New state rules cut part of local revenue sharing

November 25, 2011
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LANSING — Under Michigan’s new revenue-sharing system for municipalities, most local governments will lose a third of their share, and some townships won’t get anything at all.

That tough new reality has rankled some in local government.

“We believe that if there’s going to be revenue sharing, it should be shared amongst all government units,” said Bill Anderson, the legislative liaison for the Michigan Townships Association.

Municipalities are eligible for two types of revenue sharing. All municipalities receive money based on population, which is guaranteed by the state constitution. The second portion is decided by the Legislature each year. The new revenue-sharing program, known as the Economic Vitality Incentive Program, cuts revenue through a system of requirements.

Under that program, only municipalities that received more than $4,500 from the Legislature in 2010 are eligible for money this year. Those that do qualify are eligible to receive up to 67 percent of what they were paid 2010, but only after they comply with three requirements:

**They had to have set up a public dashboard tracking local finances by Oct. 1, 2011.

**They have to submit a plan to consolidate services with other local governments by Jan. 1, 2012.

**They have to submit a proposal for reforming employees’ compensation in future contracts by May 1, 2012.

City officials aren’t happy about receiving less money from the state, let alone complying with new requirements.

“Prior to the Economic Vitality Incentive Program, we were getting $450,000 without having to do anything; it was all formula-based,” said Gary Simpson, chief financial officer for Marquette. “But with the new governor, he’s saying, ‘We’ll let you earn two-thirds of that by complying with these three phases.’ Even if we comply with all three phases, we’re still losing close to $150,000 to what we were getting.”

However, the new program is even more frustrating for municipalities that don’t qualify.

Many townships haven’t been receiving state payments for years now, as lawmakers have patched budget holes with that money, Anderson said. Now, 40 of the state’s 1,240 townships aren’t eligible for funds this year, because many fall below the $4,500 minimum.

Townships and all other municipalities still receive constitutionally protected revenue, which has always been the major source of funding for townships, Anderson said. He estimated that townships receive more than $300 million in constitutional revenue.

The incentive program requirements will still result in cost-savings that will benefit any municipality, whether they’re eligible to receive funds or not, said Terry Stanton, the director of communications for the state treasury. Municipalities that are not eligible for the incentive program do not have to comply with the requirements.

But Anderson said townships have already been consolidating services and cooperating with other local governments for decades to offset dwindling revenues. He said two-thirds of Michigan’s townships are running their fire departments in cooperation with other local governments.

Some township officials want some recognition for past consolidation efforts.

“If you do something now that I did four years ago and you get a prize for it, and I don’t get anything, that doesn’t seem right,” said John Greenberg, treasurer of Chocolay Township, near Marquette. “I think there should be some credit for past practices.”

Municipalities face several obstacles in implementing the incentive program. While Stanton said most municipalities completed the dashboard requirement in time, the last two components — the consolidation of services and reforming employee compensation — will prove more difficult. Some municipalities are working on fulfilling the services requirement, but the incentive program’s exemptions are making the process difficult.

Simpson said Marquette is talking to surrounding townships to establish a shared parks and recreation authority. He said it’s a strange situation because the townships — Marquette and Chocolay — don’t qualify for the incentive program, so only Marquette would receive funds from the state as a result of the deal.

“The townships have no incentive to be doing this, and we’re being forced to do it, so it’s kind of a one-way street,” he said.

The third component, reforming employee compensation, will be difficult, said Susan Bohor, the director of administrative services for Marquette. She said public employees already have reduced salaries, but now municipalities will have to trim their benefits packages to comply with the incentive program.

The new requirements include restrictions on the municipality’s contributions to employees’ retirement plans, defined benefit pension plans and health care premiums. It also caps the amount of unused vacation hours that figure into an employee’s final compensation at 240, and also prohibits using overtime hours in determining final compensation.

The incentive program doesn’t require re-negotiating contracts to make the changes immediately, but requires that the municipality show plans for negotiating the next contract by the May deadline.

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