Special Report: New slices to the revenue-sharing pie

Editor’s Note: This is the latest in our continuing series of reports examining possible ways for Michigan to re-engineer its public sector and how we fund it.

By Chris Andrews

A small city like Wyoming could never afford its own cold case team or a unit to go after identity thieves – but it can through a partnership with the Kent County Sheriff’s Department and six city police departments. The cities have also formed the InterUrban Transportation Partnership, boosting public transportation ridership by about 840,000 annually over the past two years. And they work together on hazardous materials planning, firefighter training and stormwater management, to name a few of the more than 100 service-sharing agreements.

“We believe we have tackled just about everything we can tackle,” says Curtis Holt, the Wyoming city manager.

In Macomb County, Utica Mayor Jacqueline Noonan is constantly looking for opportunities to cooperate with neighbors. The city shares senior transportation services with Shelby Township and borrows Sterling Heights police officers for its anti-drug DARE program. When a Utica resident donated money to start a canine unit, Sterling Heights trained the dog and officer at no charge.

Across Michigan, cities, townships and villages have been looking, with various degrees of urgency, toward cooperation, collaboration and consolidations for years. But with money tighter than ever – thanks to years of state revenue-sharing cuts, and, more recently, plummeting property tax revenues – there is a growing belief that local governments need more forceful prodding.

The Michigan Legislative Commission on Government Efficiency is expected to recommend major changes in how revenue-sharing money is distributed by the state to local units of government in hopes of accelerating the pace of service-sharing. Its idea: Allocate money for a handful of key services, rather than simply pass it on to cities, townships and villages to use as they please. Units that don’t provide the service, or don’t meet state-set standards, would lose out.

“Revenue-sharing that is driven just by population does not work to enhance local government efficiency or consolidation of services,” said James Curran, co-chair of the commission.

The commission was appointed in February 2008 by House Speaker Andy Dillon, D-Redford, and Senate Majority Leader Mike Bishop, R-Rochester. Its charge is to find ways to make state government more efficient. The commission is looking not only at what the state does, but what it funds, such as revenue-sharing. The commission’s report is due by Oct. 1.

Michigan’s cities, townships and villages have relied on state revenue-sharing as a key source of funding since the 1930s. Some of the money is constitutionally guaranteed; the rest depends on annual appropriations from the Legislature. Over the past decade, the latter part, along with money for universities, has been easy pickings for state lawmakers in the budget-cutting process. Statutory revenue-sharing funds have been slashed from $800 million to $472 million since 1999.

A commission work group is advocating a constitutional amendment (requiring voter approval) that would put all the money in a constitutionally guaranteed pot, to be used to pay for a specific set of core services, such as police and fire, sewer and water. It would be up to the Legislature to determine the services and set standards local governments would need to meet to receive revenue-sharing funds.

Curran said such a plan – along with grants promoting innovation — would push local governments to work together more often and give taxpayers more bang for their buck.

Cooperation today

Michigan’s system of local government includes 83 counties, 1,242 townships, 274 cities, and 259 villages, according to the 2007-08 Michigan Manual. Local control has long been a core value in Michigan, and officials in those jurisdictions have a wide degree of latitude in deciding whether to form intergovernmental partnerships or go it alone.

There is already a significant amount of cooperation taking place, particularly in areas such as fire protection, water and sewer, said Eric Lupher, who has studied the issue for the Citizens Research Council of Michigan.

But while many fire departments have worked out mutual aid pacts, or other cooperative ventures, there are still far too many fire departments, which has expensive consequences because of high capital costs, advocates of regionalism argue. Lupher says the ideal size for a fire protection unit is greater than most cities, but smaller than a county.

There are other areas ripe for cooperation as well, Lupher says. Local governments may not improve efficiency by combining residential assessors but could benefit from sharing commercial assessors who need greater technical skills to work with more complex projects. Police departments won’t necessarily save on road patrols but can provide better services through combined crime labs. “Certainly, there is room for greater efficiencies, I don’t think anyone would dispute that,” he said.

Summer Minnick, director of state affairs for the Michigan Municipal League, supports the idea of focusing revenue-sharing money on services. She says the approach would be both more fair and more effective in attracting people to the state.

Where people sleep isn’t necessarily where they are spending the day, she said. Cities such as Grand Rapids and Royal Oak, she said, have substantial infrastructure costs but are the types of vibrant communities Michigan needs to attract businesses and people. “We should be investing the money that we have in areas that we know we can redevelop to attract people back to Michigan,” Minnick said.

And some see another benefit to tying revenue-sharing to specific services. It might make it harder for lawmakers to cut. Slashing money for police or fire protection could be far more dangerous to politicians than reducing the more amorphous revenue-sharing.

“Right now, your state legislators stand out there and say they’re going to cut revenue sharing. They are not taking responsibility, there is no accountability for what that does,” said Wyoming city manager Holt. Since 70 percent of the city budget goes for police and fire, he says, “It doesn’t matter if it is dedicated or not. If I’ve got to cut, it’s got to go to police and fire.”

Not everyone’s on board

But others are concerned that changing how revenue-sharing is distributed will have another consequence – perhaps a hidden agenda – of shifting money from rural to urban areas. And they don’t buy that bigger means better, or more efficient, when it comes to providing services.

Cities, townships and villages are only required by law to provide three services – tax collections, property assessing, and elections administration, says David Bertram, legislative liaison for the Michigan Townships Association. Many townships don’t provide water, for instance, and could lose out if lawmakers were to designate that as one of the services.

“If they’re talking about trying to require a certain number of services in order to apply for or be eligible for revenue-sharing, that’s pulling the rug out from under a lot of people,” he said.

In addition, he said, most townships rely on on-call fire departments that may not be well suited to consolidation, especially if the population centers of the townships are located far from each other. And there are financial obstacles. One community might pay $50 for a fire run, another $125. “How do we settle that? Well, the lower always comes up. It never goes in the opposite direction,” Bertram said.

Brian Baker, finance and budget director in Sterling Heights, said his Macomb County city is progressive in sharing services and in benchmarking to compare what it offers with other cities in Michigan and around the country. “I don’t think we need the added incentive, because we are already doing these things,” he said.

But to Baker, the devil is in the details, in how far state government might go to push local governments to cooperate or consolidate. “There’s a fine line between Big Brother, a fine line between defining what you think is most efficient and allowing communities to do what they want to do,” he said. “In a democracy, who’s to say you don’t have the right to do that?”

Encouraging innovation

The Legislative Commission on Government Efficiency is also expected to recommend the state set aside a pot of money to award grants to local governments to plan or implement cooperative agreements.

“That’s wonderful because that’s exactly what I asked the governor directly. I called her office and asked if there were any grants available for feasibility studies,” said Noonan, who has been mayor of Utica for 22 years. “The city of Utica doesn’t have one extra dime available.”

The grants would be awarded by a new Intergovernmental Advisory Office that would set standards, share best practices and identify barriers to efficiency and cooperation.

Other states have similar efforts under way:

New Jersey created the SHARE (Share Available Resources Efficiently) program in 2005 and has awarded 170 grants to local governments and non-profit agencies totaling $10 million. Its grants have underwritten cooperative efforts in municipal courts, police, trash collection, sanitary sewer, emergency dispatch, fire and public works.

New York established the Shared Municipal Services Incentive grant program in 2005. Funds have been awarded for such things as village dissolutions, consolidation of police services and the development of joint water and waste water infrastructure. State officials say the projects have saved $8 for every $1 spent on grants.

Maine created the Fund for the Efficient Delivery of Local and Regional Services in 2005, although grants were suspended in 2008 to address budget shortfalls. Grants have been awarded in the past to consolidate emergency communication services, expand a regional recycling center, combine municipal accounting systems and study police and fire consolidation.

No silver bullet

Even advocates of intergovernmental cooperation say a shift to revenue-sharing distribution won’t be sufficient to maximize intergovernmental cooperation. They say action is needed to change state laws that have created barriers to regional efforts.

The Urban Cooperation Act requires that when local units of government combine services, none of the employees can be hurt in the move. The result: pay and benefits go up, increasing costs to taxpayers.

Noonan says the entire tax structure needs to be overhauled. “It’s a model that simply doesn’t work.”

But Curran says the revenue-sharing change – as part of a broader plan – is at least one tool for increasing government efficiency.

“When revenue-sharing just comes, then you just make do with what you have rather than attempting to figure out how to live with less,” he said. “There needs to be some driver behind it. Unrestricted revenue-sharing just doesn’t appear to do it.”