Honor the Spirit of Revenue Sharing

 

MML Revenue Sharing Graph    State Initiative 2

In Michigan, state shared revenue with municipalities began in 1933 as a sort of quid pro quo when the state legislature began addition restrictions on the ways local governments could levy taxes. For example, Lansing removed intangible property tax from the local tax base and collected, instead, by the state. To make up for the lost revenue, they then established a “sharing” formula to return some of it to the local units.

If that sounds vaguely familiar, it’s similar to what happened in 2013 with personal property tax. A tax collected and used only by local governments, the state said, “sorry, you can’t have that any more. But we’ll give some of it back to you.”

In 1946 revenue sharing was written into the state constitution, and made up for it with a share of. To make up for it, they shared a portion of the then-new liquor-license tax with local governments.

When the state income tax was enacted in 1967, it was done with 11.5 percent of it designated for local sharing – half to counties, half to local units.

This was a typical pattern. Every few years, the state would change tax policy to remove another revenue tool from the local government. And each time, it was done with a pledge to make up for it through revenue sharing.

It happened in 1996, when sharing from the single business tax and income tax was shifted. “We’re going to drop your shared portion of those,” the legislature said, “but we’re going to more than make up for it.” And this led to new formulas for statutory revenue sharing.

Of course, that didn’t last long, largely because of that key word, “statutory.” Sharing has had, since it was written into the constitution, two parts. One is constitutional sharing, which is a formula that is fixed and makes up about a quarter of the revenue shared. The other is statutory; it was to be an allocation made each year by the legislature, according to a formula.

Among the stupidest things Michigan voters have done to its constitution was, in 1992, to enact legislative term limits: three two-year terms in the House, two four-year terms in the Senate.

Which pretty much guaranteed that the spirit of legislation, and the deals and promises that went with it, would soon be forgotten by the people who vote on them. And there is no better example of this than revenue sharing to local governments.

Of course, I’m giving legislators the benefit of the doubt in attributing what happened to the loss of institutional memory. But the alternative is too frightening to consider. Because starting in 2001-2002, Lansing looked at that pot of money to be “shared,” decided those formulas were just “suggestions” and began to treat local government shared revenue as its own piggy bank.

Since 2002, the state has shortchanged local governments of money they were, in fact, promised, by $4.2 billion. Yes, that’s a “b.”

All the while, many (particularly those from suburban districts) have bloviated on the inability of local governments (particularly urban ones, who took the largest cuts in revenue sharing) to manage their money.

So imagine if you’re a teen whose parents have promised to pay you a $10-per-week allowance … and have paid it for several years. But suddenly mom and dad find it impossible – or, more likely, unpalatable – to live within their own means. So they start dipping into your allowance.

Pretty soon, you’re down to $6 a week, which makes it tough to pay your bills. But if that weren’t bad enough, Dad’s got the chutzpah to come into your room every night and lecture you on how poorly you manage that $6 you’re down to.

Saginaw Revenue Table

Gov. Snyder has followed that paternalistic logic, creating the Economic Vitality Incentive Program. It was his way of saying: if you want your allowance, you have to earn it.

As if delivering police, firefighting, streets, water, sewer and other essential services to the citizens of Michigan weren’t enough to earn it, there were new rules to follow, as well.  One of the most important of those rules was moves to consolidate services.

The governor believes – as do I – that we have too much duplication of both services and administrative overhead at the local level. But using EVIP to create more intergovernmental cooperation and/or consolidation is not only a terribly passive-aggressive approach, it’s doomed to failure. More on that in a later post.

Gov. Snyder’s institution of EVIP is representative of the sense in both the executive and legislative branches of Michigan’s state government that state shared revenue to municipalities is some sort of largesse – a gift given to local governments (and since 1994, school districts) that should be subject to the exigencies of the state’s budget and, perhaps, the zeitgeist.

But it’s not. State shared revenues – and the formulas that went with them – were a covenant. They were a guarantee from the state legislature that said, even though we’re changing the way you collect the revenue necessary for operations – and, in some cases, the amount you can collect – we will make sure you have the revenue you need to operate by sending a percentage of sales taxes collected in your municipality back to you.

It has not been treated that way, and it’s not entirely a partisan issue. State shared revenues for local government have been raped and pillaged by the Engler, Granholm and Snyder administrations and by both Democratic and Republican majorities in the Michigan House.

It’s time for the rape and pillaging to stop. Or to do away with the system entirely and remove the state’s shackles from local tax revenue collection and let local voters decide.

 

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