Flint and beyond: Cities in crisis need more funding from the state

Budget Brief JPG USE THIS ONEpdficonAs the Legislature rushes to finalize the state’s budget, the League continues to prioritize funding for municipalities that are struggling because of a long economic downturn and inadequate state support. The League supports the emergency services provided to Flint, as well as ongoing and long-term state efforts to help identify and treat developmental delays in children and other related health issues for all residents. To prevent future crises, the League also supports full funding of statutory and county revenue sharing, and urges lawmakers to evaluate and reform Michigan’s tax system to ensure that there are adequate resources to keep children and families healthy and safe.

The recent Detroit bankruptcy, the problems facing Detroit Public Schools and the ongoing water crisis in the city of Flint have drawn national attention, but municipal finance problems are not unique to Detroit and Flint and are not even unique to Michigan’s urban centers. Falling property values during the Great Recession resulted in decreased property tax revenue, compounded by state government’s continual cutting and underfunding of statutory revenue sharing. While lawmakers do need to urgently help resolve the Flint water crisis and take care of the kids and people it harmed, they must also think of the state as a whole to ensure that other municipalities do not fall victim to similar problems.

BB Flint and Beyond graphic 1The House and the Senate have both voted out their separate 2017 Treasury budget bills which include revenue sharing, and the Senate has approved a current year budget supplemental to provide $128 million for some additional services to the city of Flint that is awaiting House action. On Tuesday, May 17th, the May Consensus Revenue Estimating Conference will be held to allow state budget experts and economists to reassess expected state revenues. From there, the budget is on a fast track, with legislative and administration leadership setting departmental spending targets and House/Senate conference committees meeting right after the conference to reconcile the differences in their budget bills.
This report outlines the League’s continued support for Flint and our priorities in the 2017 budget to ensure that other municipalities have the funding they need in order to avoid a future financial—and public health—crisis.

Flint Water Crisis

Just before our current budget year began (October 1, 2015), the state was mired in a crisis. High blood lead levels had been found in an increased number of Flint children, caused by high lead levels pouring from the faucets in their houses. The exposure of the residents of an entire city to lead toxins is a disaster that was preventable and compounded by state government’s denial and delayed response. This crisis now calls for an aggressive and long-term state response, and current year and future budget considerations are being made to address it.

Enacted 2016 Supplemental Budget Funding

Enacted Emergency Provisions: After the water crisis became too severe to be ignored, Michigan lawmakers did come to Flint’s aid, enacting a number of emergency funding provisions totaling $67.4 million ($59.8 million state funding). Much of this early aid focused on getting much-needed water-related resources to Flint residents, including bottled water, lead-removing water filters, funding to reconnect to the Detroit Water and Sewerage Department, and a partial credit to residents on bills for the water they are unable to use. Also included in some of these early budget supplementals was funding for additional school nurses, Early On service coordinators, testing for lead in both blood and water, and nutrition services through the WIC (Women, Infants and Children Special Supplemental Nutrition) program.

Proposed 2016 Supplemental Budget Funding Awaiting Action

Educational Services: The governor recommended $25.6 million ($6 million state funding) for half-day child care services for children up to age 3 regardless of income to help mitigate developmental delays; intervention services for children with lead-associated developmental delays; and nutrition programs to ensure access to healthy fruits and vegetables. An additional $9.2 million (all state funds) was recommended by the governor for Early On services to children under 5 years old who did not participate in the Great Start Readiness Program.

  • Senate: The Senate agreed with the governor on both the $25.6 million for child development and nutrition services and $9.2 million for early intervention services through Early On.
  • House: The House only supported the governor’s recommendation of $9.2 million for Early On and has not yet considered $25.6 million for child development and nutrition, indicating that it would consider Flint assistance during its deliberations on the 2017 budget.

Health and Human Services: The governor proposed $8.3 million ($2.2 million state funding) for food bank resources including use of mobile food banks, evidence-based home visitation programs to provide parenting resources and identify developmental delays, and intensive services for children.

  • Senate: The Senate agreed with the governor’s recommendation of $8.3 million for these resources and also provided $321,000 for the increased costs of department-contracted private child welfare agencies providing increased care and supervision of foster care children.
  • House: The House has not yet approved funding for these services, indicating that it would consider Flint assistance during its deliberations on the 2017 budget.

The state has also received approval from the federal government to expand Medicaid services in Flint to children up to 21 years old and pregnant women who were served by the Flint water system since April 2014, and who have income of up to 400% of the federal poverty level ($80,360 for a family of three). The federal waiver was approved May 3, 2016, and enrollment began on May 9, 2016, after the necessary state funding was found within the existing budget.

Infrastructure Updates: The governor proposed $25 million (all state funds) to begin replacing lead service lines in high-risk, high-hazard Flint homes.

  • Senate: The Senate agreed with the governor’s $25 million recommendation for lead service line replacement.
  • House: The House has not yet approved funding for these services, indicating that it would consider Flint assistance during its deliberations on the 2017 budget.

The League has supported the emergency services provided to Flint, but also recognizes the need for ongoing and long-term services to help identify and treat developmental delays in kids and health issues related to the Flint water crisis. The Flint water crisis is a canary in a coal mine, and infrastructure problems like Flint’s exist in municipalities statewide. Michigan must evaluate and reform its tax system to ensure that the state has adequate resources to fix the problems in Flint as well as prevent future crises statewide.

Funding for Michigan Cities and Local Governments in the 2017 State Budget

Constitutional Revenue Sharing: The governor recommended $781.5 million for constitutional revenue sharing, which appears to be a $2.4 million reduction from current year appropriated amounts but is actually a 3.9% increase above the January 2016 Consensus Revenue Estimating Conference (CREC) estimate for the current year. Under Michigan’s Constitution, 15% of the sales tax levied at the rate of 4% is distributed to all Michigan cities, villages and townships (CVTs) on a per capita basis. This is an automatic, mandatory payment and is not subject to annual appropriations. Adjustments are made based on the January and May CREC estimates, and the amounts appropriated are based on these estimates. However, actual payments will be based on the amount of sales tax collected.

  • The House and the Senate agreed with the governor’s recommendation.

Cities, Villages and Townships Revenue Sharing: The governor proposed eliminating $5.8 million in one-time restricted sales tax revenue and removing the per capita distribution component. By doing so, 101 cities, villages and townships (CVTs) that were included in the current year distribution would not receive a payment next year, and CVTs that were eligible for a higher per capita payment would be reduced to the previous appropriation level.

Michigan’s statutory revenue sharing program has a long history. In the late 1990s, the statute was amended to implement a new distribution formula. However, since budget year 2002, actual appropriations have been routinely well below the full funding guideline, and changes in the formula have completely eliminated statutory revenue sharing for 1,033 CVTs. Actual statutory revenue sharing was last used in budget year 2011. Currently, all allocations and distribution formulas are provided for in the annual appropriations bill, and 587 CVTs are eligible for a total of $248.8 million in revenue sharing in the current budget year.

  • The Senate reduced funding by 1.5% but maintains eligibility for all local units that are eligible for a payment in the current year.
  • The House retained current year funding levels to ensure that all CVTs eligible for a payment in the current year will be eligible for 100% of that amount in the next budget year.

County Revenue Sharing and County Incentive Program: The governor proposed increasing county payments by $467,500 in 2017 to accommodate two new counties (Alcona and Charlevoix) returning to state revenue sharing, as well as maintain full funding. In an agreement to balance the budget, county revenue sharing was suspended in the 2005 budget year. Counties created reserve funds with their own revenues from which they were allowed to draw an annual amount. Once their reserve funds were exhausted, the counties would be eligible for state revenue sharing payments equal to their final authorized withdrawal amount. In the current year, about 76 counties receive state revenue sharing payments, and seven counties still draw from their reserve funds.

  • Senate: The Senate provides funding for the newly eligible counties and increases payments to all eligible counties by 2%.
  • House: The House agreed with the governor.

Financially Distressed Cities, Villages and Townships: The governor recommended level funding of $5 million for a program that provides grants of up to $2 million for cities, villages and townships with signs of fiscal distress for projects that move the municipality toward financial stability.

  • The Senate and House agreed with the governor.

The League supports full funding of statutory and county revenue sharing. For too long lawmakers have shortchanged our struggling municipalities and counties, and it should come as no shock that many of them have fallen on financial hard times. The infrastructure and financial problems in Flint and Detroit are due in part to continued state disinvestment. While an immediate influx of state support in statutory revenue sharing is likely impossible, the state should at least maintain what has been provided in the current year and should start making strides to provide the increases that these municipalities require.