Michigan’s Local Governments Face Severe Financial Troubles Due to Coronavirus – Bridge Article

Michigan’s communities are likely to bare the brunt of the economic downturn happening from the COVID-19 pandemic if state and federal leaders don’t step up soon and do something about it.

An article in Bridge magazine Thursday (April 16, 2020) paints a bleak picture for Michigan’s cities and townships. The local governments have yet to recover from the Great Recession due to the way Michigan funds its communities and now the economic collapse from the coronavirus crisis exacerbates the problem.

The Michigan Municipal League’s SaveMICity initiative has long talked about how Michigan’s system for funding it’s communities is broken because it doesn’t track with the economy as it should and how the next recession could be disastrous for our communities. Well the next recession could very well be here as a result of COVID-19 and the related stay-at-home orders enacted to stop the spread for the deadly virus.

The League supports Governor Whitmer and her approach to responding to the virus, but we also are extremely concerned about the long-term financial implications on our member communities.

Here are some excerpts from the Bridge magazine article by Jonathan Oosting that are particularly alarming:

… Local governments across Michigan are beginning to lay off and furlough workers as they brace for a “perfect storm” of increased spending demands and revenue shortfalls resulting from the coronavirus pandemic that has ground the state economy to a halt. 

Detroit Mayor Mike Duggan, citing an estimated $348 million budget hole in Michigan’s largest city, on Tuesday announced plans to lay off 200 part-time workers, cut hours for 2,200 full-time employees, freeze planned pay increases and cut top official salaries by 5 percent. 

… Across the country, more than 2,100 cities are anticipating major budget shortfalls this year, according to a recent survey by the National League of Cities that points to expected layoffs, furloughs and local service cuts. Detroit is not planning cuts to police or fire, but more than half of the local governments surveyed said their budget crunch will impact public safety.  

Michigan could face longer and deeper cuts than other parts of the country because the state’s “system for funding local governments is broken,” said Tom Ivacko, associate director of the Center for Local, State and Urban Policy at the University of Michigan. 

“We’ve known this for a good long time now, and we’re going to pay the price for it now probably more than ever if this pandemic and the economic shutdown lasts too long.”

… Michigan local governments have few options to generate revenue on their own — they cannot assess a local sales tax or quickly recover from property tax losses, for instance — making them reliant on the largesse of the state. But state government is facing its own projected budget shortfall of up to $3 billion this fiscal year and up to $4 billion in 2021. 

Cities and townships face a daunting challenge as they divert budgeted funds to buy safety equipment for first responders and increase services for vulnerable populations while bracing for sharp revenue losses, said Roseville City Manager Scott Adkins. 

“We’re facing this perfect storm in an imperfect way,” Adkins said Tuesday in a press call with U.S. Rep. Andy Levin, D-Bloomfield Township, who is pushing for local government aid in Congress.  “We are in uncharted water at this time.” 

… State sales tax revenue that Michigan doles out to cities, villages and townships is expected to plummet as unemployed or underemployed workers curtail their spending and as businesses close. National data released Wednesday show retail sales collapsed in March, dropping 9 percent in what was the largest decline of its kind on record.

Federal assistance is “imperative” for state and local governments, according to University of Michigan economists who are projecting the state will lose 1.2 million jobs during the pandemic, hit a 23 percent unemployment rate and lose $8 billion in tax revenue over three fiscal years.

… Local officials are bracing for some residents to skip fall property tax payments, and they fear that property tax values could drop if shuttered businesses are unable to reopen or jobless residents can’t pay rent or lose their homes. 

That’s a particularly frightening scenario for local governments because of a state law that caps annual growth in taxable property values at five percent or the rate of inflation, whichever is lower. If property values fall sharply, it can take years for revenue to rebound. 

“We’re used to doing less with more, but this is going to devastate us,” said Clawson Mayor Reese Scripture. Her city “never fully recovered from the Great Recession” a decade ago and has already furloughed 42 part-time employees amid the pandemic, she said.

Longer term, recent stock market losses could escalate pension or retiree health care costs for local governments, said Lansing Mayor Andy Schor, whose city is saddled with roughly $700 million in unfunded debt.

“The pension boards make assumptions on interest and the rate of return, and if those assumptions don’t come in and the pension boards don’t hit the marks they expect, then the city has to backfill that,” Schor said. 

In Mt. Clemens, overtime pay for first responders has “just skyrocketed” after the city was forced to quarantine a full shift of firefighters who came in direct contact with an infected patient, said Mayor Laura Kropp. The city also purchased new technology allowing it to communicate with residents by text message or email, which is a “good thing” but wasn’t budgeted for.

The League has been strongly advocating for the Coronavirus Community Relief Act (H.R. 6467), a U.S. House bill to provide $250 billion in funding to all local governments with fewer than 500,000 residents. We encourage our members to ACT NOW and contact their U.S. Representatives to support this bill and build momentum. This bill is needed because the majority of America’s cities, towns and villages are not eligible for direct relief under the CARES Act, due to the 500,000 population threshold established in the CARES Act.

The United States Conference of Mayors and the National League of Cities conducted a joint survey to assess the impact of the COVID-19 pandemic on cities and towns from more than 2,400 local officials. The resulting infographic and fact sheet paint an urgent picture that Congress cannot ignore.

We sincerely hope state and federal leaders step up and support local governments in this time of crisis.