Rethinking local budget processes

The budgeting process as defined by the state of Michigan describes the procedures that local communities must follow. However, stagnant revenues and increasing costs challenge communities to be more creative in balancing annual budgets.

The financial climate has changed significantly for many local Michigan communities. Declining revenues have forced staff layoffs, reduced hours of operation and deep cuts to benefits with increased copays for health care. Costs continue to increase while revenues have remained flat or declined for many of Michigan’s local units of government. No longer able to honor financial obligations, the City of Detroit is currently in bankruptcy. The City of Allen Park has a state-appointed emergency manager while Highland Park has been in and out of state management more than once. Several communities have consent agreements with the state because of their inability to balance their budgets. The City of Inkster school district officially dissolved in 2013. A balanced budget is becoming more difficult to achieve in the new “financially normal” of limited revenue and increasing costs.

The successful communities will be those that will be able to operate with less revenue and, in most instances, less staff. These new financial realities will challenge governments to develop better relationships with their constituencies. Local governments will need to make difficult decisions about the most important services to be provided and at what level. Unfortunately, some services will have to be drastically reduced or eliminated. Recreational and planning services have seen significant cuts in financially struggling communities. In one such community, all planning staff has been eliminated, except for one grants manager staff person and recreational staffs have been reduced to primarily part-time staff operating on a reduced work week.

Without increased financial support from the state of Michigan, many local units have fewer options for new revenue generation. Therefore, a better dialogue with local residents will be needed to sustain local governments. Local budget processes can be redesigned to incorporate more than the one public hearing required by law. Local units should take every opportunity to involve the public in the budgetary process. Meetings that involve revenue and expense projections should be more widely advertised and the public should be strongly encouraged to participate.

Michigan State University Extension understands that greater involvement has the potential for making the process more challenging for local decision-makers, but it can also create more transparency in terms of the process and shed light on financial challenges. Residents need to understand the financial limitations of their local governments. They will need to understand that increased levels of services in most cases require additional financial resources. Residents need to be seen as a partner in the budgetary debate. Local tax increases and special fees may be the only options available to some communities. In order for these options to be successful, the public should be educated on the financial issues facing their community and they must be willing to support such actions. An expanded, more inclusive budgetary process may be an effective way for local units to develop a stronger relationship with the people they were hired to serve. It may be the best way for some communities to navigate the “new financially challenges of the normal in order to meet the state’s mandate of a balanced budget. 

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