By Paul Rozycki
“Flint’s ‘comeback story’ at odds with its bleak fiscal outlook” Chad Livengood, Crain’s Detroit Business, Nov. 10, 2019
“Dismal finances place future of Flint Community Schools in doubt” Mark Bullion, WJRT, Nov. 5, 2019
“With budget issues looming, Genesee County looks to sell Lake Huron property,” “Genesee County commissioners ask departments to cut budgets by 10%” Ron Fonger, MLive, Sept. 6, and Aug. 27, 2019
As we move beyond celebrating the last election and into the next one — ponder those headlines. They say a lot about the challenges facing both the elected officials and the citizens of Genesee County, the City of Flint, and the Flint Community Schools. All three are facing major financial and budgetary challenges in the near future.
The full details are more than one can include in a brief column, and the stories behind the headlines deserve further reader attention. Some of the problems are worse than others. Some of the causes are similar. And there are major differences in the three. But here’s a short summary.
Just a few years after ending state oversight and emergency manager supervision, many experts feel that the city of Flint is on the verge of another financial crisis. Sheldon Neeley, Flint’s newly elected mayor, has said he is working to avoid insolvency and bankruptcy, but “I have to know what I’m dealing with first.”
For that reason, one of his first actions has been to bring in Eric Scorsone to do a financial audit of the city. Scorsone is an associate professor at Michigan State University and director of the Center for Local Government Finance and Policy at MSU. He has been a deputy state treasurer as well as the state Senate’s chief economist. He will head Flint’s finance department on a temporary basis.
What that audit uncovers remains to be seen. (In hopeful news, preliminary results announced by Scorsone in November showed a $20 million balance in the city’s water fund–instead of a deficit as had been projected). While it’s impossible to summarize Flint’s complex financial problems in a single column, some of the key issues include:
- A city pension fund that is only 36 percent funded, down from 53 percent just six years ago.
- Increasing pressure on the pension system as more employees retire and fewer new workers take their places.
- Spending $1.7 million more than they will receive in taxes this year, with future deficits running as high as $2.78 million by 2023.
- A genuine fear that the city could again face state intervention or bankruptcy.
Loss of tax base
The causes of Flint’s financial problems are many, but certainly the major problem is the loss of the city’s tax base. As 70,000 General Motors jobs disappeared, so did the tax revenue that went with them. Over the last decade or two, the city has lost nearly two-thirds of its tax base through loss of income tax and declines in property taxes.
To make matters worse, as property values have increased after the financial crisis of 2008, tax revenues have not increased proportionately. Under Michigan law, property taxes can rise no faster than the rate of inflation. So if property values increase by 10 percent, and inflation is two percent, tax revenue rises only two percent.
As the city’s population has declined by more than half, its expenses haven’t decreased as quickly. It still takes almost as many city employees to serve a city of 96,000 as it did a city of 200,000.
With next year’s census, the city will most likely show a decline in population. That decline is significant because many federal and state programs are based on the number of people in a city. A loss of population means an additional loss of revenue.
The most worrisome part of the budget is the rising impact of legacy costs — the costs associated with retired, or about to be retired, employees of a city of 200,000. Those costs are now carried by the fewer employees in a city of 96,000. The city’s lack of support for its pension funds has been one of the major causes of its current financial crisis.
In an interview with Crain’s Detroit Business, Hughey Newsome, who served as Mayor Weaver’s third CFO, said the city’s pension fund is so “hopelessly upside down” that Flint may face another state takeover, or Chapter 9 bankruptcy, to deal with rising legacy costs.
According to a study by Crain’s, Flint pays out $8 million more in retiree benefits than it spends on police and fire services, parks and recreation, the mayor’s office, the clerks’ office, the city council, and all other city services.
There are other causes as well. The state has cut revenue sharing for cities in recent years, and blame can be laid at the door of past administrations for the lack of planning as Flint declined. All too many of us expected that Flint would return to the “good old days” as it always had.
Flint Community Schools
The city of Flint isn’t the only one facing financial problems. Perhaps even more pressing are the problems of the Flint Community Schools. According to several financial experts the Flint schools are facing a crisis that could endanger their very survival. As reported in the East Village Magazine by Harold Ford, the Flint School Board was planning on closing four schools by the end of the year. Only the angry response of those living in the neighborhoods around the schools caused them to delay any possible closings. That delay may briefly quiet angry voices, but the financial problems remain.
The cause of the schools’ problems are similar to those faced by the city. However, two major factors have made the Flint schools’ problems even worse.
The first is a dramatic decline in student enrollment in the Flint schools. At its peak over four decades ago, there were more than 48,000 students in the Flint system and the Flint schools were a model for the nation. As recently as a decade ago there were 13,456 students enrolled. Currently, there are just over 3,700 in the Flint schools.
By many estimates, two-thirds of the K-12 students in the city are enrolled either in charter schools, schools of choice, or private schools, rather than the Flint Community Schools.
As the student numbers declined dramatically, so did state aid. But spending did not. A recent audit by Plante Moran indicated that the district spent nearly $10 million over its general fund budget in the year that ended in 2018, and that spending for basic programs budgeted $18 million but spent more than $21 million. The deficit for the upcoming year is estimated to be as high as $9 million, and a decision is expected by February to reduce at least some of the deficit.
More special education students
According to Superintendent Derrick Lopez, the Flint schools also have significantly more special education students than the state average. While the state average is about 12 percent, 24 to 26 percent of the Flint Community School students are special ed students, who cost significantly more to educate than traditional students.
An additional problem facing the Flint schools is interest on two loans taken out to service earlier debts and deficits. In 2014, the district took out a loan to resolve a $21.9 million deficit. The district will pay almost $2.1 million per year until the year 2038 — about $450 per student.
Genesee County finances
Financial crisis seems to be par for the course for Flint and the Flint Community Schools — at least recently. For a long time, Genesee County seemed to be insulated from the financial problems of Flint. Not anymore. A report from the controller’s office at the end of last summer showed that expenditures exceeded revenue by at least $14 million, causing the need for the deep cuts on the part of the County Commission. Like the city of Flint, one major source of the county’s problems is the increasing cost of retirees’ health care and pensions.
As the county faced a shortfall, the County Board has asked departments to cut expenditures by 10 percent. Not surprisingly, the request drew strong resistance from department heads, who didn’t want to see their budgets cut.
As a partial solution to the county’s financial problems, they are also considering selling some of the property acquired as part of the KWA pipeline project in Sanilac County.
One of the larger concerns is that these problems are taking place while the economy is in very good shape. Unemployment is at a 50-year low, the stock market is at a record high, and wages are edging up (slowly). What will the financial picture be when the next recession comes, and the economy takes a nosedive?
On a positive note, the leaders of all three local governments are taking action, as difficult and painful as it might be. Mayor Neeley is in the process of having an audit done for Flint’s finances. The Flint School Board has at least faced the prospect that it will need to close some schools in the near future, even if it provokes a public outcry. And the County Board of Commissioners is also facing the fact that it will need to make some serious cuts, even if it produces angry responses from its department heads.
It could be a long, hard winter.
EVM Staff Writer and political commentator Paul Rozycki can be reached at email@example.com.