the annual budget be kept in savings to manage cash flow and cover unexpected expenses such as legal judgments.

Read more here.