By Paul Rozycki
In its own clumsy way the Flint water crisis seems to be slowly drifting to some sort of resolution. Most scientific reports are showing a significant reduction in the lead levels in our water. As a result the state has ended its distribution of free water at its water points of distribution (PODs) in the city, over much protest and anger. Several private groups and churches have stepped forward to provide bottled water, on a much-reduced basis, for Flint residents. The pipe replacement continues, and more than a third of the estimated 20,000 pipes have been replaced so far.
Debate over whether Flint’s children have been ‘poisoned’ by or simply ‘exposed’ to lead also reflects the division and a potential shift in the view of the water crisis (For more on that, read EVM Editor Jan Worth-Nelson’s stories here, here and here). Yet, Flint’s recent Memorial Day ‘boil water’ advisory, after a water main break, is not going to make any of us feel more confident that the end of the water crisis is on the horizon.
But the water crisis is only the most recent of Flint’s underlying problems. The financial challenges the city faces are as significant–and longer-lasting–than the water crisis.
City Council proved it can meet short
The Flint City Council held a remarkable meeting recently. As reported here by EVM’s managing editor Meghan Christian, the council met for 27 minutes, heard a presentation on the city’s proposed two-year budget, held a brief discussion, and adjourned—one of the shortest meetings in recent memory. In sharp contrast to many recent meetings, it was an organized, civilized, and focused discussion of the most important part of the council’s job—approving and passing the city’s $56 million budget.
Though there is much more to be done, at the moment Flint’s budget seems to be balanced, and the city appears ready to move beyond its years of state oversight and emergency managers.
But hidden in those dry columns of budget numbers are the seeds of a larger problem that Flint faces—a basic financial crisis that may be more difficult to resolve than replacing lead pipes in the city.
While the mayor’s budget projects a surplus for the 2018-19 year, many projections show a deficit in the years that follow.
Two major reasons lie behind those troublesome numbers—a lack of revenue and increasing legacy costs.
The city tax base
With the loss of nearly 80,000 well-paid General Motors jobs in the last few decades it’s not surprising that the impact on Flint is devastating. The city has gone from a population of almost 200,000 to less than half that today. While the population loss has been striking, the loss of tax base has been more dramatic. The taxable value of Flint property declined by half—from about $1.5 billion in 2001 to $750 million in 2015. The personal income loss has been even greater. In 1996, the personal income in Flint was $3.5 billion. By 2013 it had fallen to $400 million. As a result tax revenues for the city fell from about $12 million in 2006 to about $5 million in 2014. The city lost almost two-thirds of its tax base within a few decades.
But if property values should rise, as they have done (a little bit), wouldn’t that fix things?
Not quite. Because of Proposal A, passed in 1994 to address voters’ frustrations with property taxes and inequities in education funding – followed by Headlee amendments to the Michigan Constitution, taxes generally can’t rise any faster than the rate of inflation. So if even if property values go up by 10 percent, tax revenues are likely to rise by only a percent or two.
Revenue sharing
In Michigan, cities receive ‘revenue sharing’ funds, where the local governments receive funds from the state. In the past it has been a significant part of Flint’s budget, as it is for most cities and many other local governments, but in recent years, the state has reduced revenue sharing greatly. In 1998 Flint received about $22 million in revenue sharing. By 2014 that amount was down to $10 million. The Michigan Municipal League projects that Flint lost over $54 million in revenue sharing between 2003 and 2014. Cities in Michigan have lost more than $8 billion in revenue sharing in the last decade and a half. By some measures, Michigan local governments have lost nearly 50 percent of their promised revenue sharing in the last 15 years, and we typically rank last among the states in revenue sharing with local governments. The fact that Flint seems certain to fall well below the 100,000 population level in the next census will make it even more difficult to qualify for larger state and federal grants offered to bigger cities.
All this means fewer resources for a city facing increasing problems and challenges.
And as our population declines many of those problems loom larger.
Legacy costs
One of the major financial problems facing the city is the cost of retirement benefits that were taken on by a much larger and financially stable city. According to The Flint Journal, the city currently has obligations to about 1,800 retirees. That might not be a major problem if the city still had 1,800 or more employees. But it doesn’t. In 2008 the city had about 800 employees. In the next year or so it will have about 527. The city currently has less than half the money needed to take care of its current retiree costs.
The legacy problems have two major causes.
In the past, perhaps city administrations were all too willing to promise a generous retirement package to its workers. Yes, maybe that was true, and maybe past administrations should be blamed for a lack for foresight in promising too much. But, the city was growing, the tax base was increasing, and it shouldn’t have been all that difficult to pay for it. The future looked bright for an expanding city.
But a major part of the problem is also a reflection of the city’s decline and loss of population. A city with 2,000 employees will find it easier to support 500 retirees than a city with 500 employees can support 2,000 retirees. Declining cities tend to have more ex-employees than current ones. Flint isn’t unique in this. Most cities (and organizations) with a shrinking population face the same problem.
One other problem that cities like Flint face is simply that they are older cities, and there is much that needs repair, replacement or upgrading—often at a great cost. Flint’s aging water system is only one example of a system that may have been appropriate and affordable when it was put in place 50 or 100 years ago. But today the pipes, roads, schools, and government buildings now need renewal and the funds just aren’t there. Again, there’s plenty of blame to go around. Probably past administrations should have kept up with maintenance and repairs better, but today Flint faces the problem a maintaining a system designed for a city, and a tax base, of 200,000 people, with less than half of those resources.
Other problems also don’t shrink as rapidly as the population. Certainly the need for police officers, firefighters, maintenance workers, trash collectors, judges, courts, and social workers has not dropped as fast as Flint’s population or tax base has. In many cases the needs have risen. But the city’s ability to support those services has fallen even faster than the population.
Solutions?
The possible solutions to the financial problems of local governments deserve another column, but a few things should be briefly considered.
First, the state needs to restore the missing revenue sharing funds. The cuts of the last few decades have crippled many local governments and have been a major cause of much of the financial problems faced by cities, townships, and villages. We need to realize that emergency managers can’t do much if the resources aren’t there, and often do more harm when they try.
Second, as property values rebound from the 2008 recession, the law should allow tax revenues to recover as quickly.
Third, regional governments and regional tax bases can be another way of dealing with urban areas facing declining population, fewer resources, and increasing problems. Though this has been used selectively in a few parts of the state, politically, it will be a hard sell in Genesee County, given the friction between the city and the out-county.
Finally, local governments need to step up to the plate and responsibly deal with the fact that they don’t have the resources they once did. All too often that hasn’t been the case in Flint. They can’t simply shift funds from one pocket to another in the hopes of avoiding a crisis. Flint’s habit of borrowing from the water fund didn’t serve the city well in the past and won’t in the future.
Paul Rozycki
If there is any light at the end of the tunnel for Flint’s financial problems, it might rest with the fact that we’re not alone. More than 150 cities, villages, and townships are facing financial stress for the same reasons Flint is. According to Bridge Magazine, Michigan has at least 138 cities, 26 townships, and 15 villages that are distressed—and they cover the alphabet from Adrian to Ypsilanti.
At least we might have some allies who share our plight.
EVM political commentator Paul Rozycki can be reached at paul.rozycki@mcc.edu.
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