Revenue sharing at risk for Ann Arbor as state officials look to trim budget, consultant says
Michigan lawmakers have difficult budget decisions to make in the upcoming legislative session, and cities like Ann Arbor are "clearly at risk" of losing state aid.
That was the message Kirk Profit, the city's consultant in Lansing, delivered to the Ann Arbor City Council during a brief report Monday night.
"When I appeared before you a year ago now, I was here kind of with my tail between my legs because I had to report to you how you had just lost — much to our chagrin — $1.1 million in revenue sharing that you had to eat," Profit told council members.
Ann Arbor receives about $9.3 million a year from the state in revenue sharing payments — which is down from more than $12 million it used to receive, Profit said.
The city was fortunate there weren't further cuts to revenue sharing this year, Profit said. But he predicts continued challenges ahead under incoming Republican Gov. Rick Snyder and the new Republican-controlled Legislature.
"Of that $9.3 million that you get in revenue sharing, $2 million is what they call statutory revenue sharing, which is clearly at risk," Profit told Ann Arbor officials. "Statutory revenue sharing is one of the items that might be on the chopping block if they actually have to achieve the $1.6 billion in cuts that are necessary to balance the budget."
Despite that message, Ann Arbor officials still are projecting in budget forecasts that revenue sharing will remain flat for the next two years.
Profit said $1.6 billion is a "significant" amount of money for the state to cut from its budget, especially when considering general fund spending right now is about $8.1 billion.
"It's hard to get there," he said of those cuts. "You've got about $2 billion in corrections, you've got close to $2 billion in community colleges and higher ed, you've got $2.5 billion in health care, you've got another chunk in DHS (Department of Human Services), you've got about $400 million in state police. You put all that together and you get to $7 billion pretty quick."
Profit said many legislators consider those areas of the budget "off the table," which puts a lot of pressure on budget items that remain, including school aid and revenue sharing.
Kirk Profit, who lobbies on behalf of the city of Ann Arbor in Lansing, told city officials Monday night to expect challenges in the next legislative session.
Ryan J. Stanton | AnnArbor.com
On top of that, Profit said, many are demanding business tax reform — not the least of which is elimination of the 23 percent Michigan Business Tax surcharge.
"A lot of folks, including this governor, ran on eliminating (the surcharge)," Profit said. "That's another $500 million. So if that is going to stay true to form, you've got a little over $2 billion that they've got to find in six months."
He called that "an incredible challenge."
Mayor John Hieftje said dozens of municipalities across the state have been considered at risk for bankruptcy. He wonders if state lawmakers fully appreciate the situation cities find themselves in, and if they realize the consequence of continued cuts to revenue sharing.
"I don't think they have a clue, and that's part of our challenge — to educate them," Profit told Hieftje, suggesting it's going to be "even worse" under the new Legislature.
"You've got 61 new legislators in the House, you've got 29 in the Senate, and you get an entire new administrative executive office team," he said.
Profit said he's been in talks with incoming state Treasurer Andy Dillon, who has served as the Democratic speaker of the House. The administration is interested in local government tax reform, and Dillon has some appreciation for the situation cities are in, Profit said.
Profit said he'll continue to advocate on Ann Arbor's behalf to see that the state fully funds fire protection grants. He said the House passed a bill this past session, but Republican Senate Majority Leader Mike Bishop refused to bring the bill to the Senate floor.
Under legislation passed in the 1970s, the state's fire protection fund is supposed to allocate money to help municipalities like Ann Arbor pay for fire services using a formula based on the percentage of tax-exempt property in the city. Ann Arbor, like many communities that are home to public institutions such as the University of Michigan, does not receive anywhere near the amount of state funding the formula calls for — a sore point for city officials.
Profit said "it's pretty unfair" for the state to ask the taxpayers of Ann Arbor to pay for the fire protection services of a large statewide research and education institution.
"We're not going to quit on it," he told Hieftje and council members. "As many of you know, we started from zero after Governor Engler vetoed the entire thing 10 years ago now, and we've brought it back to about 65 percent of full funding."
Profit said he'll also continue to advocate for reform of Public Act 312, a state law that provides for compulsory arbitration of labor disputes in municipal police and fire departments. City officials say the law gives an unfair advantage to the unions in contract negotiations.
The incoming Snyder administration also is "going to get real intense" on state employee compensation, Profit said.
"As a leadership team in Lansing, they believe state employee compensation is too high, and non-competitive with our Midwest states," he said. "This budget's going after state employee compensation, and I suspect there will be ripple effects."
Profit said it was "really disappointing" that the state Senate didn't take action before the most recent session ended to provide matching funds to bring $161 million in federal high-speed rail funding to Michigan. He's confident that will be revisited, though.
Hieftje said local municipalities also are counting on transportation funding reform, or else face further deterioration of local roads and bridges.
"The state of Michigan stands to lose $2 billion if the state can't come up with $400 million for the match," he said. "And that would require a small increase in the gas tax perhaps or another funding mechanism, and that would really help with all of the infrastructure."
Ryan J. Stanton covers government and politics for AnnArbor.com. Reach him at ryanstanton@annarbor.com or 734-623-2529.
Comments
AlphaAlpha
Thu, Dec 9, 2010 : 3:39 p.m.
"So, it seems we're going to have to wait until multiple cities of varying sizes declare bankruptcy before the state government will finally give even slight consideration to a progressive overhaul for Michigan's taxation system?" Speechless, can you offer any numbers to back your words?
CynicA2
Thu, Dec 9, 2010 : 3:26 p.m.
"The city could eliminate half of everything they do and property taxes would only go down 14%." The city could eliminate half of most of what they do and nobody would even notice, because much of it is not related to services that benefit TAXPAYERS so much as excessive benefits and salaries and pensions for city employees, and fluff like so-called "public art", studies and consultants, and pie-in-the-sky trains to nowhere. 14% sounds like a good place to start to me - not enough, but a good start.
Speechless
Thu, Dec 9, 2010 : 12:52 p.m.
"... Mayor John Hieftje said dozens of municipalities across the state have been considered at risk for bankruptcy. He wonders if state lawmakers fully appreciate the situation cities find themselves in...." So, it seems we're going to have to wait until multiple cities of varying sizes declare bankruptcy before the state government will finally give even slight consideration to a progressive overhaul for Michigan's taxation system? Then it will no doubt require years to overcome the inevitable state of denial before a serious overhaul proposal moves forward, including voter approval to allow a graduated income tax, just like in at least 33 other U.S. states. Let's hope that the newly-elected Jeff Irwin (House) and Rebekah Warren (Senate) eventually make some inroads through their calls for tax reform. Take a look at Detroit's ongoing budget crisis. This may represent the wave of the future for everyone else. Lots of people like to trash Detroit and its glaring troubles (often as thinly veiled racism), yet that city has long played the role of a canary in America's coal mine. As goes Detroit, so goes the rest of the state and the rest of the country — eventually. In the name of fiscal responsibility, the Republican majority in Lansing, along with a few 'fellow travelers' among Democrats, will vote for cuts that will necessarily trigger budget disaster across Michigan. Cities will veer into bankruptcy, then state services, especially for those on lower incomes, will get slashed. One expects Scrooge to ring in the New Year with a big smile.
Tim Darton
Thu, Dec 9, 2010 : 11:11 a.m.
Sorry Sonnydog but if you read the article the mayor was talking about "roads and bridges." Seems like drivers use those. If you think letting 2 billion go to Ohio or Calf. or wherever because Michigan can't match it with 400 million so $2.4 BILLION can be spent on this states roads employing 10,000 workers in the process, than I guess there is nothing anyone can say to make you feel better.
SonnyDog09
Thu, Dec 9, 2010 : 10:51 a.m.
"And that would require a small increase in the gas tax perhaps or another funding mechanism, and that would really help with all of the infrastructure." Mayor Leftie's solution is always to increase taxes. Why he thinks that car drivers who pay the gas taxes should pay more to fund choo-choo trains eludes me.
Tim Darton
Thu, Dec 9, 2010 : 10:48 a.m.
Cynic: Taxes are high in A2 but the city is not at fault, they get only 28% of property tax $$ and they have not raised taxes in over a decade. The city could eliminate half of everything they do and property taxes would only go down 14%. I believe city government is doing an excellent job of preserving services without raising taxes. Way better than most towns in Michigan and I am talking about places like Grand Rapids or Troy, not Flint. A2 has over 42% of the real estate non-taxable, a huge portion of investment that is not subject to property taxes.
CynicA2
Thu, Dec 9, 2010 : 2:31 a.m.
"Just about any city or county in the state would love to trade places with them." Yes... I'm sure the folks in the bow of the Titanic would have loved to trade places with those on the stern. The budget was balanced with accounting tricks and at the expense of basic services so the dreamers-in-charge could pursue WALLY and Dreiseitl and studies, and convention centers, among other things irrelevant to necessity. "Even without a tax increase in over 10 years the city of A2 has a balanced budget, they have a very health reserve (rainy day) fund..." As well they should - they have been raping the taxpayers of A2 for decades. Why do you think that all the growth has occurred in the townships and surrounding communities with lower taxes? Now, even that is fading with Michigan's economy and population. A2 is whistling past the graveyard, fighting a rear-guard action at best.
G.W. Williams
Thu, Dec 9, 2010 : 12:06 a.m.
The costs of doing business in Michigan are way too high. In fact, those costs are 3 to 4 percent higher than in the states with which we most often compete for new jobs. We can't sustain these circumstances. We must make our state more attractive to job creators. Here's how we can do this: reduce the Michigan Business Tax and eliminate the personal property tax. That's how to get our state moving again. Learn how @ http://www.michiganturnaroundplan.com.
AlphaAlpha
Wed, Dec 8, 2010 : 9:32 p.m.
Perhaps it's time for a fresh round of pie charts and graphs, Mr. Stanton. So few citizens comprehend: 1. Where the money comes from, 2. Where the money goes, 3. How those items have changed in just the recent few decades. State budget problems can be solved very simply and quickly, because if the labor costs were reasonable, there would be no budget problems. Think about that: If the labor costs were reasonable, there would be no budget problems. None. Yet so much misinformation and disinformation is 'out there', many people give up even trying to understand budgetary reality, and with that, various groups can misappropriate our tax dollars.
Tim Darton
Wed, Dec 8, 2010 : 7:47 p.m.
Actually Cynic, you are way off base. Even without a tax increase in over 10 years the city of A2 has a balanced budget, they have a very health reserve (rainy day) fund, and an excellent bond rating. A2 is probably in better shape financially than any city in the state. They finished last year with a surplus as they did the year before. Now they are planning how to adjust to having to make a 3% cut in the budget that starts on July 1 next year. Just about any city or county in the state would love to trade places with them.
The Watchman
Wed, Dec 8, 2010 : 7:44 p.m.
Why don't you call Profit what he is, a lobbyist. His job is to lobby the state for more money for Ann Arbor than the next city. Maybe we can get Ed to show us how to file a FOIA to find out how much Ann Arbor is paying Profit. Do you suppose he works on a commission? I would guess not. Seems like another waste of taxpayers' money.
Macabre Sunset
Wed, Dec 8, 2010 : 6:47 p.m.
People hopefully understand that the states of California, New York and Illinois are on the verge of bankruptcy, and other blue states like Michigan aren't far behind. When we stop looking at boondoggles like reviving the 1850s and pretty trains as "cost-savers" and realize that excessive spending is not cost-effective, maybe we can solve this crisis. But first, we have to take on the unfunded pensions and medical plans. It's all a drop in the bucket compared to those trillions.
CynicA2
Wed, Dec 8, 2010 : 6:03 p.m.
I wonder if the mayor realizes how little sympathy there is for A2 elsewhere in this state? There are many who think A2 needs nothing so much as the proverbial "good, swift, kick in the rear." Now that the political landscape is rapidly moving away from public spending profligacy, Ann Arbor's litany of crack-pot spending schemes look all the more ridiculous. See you next election, Mr. Mayor. May the seat of your pants have many footprints! May your pal WALLY have an unfortunate accident, and the Dreiseitl phallus fall over at an opportune moment.
Bob Martel
Wed, Dec 8, 2010 : 5:45 p.m.
Common sense would seem to suggest that the City plan on losing the Statutory Revenue Sharing ($2 million) right off the bat.
Ryan J. Stanton
Wed, Dec 8, 2010 : 4:48 p.m.
For background: Statutory revenue sharing is that portion of state revenue sharing decided by the Legislature. Therefore, the lawmakers House, Senate, Governor have exclusive authority to decide how much to spend on revenue sharing, just like they get to decide how much to spend on prisons, roads, parks, etc. Ann Arbor gets about $2 million from that. The other form of revenue sharing is known as constitutional revenue sharing. That is codified in the Constitution, which means the Legislature cannot change it without a vote of the people. Constitutional revenue sharing is tied to the sales tax. Ann Arbor gets about $7.3 million from that.
Stephen Landes
Wed, Dec 8, 2010 : 4:39 p.m.
Considering that Ann Arbor must be one of the better situated cities in our state when it comes to funding I can't see why we should expect the State to give us "revenue sharing". That money isn't just printed in Lansing; it has to come from somewhere and that somewhere is "us". So the State takes our money in taxes and then gives it back to us? Sounds like a lousy system to me.