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Fiscal Stress

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Fiscal Stress, Municipal, News, Opinion

Don’t believe everything you read. But believe this. Many Municipalities are Starving.

By: Bob Kittle

The headline of this March 21, 2019 post, Property Taxes Up $638 Million In 2018, by Michigan Capitol Confidential is eye-catching—and surely stoked the fire of those who believe they pay too much in property taxes—but let’s not let the facts get in the way.

While Michigan property tax collections may be up for the sixth consecutive year, it must be considered that the drop from 2008–2012 was so severe that the increases still haven’t caught up to pre-recession levels. That’s an important piece of information missing from the article, and is caused by the limitations of 1978’s Headlee Tax Amendment to the State’s Constitution, then followed up by 1994’s Proposal A.

To make this easier to understand, I will use an analogy with our retirement savings plans and homes. During the recession, most of us saw a 40–50% drop in the value of our retirement savings, only to see it storm back and exceed where we were initially—if we were patient. Same with housing values. Property owners saw their home values cut in half, and subsequently watched as they stormed back from 2012 to today. In most cases, our property is now worth more than it was worth pre-recession.

But local units of government in Michigan don’t see that appreciation because they are limited to a taxable value increase of CPI or 5% per year, whichever is lower. CPI didn’t exceed 2% until 2017 – so while our 401Ks and home values were rebounding at compounding double digit rates, municipalities had to watch as everybody else got well, but they were (are) handcuffed. In Auburn Hills, where I am a councilperson, our Total Taxable Value is still down $1B from its 2007 level, meaning we must operate on nearly $1M less in property tax revenue when it comes to paying our police and fire personnel, fixing roads and generally running the government.

On top of that, the State fixed their budget by pulling much needed sales tax revenue from local governments to fix their structural deficit. The last straw is that IF a community sees tax increases on certain properties exceed the constitutional limits, the rest of the city’s properties must be reduced by the corresponding value to make sure, on a city-wide basis, the total taxable value doesn’t exceed the allowable limit. The laws never considered a market crash!

Look, Munetrix is in the municipal data business, so we understand the role of data, especially in communicating to constituents. What we don’t like is half-truths, and appreciate when journalists provide balanced stories.

At the end of the day, many communities are cash-strapped and starving, but mostly not by their own actions.

Education, Fiscal Health, Fiscal Stress, Municipal, News, Opinion

Finally, it’s not the economy; unfortunately, it’s still the education void

By: Bob Kittle

If it ain’t one thing, it’s another. Perhaps not the best way to start a blog that is ultimately on education, but as the economy hums along (despite some potentially scary headwinds with the recent GM announcement) education is the nemesis that Michigan (or at least Detroit) can’t seem to conquer.

The Detroit Regional Chamber recently released its 2018-2019 State of the Region providing economic indicators and critical areas of improvement for its 11-county region plus Detroit. The report overall offered an upbeat outlook on the region’s progress in many sectors, but underscored the importance in addressing areas in which the region continues to lag – notably education. In a spot-on Detroit News column by Daniel Howes, the education void is so dark and vast, its challenges may temper many of the positive gains made in the region and the state for recent years.

The good news is that Detroit is outpacing the nation in growth in real gross domestic product (2.7 percent vs. 2.2 percent nationally) and per capita income (4.3 percent compared to 4.1 percent nationally). That can’t be overlooked. Nor can the fact that Detroit was second in the nation in growth of median home values between 2013 and 2017, increasing by 42.4 percent (Seattle was number one). The high cost of living on the East and West Coasts makes Detroit attractive—a plus for companies aiming to boost and cultivate tech talent.

But contradicting these positive indicators are critical areas where Detroit is missing out, notably extreme poverty, low metrics on community well-being, and stagnant population growth. Yet the most pressing issue is the mediocre status of Detroit’s educational attainment—which was actually below the national numbers in 2017.

Fiscal Health, Fiscal Stress, Municipal, News, Opinion

At least for now, Michigan closes the chapter on Emergency Financial Managers

By: Bob Kittle and Katrina Powell

The State of Michigan Department of the Treasury sent out a press release on June 27, 2018 announcing that for the first time in 18 years, neither a school district or municipality in Michigan has an emergency manager. You can read the press release in its entirety here, but following is an excerpt.

“LANSING, Mich. – State Treasurer Nick Khouri today announced that no Michigan municipality or school district is under state financial oversight through an emergency manager for the first time in nearly 18 years. The…announcement comes after releasing Highland Park School District from receivership under the Local Financial Stability and Choice Act. Since 2000, there has been an emergency manager providing financial oversight somewhere in Michigan.”

For many years the Emergency Financial Manager (later changed to Emergency Manager or EM) concept was regularly maligned by some constituents, citing it as an overreach of state government at the loss of local control and racially motivated. The term carpetbagger was bandied about as well. One respected national government trade publication headlined a 2012 article, Emergency Financial Managers: Michigan’s Unwelcome Savior. As local government financial advisors ourselves, (Katrina was the State-appointed City Manager for Hamtramck from 2014 to 2017) we, but especially Katrina, have been on the receiving end of some hurtful and untrue verbal attacks about roles and motives.

Education, Fiscal Health, Fiscal Stress, Municipal, Opinion

FY 2025 forecast could spell disaster for many communities

From this point forward, saving every minute and dollar possible in anticipation for what lies ahead will be crucial to survival in the public sector.

Maybe you’ve heard us talk about the silver tsunami, or perhaps you’ve read other articles on it, but the reality is while we all can clearly see what’s coming for us, few of us are doing anything to prepare for it.

Let’s be clear about what awaits us: in less than 10 years’ time almost half of the public sector workforce will retire.

Conservative estimates put the looming exodus at 40 percent. Depending on the make-up of your workforce this mass departure could happen at a more subtle pace throughout the next decade or it could happen almost over night, in a single fiscal year or season. Regardless of the makeup of your workforce, the coming silver tsunami will leave destruction in its wake.

Fiscal Health, Fiscal Stress, Municipal, News, Opinion

Local Government Early Warning Indicators

There is no shortage of articles and white papers addressing the topic of “Local Government Early Warning Indicators.” However, very few offer a concise methodology to address the issue; and most don’t draw any meaningful recommendations to address the dynamics local governments face in today’s new normal.

According to an Alison Wiltshire paper, Developing Early Warning Systems: A Checklist, there are four elements of a people-centered Early Warning System. Why people-centered? Because the average person must be able to grasp the concepts of the message heeded. Mathematicians, researchers and academics are not the ones who will be dealing with a fiscal calamity as it unfolds. The concept of “early” indicates that one would want to understand the issue well in advance in order to act proactively.

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