Michigan Communities’ Reaction to Financial Stress Offers Lessons
9/16/09
Contact: Laura Probyn
517-432-1555, ext. 175
EAST LANSING, Mich. -- The fact that Michigan’s cities are under serious financial stress is no surprise to anyone living in any part of the state. Rising unemployment and foreclosure rates, along with lagging home sales, have contributed to shrinking municipal revenues and reduced budgets for many services.
Two Michigan State University (MSU) economists have completed a new paper with an analysis that suggests that the financial stress communities and the state have been facing has taken its toll on services and that neither decision makers nor drivers will have a smooth course in the future.
The study’s authors are both based in the MSU Department of Agriculture Food and Resource Economics. Mark Skidmore is a professor and holds the Morris Chair in State and Local Government Finance and Policy, and Eric Scorsone is an assistant professor, MSU Extension specialist, and co-chair of Extension’s State and Local Government Team.
“Causes and Consequences of Fiscal Stress in Michigan Municipalities,” published in State Tax Notes, includes an overview of Michigan’s recent economic history as it pertains to local governments. It features a case study of Saginaw, a community that went from a population base of 100,000 people during the 1950s to about 60,000 today.
“There’s been a major reduction in revenues and spending because of that, which has hampered the city’s ability to provide services, especially around violent crime,” Scorsone says. “We think Saginaw represents an extreme, but also the possible future for some places as we see continued lack of ability to provide services.”
Skidmore and Scorsone found that budgets have been reduced for agencies providing health and human services and those engaged in community and economic development efforts. Few drivers will be surprised to note that infrastructure maintenance has also suffered.
“Some of the most vulnerable areas of cuts were around public works and infrastructure,” Scorsone says. “That corresponds to what’s the common conventional wisdom: roads are in bad shape, which has been verified by civil engineers. We have significant problems, particularly with local road systems. That’s been a vulnerable area.”
They also found that though police and fire services had been reduced, they had not been cut as deeply as other aspects of local government.
“While there have definitely been cuts, this gives you the relative cuts across service areas,” Scorsone points out. “It looks at the aggregate, where they don’t come out as strong. It’s not saying there have not been cuts in police and fire, they’ve just been smaller, to date.”
At its core, the paper’s analysis offers decision makers at the local and state levels a look at how fiscal stress has been handled in some communities and the lessons that these situations hold for others in the state.
“The biggest lesson is that when you combine these findings, we are still facing immense challenges,” Scorsone notes. “The next two to three years are going to be extremely difficult, even more than expected. Some services that have been protected may not be in the future. If some combinations of state cuts and property taxes occur, we’re looking at one of the most dire fiscal situations that have faced the state in a long time.”
“Causes and Consequences of Fiscal Stress in Michigan Municipalities,” can also be found on the MSU Extension State and Local Government Team page.
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