Michigan officials unite behind revenue sharing trust fund idea

Legislation to create a revenue sharing trust fund for local governments in Michigan has stalled in the state Senate, and on Tuesday, a group of Michigan legislators and local government officials gathered in Lansing to urge the Senate to pass and Gov. Gretchen Whitmer to sign the two bills.

House Bills 4274 and 4275, introduced by Democratic Rep. Amos O'Neal and Republican Rep. Mark Tisdel and co-sponsored by more than a dozen of their colleagues, would create a revenue sharing trust fund in the Department of Treasury composed of sales tax revenues and donations. The treasurer would distribute varying shares of the fund to cities, villages, townships and counties.

"Having served both in city and county government, I know firsthand how important providing services to our residents is," O'Neal said at the Tuesday press conference. "Bipartisanship is really at its best when we can do things like this? There are only a few short weeks remaining in this year's legislative calendar. Last November, Rep. Tisdel and I stood together on the House floor side by side, as we're doing here today, and we implored our colleagues to join us in supporting this legislation."

They got 106 votes in favor of the legislation in the 110-member House, he added: "How often do you see that? Not often."

Tisdel pointed to the billions of dollars spent on the presidential race in the last election, and said the role of local governments gets lost amid the money and attention lavished on national races.

"Think about the things you take for granted," he said. "No one from Lansing is going to come and fix the stoplight at the corner on your street and no one from Washington, D.C. is going to come and clear those fallen trees."

Local governments have struggled to budget every year absent a clear sense of what the revenue sharing amount is going to be, Tisdel said: "We've reduced the amount of statutory revenue sharing to balance our own budget, but [local governments] still have to deliver those services."

Michigan puts a heavy emphasis on property taxes to fund local government activities. It also limits both the growth in the taxable value of property parcels and the unit-wide growth in taxes on existing property to the rate of inflation, and it excludes the value of new construction, among other limitations, according to the Citizens Research Council of Michigan, a public affairs research nonprofit.

"The current system is not sustainable," CRC President Eric Lupher told The Bond Buyer. "Michigan's property tax limitations are among the most strict in the nation; local governments generally don't have a lot of alternative revenue sources to go to. And that leads to revenue sharing as a way to keep local governments functioning and able to provide the services that residents count on."

Lupher noted that the caveat to that, as detailed in a CRC commentary on revenue sharing, is that earmarking is a poor mechanism for long-term solutions.

"On the other hand, local governments were promised long ago that if they forgo different sources of revenue? they would be kept whole, and the state has reneged on their promises," he said. This legislation offers a way to hold the state to its promises and keep local governments functioning.

On Tuesday, Macomb County Commissioner Antoinette Wallace, who is also first vice president of the Michigan Association of Counties board of directors, called the proposed revenue sharing trust fund "a needed first step" and said the current system "jeopardizes proper funding."

She noted that 20 years ago, Michigan counties received $228 million; if that figure were adjusted for inflation, they would have received $404 million this year, she said. During Michigan's fiscal 2024 budget process, county revenue sharing dropped from more than $285 million to $261 million.

"For too long, Michigan communities? have had to do more with less, cutting costs and asking the residents to shoulder the local millages," said Connie Cargill, president of the Michigan Townships Association. "The 2024-25 state budget marked the first time in nearly two decades when all local governments were receiving statutory revenue."

Gwen Markham, chairperson of the Southeast Michigan Council of Governments, noted that for many local governments across the state, revenue sharing is as much as 50% of general fund revenue in a given year. A reliable revenue source is essential, she said, especially as municipalities partner with each other to seek federal funds.

Don Gerrie, mayor of Sault Ste. Marie and president of the Michigan Municipal League Board of Trustees, said revenue sharing makes up one-third of his city's budget. He noted that Michigan's local governments had significantly fewer employees in 2022 than they did in 2002, and there is 50% less revenue sharing to local governments today compared to 2002.

"This is an investment worth making if we want a growing and prosperous Michigan," he said, adding his voice to those of other officials asking the governor to make the legislation a lame duck priority.

"Governors are certainly afforded the bully pulpit," the CRC's Lupher said. But he added that even the House was reluctant to move on anything controversial this session, let alone the Senate.

Derek Melot, communications director of the Michigan Association of Counties, noted that supporters of the legislation, including MAC, presented the governor with hundreds of letters from local elected officials urging her to back the bills.

"With the governor's support, we are hopeful the Michigan Senate will quickly take up these bills and move them to her desk for signature before the Legislature adjourns," he said.

"It hasn't moved; that's undeniable," Lupher said of the legislation's progress in the Senate. "The problem, I think, boils down to? that earmarking will force the state to allocate scarce resources where it has not yet been willing to do that. This will force legislators to make hard decisions in other areas of the budget. Many of our state officials were formerly local government officials, and I think they get it, but now they're cast in the role of worrying about the state's finances, and I think that's really the sticking point."

In 2021, the CRC documented tax rate increases from 2004 through 2020, Lupher added: "We found that 90% of counties have increased tax rates, as have 68% of cities and 62% of townships. Almost all of the increases occurred after the Great Recession." Essentially, they're compensating for a smaller tax base with higher rates.

Some are also now creating government finance commissions, trying to tackle the problem municipality by municipality, he said.

"Collectively, you hear a whole lot of noise that this is not trending in the right direction," Lupher said. "If this were a priority, it could've been done four years ago. It could've been done two years ago. It could've been done in January."