Economic crisis hitting local governments

Signs of the time. A repossession sale sign on a property in northern Michigan.

With Michigan having one of the highest unemployment rates and foreclosure rates in the country, local governments face declining tax revenues that will likely force cuts in service and increases in fees, says Tom Dickson of the Michigan Association of Counties.

The problem, Dickson said in an interview with Michigan Messenger, is that as foreclosures spread, the empty houses and declining property values hit local governments hard because they rely on property taxes for about 60 percent of their budgets.

“Counties are left with much less operating revenues for providing the same services, which often are increasing in costs to provide,” Dickson said. “I hate to sit here and speak negatively about the future. You know you want to talk about, ‘It is getting better,’ but some of the data we have seen says it looks very challenging on the horizon.”

Just how challenging depends on the county. Dickson said the crisis seems to have the most impact on the east side of the state, but expects it to spread statewide shortly. Most counties, Dickson said, could see as large a cut in tax revenues as 20 percent this year alone, leaving them struggling to address everything from basic services to bond payments.

One county Dickson spoke about was Macomb, where county commissioners are expected to consider measures to eliminate a $34 million budget deficit by cutting 250 jobs and not filling another 30 positions. And those cuts will only eliminate the budget deficit from this fiscal year, not addressing continued revenue decreases next year.

Dickson said many of the services offered by counties are mandated by state and federal law. Some of those services include circuit courts, county jails, law enforcement, and human services. He said some jurisdictions might consider supplementing their budgets with increases in fees, but state law mandates that fees can only cover the costs associated with the fee.

“You hope these communities have planned for it. And have some reserves or a strategic plan for revenues. I don’t think you can make up that huge of a drop by fees,” Dickson said.

Dickson said that nothing is “off the table” as county officials consider how to address the budget shortfalls. Asked about the potential impact of a foreclosure moratorium, he expressed some sentiment that such an act, which has been introduced in the state Senate, might be helpful.

“It would depend on how that is structured. it is better for everybody if people stay in their homes. It is a good question,” he said. “Right now, you can’t have enough options.”

County governments are not the only taxing authorities impacted by slumping real estate values and the foreclosure crisis. Cities, intermediate school districts, local economic corporations, community colleges, public transportation and other entities all rely on tax levies to operate, Dickson noted.

And even state education funds are not spared from the crisis, although the impact will be small, said Terry Stanton, spokesperson for the Michigan Department of Treasury.

“The Department of Treasury estimates that total state-wide Taxable Value growth, which slowed significantly in 2008, will decline by approximately 2 percent in 2009, which would represent a loss of about $40 million in state tax revenues,” Stanton said in an e-mail to Michigan Messenger. “It will impact the school aid fund (SAF), though with the SAF at approximately $13 billion a year … $40 million is not a significant percentage (about 3/10th of one percent).”