Decades of state revenue sharing cuts have harmed local communities

All federal and state issues ultimately have a local impact.

But no state policy affects local government policies, services, and spending — and in turn, residents’ daily lives — like local revenue sharing.

Revenue sharing is the portion of state tax revenues distributed to local governments, including counties, cities, villages and townships. There are two types of revenue sharing, known as constitutional revenue sharing and statutory revenue sharing. Constitutional revenue sharing is distributed on a per-capita basis and is fairly steady year after year. Statutory revenue sharing, on the other hand, has not been maintained over time and has declined significantly over the past two decades.

A new report from the Michigan League for Public Policy, “Building Equitable Communities: More Funding Needed for Local Governments,” shows that local revenue sharing payments from the state have declined 35.4% for cities, villages, and townships and 25.4% for counties between 1997 and 2019.

That decline has significantly hurt your county and local government’s ability to fund the things you and your families value: emergency services you depend on in a crisis, the roads you drive on, the parks your kids play in, and more. Revenue sharing also funds the local health departments that are making important decisions right now to help curb the spread of COVID-19.

Unfortunately, local governments have been getting hit on both sides, as far as their budget funding goes. In addition to state revenue sharing declines, property tax collections have also diminished. When adjusted for inflation, property tax collections in 2019 were 8.7% below collections in 2007 and only 11% above the trough in property tax collections brought on by the 2008-09 foreclosure crisis. In 2019, real Michigan property tax collections were on par with collections in 2004.

These revenue declines at both the state and local level have forced local governments to cut their budgets, reduce or eliminate valuable services, and make bad policy decisions. Local units of government are seeking to recoup declining revenues in increasingly inequitable and unpopular ways, including a growing reliance on fine and fee collection to pay for city services. A heavy reliance on fines and fees disproportionately affects people of color, and often pushes residents with lower incomes deeper into poverty.

With more resources from the state in revenue sharing, greater investments can be made in the programs and services that promote racial equity and economic security for all. Increasing local revenues can help all communities and governments achieve the vision of racial equity, economic prosperity, and social justice. And as state lawmakers tackle a variety of criminal justice reforms, including revisiting court fines and fees, they must also acknowledge that revenue sharing declines have pushed local governments to rely more on court fines and fees.

I know firsthand how vital a fair deal from the state is to our local governments, as I served in city and county government for 17 years and in the Michigan Legislature for more than a decade. COVID-19 has amplified the importance of our local governments and their funding needs as county and local officials work to address the public health crisis and protect residents, but equitable revenue sharing should be a part of every single state budget.

The League’s report outlines the following recommendations to address local governments’ funding needs, improving racial equity in the process:

∫ Significantly increasing statutory revenue sharing to counties and cities, villages and townships to at least match what is called for under the statutory formula from Public Act 532 of 1998;

∫ Creating new formulas for the distribution of statutory revenue sharing to send more resources to communities with low housing wealth;

∫ Expanding the Homestead Property Tax Credit; and

∫ Authorizing more tax options for local units of government, including motor vehicle taxes and registration fees, and alcohol, tobacco and cannabis taxes, and taxes on entertainment and amusement.

In closing, I’d also like to give you, the reader, a few recommendations to help advocate for your communities and their funding needs: Visit mlpp.org to read our report on local revenue sharing. Reach out to your public officials and candidates before and after the election to make sure they know adequate community funding and services are important to you. And, if you haven’t already, vote to make sure you have a say in your government representation at the national, state and local levels.

Gilda Z. Jacobs is president and CEO of the Michigan League for Public Policy.