Michigan County Considers Raising Taxes to Counter $33 Million Deficit

CHICAGO - For the first time in nearly 40 years, Macomb County, Mich., officials may raise taxes as the county faces an unprecedented $33 million budget deficit.

Macomb, like other counties across the state, is suffering from a drop in property tax revenue coupled with rising pension and employee health care costs. Neighboring Wayne County officials have ordered 10% across-the-board cuts to eliminate a $34 million shortfall in its $2.24 billion 2009 budget.

"Everyone is cutting back dramatically," said David Diegel, Macomb County's finance director. Oakland County "cut back dramatically and Wayne County has cut back dramatically."

In addition to local revenue declines, many Michigan counties are struggling with cuts in state aid. Michigan recently changed its revenue sharing program - funding it now out of a reserve fund that could be depleted by 2011, according to Diegel. The move could mean steeper cuts in the future. "They made a legislative commitment to keep funding after the reserve funds dry up, but I wonder if the state has the financial wherewithal to fund the counties, all of which are hurting very, very much because of the economic conditions," Diegel said.

All capital projects are on hold, and the county has no borrowing plans in the near future, Diegel said.

Triple-A rated Macomb County has one of the lowest tax rates in the state - it imposes no income or sales tax. Its property tax rate has not increased since the 1960s and was actually reduced in the 1970s. Property tax revenue generates $135 million a year, about one-third of the county's $450 million operating budget. The county expects property values to decline 5% in 2009, leading to a $6 million revenue loss.

Commissioners are now considering one or more options to raise the tax rate in order to avoid large-scale layoffs that finance officials warn are necessary to eliminate the deficit.

The board is considering using its authority to raise the tax rate by about 0.4 mills, which would generate an additional $11 million annually. Under another plan, advanced by a commissioner on Tuesday, voters would weigh in on a measure to raise the rate by 1.2 mills, which would generate roughly $33 million a year. That move would eliminate the 2009 deficit and much of the estimated $43 million shortfall expected in 2010.

"I've been directed to bring in a balanced budget to the board in two weeks," Diegel said. "The board has been trying to avoid layoffs and we've been telling them they're imminent."

The county employs 2,400 workers.

The county's accrued unfunded liability for other post-employment benefits is estimated at $804 million, and the county has set aside about $110 million to cover the annual expense. Its traditional pension fund is fully funded, Diegel said.

Meanwhile, Wayne County is facing a $34 million deficit, and recently County Executive Robert Ficano ordered all departments to cut 10% from their budgets. Wayne County's deficit also stems from declining property values and cuts in state aid. The county sheriff said he would have to close a jail and release nearly 900 prisoners to comply with the budget reduction order.

Also this week, a longtime administrator for Muskegon County, located in western Michigan, quit amid a heated battle over how to close that county's deficit. The administrator said county revenues cannot keep up with rising health care benefit costs.

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