Past Proposals for Municipal Financial Reform

Transcription

1 Past Proposals for Municipal Financial Reform Municipal Finance Summit May 18, 2016 Eric W. Lupher, President Citizens Research Council of Michigan

2 Citizens Research Council Founded in 1916 Statewide Non-partisan Private not-for-profit Promotes sound policy for state and local governments through factual research accurate, independent and objective Relies on charitable contributions from Michigan foundations, businesses, and individuals 3

3 Background Revenue Sources 4

4 Static Structure of Local Government Change Counties Townships 1,259 1, Cities and Villages Subtotal 1,851 1, Special Authorities Source: 1962 and 2012 Census of Governments, Bureau of the Census, U.S. Department of Commerce. 5

5 Governmental Units in Michigan by Population Groups, 2010 Counties Cities & Villages Townships Total Population Groups Number Percent Number Percent Number Percent Number Percent 100,000 and over % 7 1.3% 0 0.0% % 25,000-99, % % % % 2,500-24, % % % % Less than 2, % % % 1, % Total ,240 1,855 Source: 2010 Census, Bureau of the Census, U.S. Department of Commerce. 6

6 A Critique of Michigan s Local Government Structure Michigan is one of a few states with townships Balkanized Local Government Highly balkanized in urban areas Still very balkanized in rural areas Increases competition for locating business in your jurisdiction Disincentive to levy non-property taxes Cast as outlier for people to live or work in jurisdiction Creates confusion for businesses operating without regard for dotted lines on the map Menu of services offered by townships makes villages superfluous and antiquated 7

7 Revenue Sources Cities w/o Income Tax City of Livonia, Wayne County Licenses and Permits 2% Parks and recreation 4% Property taxes 52% Other services (parking, airports, housing, etc.) 24% State Revenue Sharing 8% Federal contributions 1% State contributions 9% 8

8 Revenue Sources Cities with Income Tax City of Grand Rapids, Kent County Parks and recreation 0% Licenses and Permits 2% Other services (parking, airports, housing, etc.) 30% Federal contributions 5% State contributions 6% Property taxes 15% State Revenue Sharing 9% Personal Income Taxes 33% 9

9 Revenue Sources Townships Lake Township, Berrien County Licenses and Permits 1% Other Revenue 1% Property taxes 91% State Revenue Sharing 7% 10

10 Revenue Sources - Counties Ingham County Licenses and Permits 1% Other Revenue 27% Federal contributions 4% Property taxes 40% State contributions 25% State Revenue Sharing 3% 11

11 Revenue Sources Property Taxes $7,000 Total County, City, Village, and Township Property Tax Revenues, $6, Dollars Nominal Dollars (millions of dollars) $5,000 $4,000 $3,000 $2,000 $1,000 $- Calendar Year 1

12 Local Governments for which 2015 Inflation- Adjusted TV was less than 2000 As of 2015, the taxable value in 2015 was less in inflation-adjusted real terms than it was in 2000 for: 12 counties as a whole More than 300 units of government throughout the state Heavy concentration of governments are in SE Michigan Purchasing power diminished with lost tax base Compounded with major cuts to statutory state revenue sharing 1

13 1 4 Tax Limitations Statutory tax rate limits in authorizing laws 15/18 mill tax rate limits applies to townships, counties Headlee Amendment Voter approval required for new or increased taxes Tax rate rollbacks applied if government s tax base grows faster than rate of inflation Proposal A of 1994 Cap on Assessments Limited to lesser of inflation or 5% Reverts to state equalized value (SEV) on transfer in ownership Inflation has been used every year since adopted in 1994 (average 2.3%)

14 Reform Proposals Revenue Sources 15

15 Issues What s wrong with our current system? Can the property tax be fixed? Who should levy new taxes? What are viable alternative revenue sources? 16

16 Graphic Illustration of Broken Property Tax System $1,600 City of Eastpointe, Macomb County $1,500 $1,400 $1,300 $1,200 $1,100 $1,000 SEV TV Millions $900 $800 $700 $600 $500 $400 $300 $200 $100 $ (assumes taxable value increases at 5% maximum pace authorized in Michigan s modified acquisition valuation system) 17

17 Graphic Illustration of Broken Property Tax System $1,600 City of Eastpointe, Macomb County $1,500 $1,400 $1,300 $1,200 $1,100 $1,000 SEV TV Millions $900 $800 $700 $600 $500 $400 $300 $200 $100 $ (assumes taxable value increases at 2.3% maximum pace that has been average rate of inflation 20 years of history under Michigan s modified acquisition valuation system) 18

18 Property Tax System Depreciation in property values begun in 2008 is a historic anomaly (knock on wood) Artificially keeping taxable values from declining would likely create heavy political backlash How to let taxable values recover at faster pace? Eliminate Headlee Amendment tax rate rollback provisions Rely solely on Prop A cap on assessment changes Allow tax rate roll-ups Address specific property tax issues Vacant commercial property Dark Stores 19

19 Alternative Local-Option Taxes Levied by cities/townships or counties or regions? Cities/Townships Confusion with 1,700+ potential taxing jurisdictions Balkanized structure works against adoption Counties Mismatch those raising revenue and those delivering most services Argues for reform of county government to instill more confidence Could create system of distributing revenues to CVTs Regions Some other states have democratically elected representatives governing regions with taxing authority Michigan s Prosperity Regions are voluntary association of leaders from inside and outside of government 20

20 Authorization to Levy Local-Option Income Taxes Cities Only Source: U.S. Census Bureau, 2013 State and Local Government Finance 21

21 Authorization to Levy Local-Option General Sales Taxes Source: U.S. Census Bureau, 2013 State and Local Government Finance 22

22 Authorization to Levy Local-Option Motor Fuel Taxes Source: U.S. Census Bureau, 2013 State and Local Government Finance 23

23 Authorization to Levy Local-Option Motor Vehicle License Taxes Source: U.S. Census Bureau, 2013 State and Local Government Finance 24

24 Authorization to Levy Local-Option Alcoholic Beverages Sales Taxes Source: U.S. Census Bureau, 2013 State and Local Government Finance 25

25 Authorization to Levy Local-Option Tobacco Sales Taxes Source: U.S. Census Bureau, 2013 State and Local Government Finance 26

26 Authorization to Levy Local-Option Public Utility Sales Taxes Detroit Only Source: U.S. Census Bureau, 2013 State and Local Government Finance 27

27 Local-Option Income Taxes City income tax levied before state tax enacted Authorized only to cities Not counties, villages, townships, school districts Only 22 cities levy the tax Adoption requires voter approval Several cities have considered and/or proposed but unable to gain support or voter approval Hillsdale, Mt. Pleasant, Ann Arbor, Ypsilanti, Marquette CRC Memorandum #1103, Local-Option Income Taxation in Michigan, January

28 Local-Option Sales Taxes Greatly desired by local government but many constitutional hurdles Tax Rate Michigan Constitution limits sales tax rate to 6% 2% required for school funding 4% permitted Tax Dedication Michigan Constitution dedicates funds 72.7% to school funding 15% state revenue sharing Even if local governments could levy the tax, they wouldn t get much of the revenues AG Opinion 4694 from 1970, CRC Report #305, Issues Relative to the Constitutionality of Local Sales Taxation in Michigan, June

29 Local Option Motor Fuel Taxes No serious efforts to authorize local option motor fuel taxes in Michigan Would require new method of taxation Tax currently collected at wholesale level Very difficult to know how many gallons purchased within any jurisdiction Not a very productive tax Would require cent per gallon tax rate to raise significant funds Would suffer from same issues as state taxes Requires intermittent rate hikes because of fuel efficiency and alternative transportation methods 30

30 Local Option Motor Vehicle Registration Taxes Local-option motor vehicle registration fees Authorized Flat rate fee, $25, regardless of weight of vehicle Politically unpopular because owners of Ford Pintos and Lincoln Towncars paid same tax Votes held in Alpena, Eaton, Monroe, Montcalm, Oakland, and Tuscola Counties: all unsuccessful 31

31 Local Option Public Utility Users Taxes Tax levied on public telephone, electric, steam, or gas services Would affect almost all properties In Michigan, authorized only for City of Detroit (since 1970) Has not proved to be a very robust tax No effort to extend the tax to other local governments Common in other states 32

32 State Revenue Distributions State Revenue Sharing Per capita distributions until early 1970s Relative Tax Effort used for CVTs Based distributions on relative size of tax base and tax rates levied 1998 Reforms 1. Type of government 2. Tax equalization 3. Fiscal capacity 2 years into phase in before abandoned with state reprioritization of appropriations Counties continue to get per capita distributions Highway Funding Court Funding 33

33 State Revenue Distributions Past reform efforts to focused on funding all local governments instead of directing funding to local governments with greatest needs True for revenue sharing, highway funding, etc. etc. Fiscal capacity is a function of tax raising ability and service demands To be meaningful, the state has to fund programs 34

34 Background Reform Efforts 35

35 Large City Government Spending City of Lansing, Ingham & Eaton County Debt Service, Capital Outlay, Trasnfers Out 44% Police Department 19% Fire Department 4% Utilities 2% General Government 14% Recreation & Culture 0% Community & Economic Development 1% Health & Welfare 16% Public Works Department 0% 36

36 Medium Sized City Government Expenditures Traverse City, Grand Traverse & Leelanau Counties Police Department 14% Other, Debt, Capital, Transers 33% Fire Department 17% Recreation & Culture 8% Community & Economic Development 2% Public Works Department 16% General Government 10% 37

37 Township Government Expenditures Grant Township, Newaygo County Community & Economic Development 3% Other, Capital Outlay, Transfers Out 18% Public Works Department 52% Fire Department 10% General Government 17% 38

38 County Government Expenditures Debt Service, Caital Outlay, Transfers Out 9% Muskegon County Police Department 24% Recreation & Culture 2% Library 0% Community & Economic Development 5% Judicial 14% General Government 12% Health & Welfare 33% Public Works Department 1% 39

39 Unionization Most Michigan citizens reside in jurisdictions that have public sector unions Only 27% of Michigan s local governments statewide have employee unions Only 5% of the state s smallest jurisdictions have unions Compared to 98% of the largest jurisdictions Source: Center for Local, State, and Urban Policy in Ford School at UM, Michigan Public Policy Survey, Public sector unions in Michigan: their presence and impact according to local government leaders, June

40 Past Proposals Reform Efforts 41

41 Very little reform as result of Great Recession Great Depression brought Introduction of sales and use taxes Property tax limitations End of township role in road care Great Recession brought Increased use of collaboration in service provision Above a significantly high level of collaboration Exemption of personal property from taxation Strengthened role for state in managing financially challenged cities 42

42 Does Michigan have too much local government? Successful local government consolidations Battle Creek city and township in 1982 Iron River created from merger of city and two villages in 1999 Unsuccessful local government consolidations Grand Blanc city and township in 2006 Sand Lake village dissolution in 2010 Onekama village dissolution in 2012 Saugatuck and Douglas city consolidation in 2015 Richland Village dissolution in

43 Rightsizing Service Delivery Regional (special authority) service delivery models Laws in place for collaboration in provision of all types of services State assistance and incentives offered by Granholm and Snyder administrations Granholm information sharing and technical support Snyder/EVIP Evidence of new collaboration CGAP funding to help with consolidation efforts 44

44 Rightsizing Service Delivery (continued) County provision of property assessing, tax collection, elections common in other states County sheriff delivery of police services Townships contracting for enhanced protection Oakland County model 45

45 Grand Scale Efforts UniGov One Kent effort to consolidate Grand Rapids and Kent County Allow other local governments to piggyback on economies created Efforts fizzled because of perceived threats to home rule Regional Planning Grand Vision in Traverse City Area Successful, but limited results Regional Prosperity Initiative More about economic development than regional planning or regional service delivery 46

46 Pension and Health Care Reform Pension reform Local initiatives, no state effort to provide support or leadership Efforts to create administrative efficiencies by housing DB pension plans at MERS Efforts to close DB plans and replace with DC plans create bubble costs Speaker of the House Andy Dillon s plan single health insurance pool for all government employees Economies of scale and purchasing power would create savings Unions opposed out of fear of lost collective bargaining power 47

47 CRC publications are available at: Follow Us on Become a Fan on Facebook: Providing Independent, Nonpartisan Public Policy Research Since