Kirk Profit talks to Ypsilanti City Council about revenue sharing battles

At Tuesday's meeting, Profit discussed shrinking state revenue, its causes and the struggles in Lansing over it.

Profit and fellow consultant Kenneth Cole told council members their revenue will continue to shrink in the next few years, and they shouldn't plan any major spending based on future revenues.

Cole said city revenues dropped from $3.9 million in 2001 to $2.6 million in fiscal year 2010, a $330,000 drop from 2009. Profit said the decline reflected revenue drops at the state level, which have shrunk from $9.8 billion to $6.9 billion since 2001.

Profit said it's harder for both the state and municipalities to make ends meet.

"The numbers don't work," he said.

Profit also said residents who criticize the City Council for budget shortfalls don't recognize many of the budget problems were beyond the city's control. He said the council is doing a good job considering the economic conditions in the state.

"This city does an incredible job with almost no resources," Profit said.

Profit also credited local legislators - State Senator Liz Brater, D-18th District, and State Rep, Alma Wheeler Smith, D-54th District for being in the forefront of the state battle.

Profit said if it wasn't for federal stimulus money, which runs out at the end of 2010, some municipalities might be facing shortfalls that could potentially shut down vital city services like police and fire protection.

The local budget problems reflect the larger economic problems of the state. Cole said the state lost money partially due to a 13 percent drop of sales tax revenue and a shrinking population because state shared revenues are partially based on population data.

Profit said the state needs to take at look at its tax code, which is based on a old manufacturing economy, not the new economy. For example, startup companies in industries such as IT or health care are unfairly overtaxed, he said.

While neither he nor Cole necessarily advocate restructuring the tax code, Cole said there are areas they believe the state should take a look at.

• Michigan has a 6 percent sales tax but only a 3.9 income tax.
Should they not raise income tax and possibly lower sales tax to about 5 percent each?

• Should Michigan tax services like lawn care, lawyers and even barbers? Neighboring states like Ohio and Iowa do. If Michigan were to instill a service tax, it would be collecting more than $8 billion in extra revenues, making it more competitive with other states and even globally.

• The GOP and some Democratic lawmakers in Lansing stress the need to always give tax breaks to businesses, Cole said, but he questions whether those breaks need to be so large. For example, the 40 percent movie industry tax break has brought new business to the state, but should that break be lower?

He also said the state is looking into other ways to raise revenue like taxing bottled water and cigarettes. But, he said, those efforts are "nickel and diming" solutions for a much bigger problem.