Don’t expect Detroit to accept proposed revenue sharing cuts without a fight.
City officials can justifiably argue that they were hoodwinked when Lansing reneged on a deal made over a decade ago. More cuts, the city contends, will take Gov. Rick Snyder’s concept of “shared sacrifice” to the extreme.
Detroit currently gets $178 million out of a $307 million in state revenue sharing, the largest recipient of these dollars. Under the governor’s proposal, statutory revenue sharing will end. Cities, townships and village will have to compete with best-practice, incentive-based reforms to get a share of the $200 million pot the governor plans to establish.
The narrow issue on which Mayor Dave Bing can justify his “unfairness” claim had its genesis in 1998. Former Gov. John Engler and then-Detroit Mayor Dennis Archer formulated a deal in which Detroit would receive $333.9 million each year from FY 1999 through 2007. The only way Detroit would receive less than that amount was if state sales tax collections, which fund the revenue sharing program, decreased.
The boilerplate legislation was tie-barred to another bill in which Detroit agreed to roll back its resident income tax rate in increments of 0.1 percent each year during the period until the residential rate had dropped from 3 percent to 2 percent.
Sales tax collections fell in 2003 and again in 2007, along with Detroit’s revenue sharing disbursement. By law, Detroit was supposed to get the same percentage reduction as the sales tax collections, which meant a $720,000 cut each of those years. Instead Detroit was included in the across-the-board cut that resulted in a loss of $14 million per year. To add insult to injury, the Legislature never amended the City Income Tax Act to allow Detroit to reset the income tax rate back to the 3 percent level.
As a result of these actions, Detroit was shorted some $220 million in statutory revenue sharing payments. Arguably, the city lost another $50 million a year since 2003 from not being able to levy the maximum resident income tax.
The bottom line is that the Legislature liberated state government from of its revenue sharing obligation to Detroit, but left the city holding the bag with millions in loss revenue and a major bone of contention as the city lobbies against further cuts.
Kicking the income tax back to the 3 percent level wouldn’t be the smartest thing the city could do. But then, part of the intended purpose of revenue sharing was to discourage local communities from taxing themselves into oblivion.
City officials shouldn’t be surprised to find that their best argument isn’t likely to win much sympathy. Because the state is in financial bind, Detroit may ultimately have to end its revenue sharing addiction.
The expectation seemed to be that the government goose laying the golden eggs would do so in perpetuity. This mindset paralyzed city government and opportunities to get its financial house in order while the sun shone were squandered. Since the Detroit/Lansing revenue sharing deal was inked, the city engaged in frenzied unchecked spending that was matched only by mortgaging the city’s future by rolling over deficits. Failure to come to grips with a distorted reality only made Detroit’s financial distress more acute.
Budget woes aren’t inevitable if the city is willing to adjust to changing conditions. “Best practices” that have become routine in the real world include competitively bidding city services, or eliminating programs altogether.
Mayor Bing is owed a legitimate chance to make his case for not taking another revenue sharing hit. But he also has an obligation to deliver timely, high-quality municipal services with the money that’s available. That’s the best way to dispel the belief that the city has no future without a massive and continuous infusion of money from Lansing.
Also see: http://www.detnews.com/section/MIVIEW