CHICAGO — As problems of local governments garner national attention, Michigan’s cities and towns continue to face significant stress, with half expecting more pressure next year, but some are starting to see slight improvement, according to a new report by the University of Michigan.

Nearly half, or 48%, of the state’s local governments said they are less able to meet their financial needs this year compared to fiscal 2010. That’s actually an improvement over the 61% who said that last year, the survey found. Meanwhile, 50% of local officials said they expect next year to be worse, down from 65% last year.

Overall it’s a bit of a mixed picture that varies based on size and region, said Tom Ivacko, administrator at the Center for Local, State and Urban Policy, which is part of the university’s Gerald R. Ford School of Public Policy. 

“Looking ahead, it feels like we’re at a tipping point,” Ivacko said. “Things could go one way or another. The most recent survey shows that when we look at all local governments, things are not quite as bad as last year. But for many, many, many jurisdictions, things are worse than they’ve ever been.”

For larger cities in particular, things are tough, he said.

The report is the latest of a series of annual surveys of local units’ fiscal health that the center has conducted since 2009. It sends the report to state legislators and other stakeholders in an effort to illuminate the problems and concerns of local officials, Ivacko said. The survey is taken online and the names of the cities are kept confidential.

Falling property tax revenue is among the most common problem facing all local units, the report said. This year, a full 91% of larger governmental units reported a decrease in property tax revenue, down a bit from last year’s figure of 95%.

Overall, declining property tax revenue afflicts 74% of all local units in the state, according to the report.

Gov. Rick Snyder’s plan to eliminate or trim the personal property tax, which is levied on business equipment and machinery, could mean bigger problems for many governments, Ivacko said. For those units that rely heavily on the personal property tax, cuts or a repeal could have a major impact.

“For those jurisdictions that are extremely reliant on the personal property tax, they feel like they’re hanging in the wind right now,” he said. “If they take further revenue cuts, it’s going to be extraordinarily difficult at this stage.”

In addition to falling property tax revenue, other common problem are dwindling state aid — 80% of officials from the largest jurisdictions said they have seen declines in state aid — as well as rising foreclosures and health care costs, the report said.

Last year’s survey took a close look at how local governments plan to deal with their problems, and found that most of them do not plan to increase their debt load, Ivacko said.

Again this year the survey showed that most local governments said they do not plan to take on more debt to deal with their financial problems, and that few have seen a decrease in their ability to repay existing debt, the report indicated.

“We took that as a good sign, as obviously increasing debt to pay for current operations is a bad strategy,” Ivacko said.

He noted, however, that more than 70% of larger jurisdictions said they have increased infrastructure needs but most say they do not plan to take on more debt to finance them. “Down the road, this could prove more expensive,” he said.

The report also surveyed how jurisdictions deal with their problems, and found that one of the most common strategies is collaborating with neighboring local units. Among larger municipalities, 85% of officials said they are going to be looking at service-sharing in the next year.

“This is a very, very active front on the local level,” Ivacko said.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.