The Review Magazine : May-June 2022

Municipal Finance Column

The Ups and Downs of Municipal Revenue By Rick Haglund

A fter decades of disinvestment by the state, lawmakers and Gov. Gretchen Whitmer have proposed more than $1 billion in new spending for local communities this year in the form of higher revenue sharing payments and substantial aid for local governments struggling to meet increasingly onerous pension obligations for retired employees. The money comes from billions of dollars in federal COVID-19 relief funds and unexpectedly strong state tax revenues. Whitmer’s fiscal 2023 state budget calls for a 10 percent boost in statutory revenue sharing for cities, villages, and townships from 2022, the biggest jump in years. The $26.6 million increase in statutory revenue sharing would bump up total state revenue sharing to its highest level since 2011. Half of the increase would be a one-time appropriation. Plus, hundreds of millions more in state and federal dollars, designed to help local communities with infrastructure, housing, economic development and other issues, are sprinkled throughout Whitmer’s proposed budget plan. The Democratic governor’s budget, which takes effect October 1, faces difficult negotiations with the Republican-led Legislature, which has been pushing to use much of the additional revenue for tax cuts. Pension Bill In addition, the state House in February voted to spend $1.15 billion to help municipalities pay down pension debt. That’s one of the biggest budget busters faced by many municipal governments that have growing retiree populations and fewer employees to support their pension funds after years of downsizings. About $900 million would help municipalities with pensions funded under 60 percent get up to that level, while the rest would go to municipalities with pensions funded at 60 percent or above.

"The pension bill is the lifeboat that will help us get home,” said James Krizan, city manager of Lincoln Park, a working-class Detroit suburb with a population of about 40,000 people. The city’s pension fund for non-police-and- fire employees is just 22.6 percent funded. “That’s pretty scary,” Krizan said. The city, which closed its pension plan to new employees years ago has just four active employees out of about 36 full- and part-time non-public safety workers contributing to the plan. “There is no question that one of the bigger drags on communities is the level of unfunded liabilities,” said John LaMacchia, the Michigan Municipal League’s director of state and federal affairs. “What the state is recognizing here is that this is one of the ways you can make a significant impact” on diffusing the pension time bomb, he said about the proposed infusion of cash by the state.

“The pension bill is the lifeboat that will help us get home.”

JAMES KRIZAN, CITY MANAGER, LINCOLN PARK

Inflation But as welcome as the proposed investments in municipalities may be, it’s unlikely the extra money will fully restore the revenue losses many cities have experienced since 2000. And the state’s budget outlook is suddenly being clouded by surging inflation and Russia’s brutal attack on Ukraine, which has pushed U.S. gasoline prices to record levels and threatened the global economy. Bob Schneider, senior research associate for state affairs at the Citizens Research Council of Michigan said he “wouldn’t be surprised to see downgrades” in state revenue projections when forecasters meet in May.

36 THE REVIEW

MAY / JUNE 2022