Michigan city government revenues and spending since the Great Recession
Michigan City governments have experienced significant revenue shortfalls since 2008. In response, they have cut spending in areas such as city council offices and other general government functions while sparing public safety from the harshest cuts.
Since the “Great Recession” of 2008, city governments in Michigan have faced ongoing fiscal stress. Reports in newspapers and at public meetings indicate the pressure felt by many public leaders to reduce budget, raises or both in order to stave financial insolvency and the appoint of an Emergency Manager. To date, no analysis has been done on the overall fiscal story that has faced city governments since 2008. To rectify this, Michigan State University Extension is publishing this article which presents information and statistics concerning city governments in Michigan and their fiscal fortunes from 2008 through 2012. There are 273 cities in Michigan. This article covers most of the cities except Detroit, which because of its enormous size and well-known challenges is excluded in this analysis.
In 2008, city governments collected almost $2.8 billion in general fund revenues. These revenues included $1.5 billion in property taxes, $423 million in state revenue sharing monies, $158 million in city income taxes and a host of other miscellaneous other sources including grants, interest, transfers and other financing. Thus, Michigan cites were mostly dependent on property taxes but did have a variety of other sources of revenue upon which they relied on.
By 2012, these general fund revenues had fallen to just over $2.5 billion. This represented a more than 9 percent drop in overall general fund city revenues. The biggest reductions were, not surprisingly, in property taxes and state revenue sharing. Property tax revenues fell due to the housing crisis and the great Recession. State revenue sharing actually fell by nearly 17 percent over that period as cities were forced to deal with major state budget reductions.
How did city governments manage to deal with these revenue reductions in terms of spending cuts? Over this same time period (2008-2012), city governments only managed to cut spending by about 8 percent at the same time that revenues fell by 9 percent. Spending cuts were most pronounced in general government (which would include city council, mayor’s office, city clerk and city treasurer), debt was paid down and there were only small reductions on average to public safety police, fire, emergency services. These trends are expected as cities try and protect public safety and force reductions in other service areas.
The discrepancy between revenue shortfalls (9 percent) and spending cuts (8 percent) means that city governments drew down their reserves or savings over the past four years in response to the recession. In one sense, the purpose of reserves is to cushion the blow of a recession to a local government. At the same time, this also means that local governments will be under pressure for the next few years to rebuild these reserves. In some cities, such as Benton Harbor, Pontiac, Flint and Hamtramck, city reserves fell to a dangerous level and the state was forced to intervene. Overall though, Michigan’s city governments have generally exhibited fiscal responsibility in addressing revenue shortfalls during the recessionary period.