detroit-skyline-relief.jpg

The Detroit skyline.

(Jonathan Oosting | MLive.com)

LANSING, MI -- Michigan is home to a number of struggling cities, making it easy to point the finger at local officials, declining property tax revenues or other economic factors that have effected the nation as a whole.

But many local leaders will also point to Lansing.

Over the past decade, lawmakers and governors from both political parties have used some $6.2 billion in sales tax collections to fill state budget holes rather than fulfill a statutory revenue sharing promise to local communities, according to the Michigan Municipal League, which released a city-by-city analysis earlier this month.

The figures, which are based on data from the Michigan Department of Treasury and adjusted for inflation, are staggering. In many instances, the losses have resulted in steep cuts to government staffing and public services that residents rely on.

Detroit, which filed for bankruptcy protection last year, missed out on $732 million between 2003 and 2013, per the report. Flint, under control of an emergency manager, could have had an extra $54.9 million to work with. Cities like Pontiac and Lansing have lost more than $40 million each.

The Municipal League says the annual budget "raid" has diverted money that should have been used to maintain city services. It argues that the Legislature has helped caused some of the very financial emergencies that have prompted state takeovers or other forms of intervention.

"It's like somebody stealing your wallet and then coming back hours later and saying, 'What, you have no money?'" said Utica Mayor Jacqueline Noonan, whose small city of 4,700 residents missed out on $1.4 million in the last decade. "It's ridiculous. It's insane."

The Michigan Constitution requires the state to distribute a portion of sales tax collections to cities, villages and townships. Lawmakers cannot revise that formula without voter approval.

However, the state never fully implemented a secondary distribution formula established in 1999 that would have required an even larger chunk of sales tax revenue go to communities. It's that statutory revenue sharing that local leaders are upset about.

The non-partisan Citizens Research Council, in a 2013 report, noted that more than $5 billion was diverted from the statutory revenue sharing program between fiscal years 2001 and 2012. State budgets grew slightly faster than the rate of inflation during that time, while municipalities cut roughly 27 percent of their workforce.

Database: See how much revenue sharing your city missed between 2003-13 Source: Michigan Municipal League analysis of treasury department data

Michigan communities rely on state resources to finance public services more than local governments in most other states, according to the CRC. But because of various tax-restraint mechanisms in state law, many local units can do little but cut and complain when statutory revenue sharing is reduced.

The Mackinac Center for Public Policy, a conservative think tank that advocates for smaller government and has long suggested ending statutory revenue sharing altogether, does not necessarily dispute the Municipal League numbers. But fiscal policy director Michael LaFaive challenges the underlying argument.

"They're not owed anything," LaFaive said. "This was a series of statutory appropriations that were used for other things, which is perfectly legal and up to the Legislature. We're constitutionally committed to committing a certain amount of money, and that has been met every year. I think they're upset over losing anticipated revenue, but those revenues don't belong to them."

Michigan law allows cities -- not villages, townships or school districts -- to impose a local income tax, and 22 have done so. With revenue sharing on the decline, many have turned to local residents to pick up some of the tab for local services.

Grand Rapids, which appears to be on relatively solid financial footing, lost out on nearly $73 million in revenue sharing between 2003 and 2013, per the Municipal League.

The city has used local income tax and millage options to help fund public safety and parks, according to Commissioner Rosalynn Bliss, and is now asking voters to authorize a city income tax for streets.

"The hole that has been created by the state continuing to cut revenue sharing has really been pushed onto the backs of local units," Bliss said. "We've come to the table over and over, going to voters and asking them to pass local tax increases to help fund that hole."

A CALL FOR MORE MONEY, FEWER HOOPS

Michigan Gov. Rick Snyder successfully pushed to replace statutory revenue sharing with the "Economic Vitality Incentive Program" early in his tenure, shrinking the size of the pie but handing out bigger slices to communities that moved to increase transparency, consolidate services and develop a long-term employee compensation plan.

EVIP initially reduced local payments in order to address a state budget deficit, following a trend that began in 2001 under Gov. John Engler and continued under Gov. Jennifer Granholm.

Approximately $210 million was available to local communities through EVIP in fiscal year 2012, down roughly one-third from statutory revenue sharing totals in 2011. For Detroit, that meant a reduction of about $70 million, according to House Fiscal Agency numbers. Flint, Pontiac, Saginaw, Lansing and Grand Rapids each lost more than $2 million that first year.

EVIP saw small funding bumps in subsequent years, and Snyder's fiscal year 2015 budget proposal calls for a 15 percent increase, the largest of its kind in some time. Local leaders are welcoming the prospect of additional money, but they're still furious about a decade of losses.

The Municipal League is calling on the state to scrap EVIP altogether and return to the fully-funded statutory revenue sharing model envisioned more than a decade ago.

"Instead of promoting best practices, EVIP has become nothing more than a time-consuming paper chase for our communities," said East Lansing Mayor Nathan Triplett, arguing the program is a bureaucratic nightmare requiring municipal officials to spend more time doing paperwork than actually focusing on improved service delivery or financial management.

EVIP is authorized through an appropriation rather than statute, meaning the Legislature makes an annual decision whether to continue it. Three years in, lawmakers seem interested in revising the program rather than abandoning it all together.

In terms of transparency and accountability, EVIP has been a success, according to Sen. John Pappageorge (R-Troy), who chairs the general government budget appropriations subcommittee. But he thinks the consolidation carrot may have already been swallowed by anyone with an appetite and has outlived its usefulness.

"We're going to go back to what it really is, and that's revenue sharing, and that's what it will be called in the Senate budget," said Pappageorge. "I'm not knocking EVIP. It did it's job. We're going to keep the best parts and move on."

Over in the House, Financial Liability Reform Chairman Earl Poleski of Jackson is working on his own proposal to revise EVIP. He wants to change the criteria for qualification, but also spread out larger payments to more municipalities that do not currently qualify for any EVIP money at all.

Under Poleski's initial plan, local units would have to continue meeting transparency standards, but they'd also have to devote at least 5 percent of EVIP payments to road maintenance and another 5 percent to unfunded accrued liabilities, such as pensions.

"Sometimes you float ideas out there and wait for folks to take shots at them," Poleski said earlier this month, "and frankly, to suggest something that is superior to what's been proposed."

The Municipal League, in presenting its revenue sharing data only an hour after Poleski outlined his plan, fired several shots, suggesting that the plan would reduce local control and compromise local decisions by attaching state-mandated strings to the money.

"It's outrageous for the Legislature, which has failed to provide us for essential services for our residents, to tell us how to spend that money when they can't deliver on their end of the bargain," said Triplett.

Jonathan Oosting is a Capitol reporter for MLive Media Group. Email him, find him on Google+ or follow him on Twitter.