2017-05-17 / Editorial

Loss of revenue sharing hurts local communities

Over the past decade, lawmakers and governors from both political parties have used some $6.2 billion in sales tax collections to fill state budget holes rather than fix potholes on local streets.

For years, the state Legislature has been claiming a bigger share of revenue from the statewide 6-percent sales tax. Facing their own budget problems, decision makers in Lansing have shifted the financial stress to the local level.

According to the Michigan Municipal League, municipalities lost out on more than $6 billion because of reductions in revenue sharing from 2001 to 2014.

Many Michigan communities were brought to their knees financially by a combination of events, including the Great Recession, the mortgage market meltdown that dramatically cut real estate values, the state’s elimination of the personal property tax on businesses and continued cuts in state revenue sharing. Working their way back has been difficult because of the limits on property tax growth imposed by Proposal A and the Headlee Amendment.

In recent months, there have been several proposals to cut state income taxes, in some cases to zero. At the same time, Gov. Rick Snyder hopes to increase the size of the rainy-day fund, which already holds more than $500 million. But the math doesn’t work, especially for local communities that continue to get squeezed despites the state’s rebounding economy.

It’s the statutory revenue sharing that local leaders are most upset about, because with less of it officials have but a few options — and one is to ask citizens to pay more in taxes to fund basic services, such as road maintenance and construction.

The reduced revenue sharing from the State of Michigan was a primary reason City of Lapeer officials on Monday agreed to place a 2-mill road proposal before voters on the Nov. 7 ballot. If passed next November, the new millage would generate approximately $3 million over six years to fund aggressive local street repairs and reconstruction. The millage could be renewed after six years to maintain the local street work to begin to catch the city up on long overdue rebuilds and upgrades.

Revenue sharing was promised to local communities in the state Constitution to help pay for core government services such as police protection, fire services, roads, water, sewer and garbage collection services. It started in the 1920s when the State of Michigan promised communities it would streamline tax collection by eliminating local taxes and replacing them with state taxes. The State collects and records these taxes and is supposed to reimburse local jurisdictions to offset the general budgets of local communities.

Yet according to the Michigan Municipal League, in every budget since 2000, the State has not fully returned revenue sharing as required by statute.

If fully funded, statutory revenue sharing payments to local governments, including counties, in fiscal year 2014 would have totaled approximately $1.8 billion. Instead, the state kept $689 million, appropriating $1.1 billion to communities. This shortfall is part of a trend totaling nearly $6.2 billion in revenue sharing reductions during the last 12 fiscal years.

Since state law sets the statutory portion, the governor and Legislature have the ability to adjust the distributed amount. They have increasingly used this ability to cover state budget shortfalls to the detriment of communities.

In accordance with the State Constitution of 1963, constitutional revenue sharing payments are based on 15 percent of the 4 percent portion of Michigan’s 6-percent sales tax collections. Distributions are made to all Michigan cities, villages, and townships on a population basis.

For the City of Lapeer, the loss in revenue sharing is huge for the city’s estimated 8,841 residents. If funding had stayed the same as it was in 2001, the City of Lapeer should have received an additional $5.4 million over the last 15 years. This is roughly a 30-percent loss in revenue.

Restored revenue sharing could result in less state spending on bailouts of cities and result in more secure local government services like providing safe, smooth roads. It needs to happen. Meanwhile, Lapeer residents could face higher taxes as the result of the state’s inaction.

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