City of Plymouth Proposed 2022-2023 Budget - Flipbook - Page 277
CRC Memorandum
No. 1132
A publication of the Citizens Research Council of Michigan
February 2015
Reforming Statutory State Revenue Sharing
The full paper can be found at www.crcmich.org/PUBLICAT/2010s/2015/rpt388.pdf.
This report was made possible through a grant from the W. K. Kellogg Foundation.
The State of Michigan runs a program that is somewhat unique – distributing a portion of state-collected
tax revenues to local governments for their unrestricted use. The restricted revenue sharing programs operated in Michigan – sending state-collected
funds to local governments to fund programs such as
education, highway construction and maintenance,
court funding, liquor enforcement, and mental health
care, etc. – can be found in most states. Programs
in which the state collects taxes and sends the revenues to local governments for them to use at their
discretion are not as common.
Michigan’s unrestricted state revenue sharing program is now 75 years old. For the first 30 years
of its history, it served solely to send funding to all
local governments. That purpose is currently served
by the constitutional revenue sharing program that
shares funding with local governments through a
per capita distribution. Since 1971, the state has
attempted to give revenue sharing greater purpose
by directing funding in the statutory revenue sharing program to local governments with the greatest
needs – defined at various times as the demand for
expanded menus of services and the lack of capacity to fund services from locally-collected revenue
sources.
The last effort to define the goals of the statutory
unrestricted state revenue sharing program – to
supplement the revenue raising capabilities of local
governments with less property tax capacity – were
never fully implemented. Only about one-quarter of
the local governments eligible for funding continue to
receive statutory state revenue sharing funding today, and the methodology for determining the levels
of funding distributed to each of those governments
has more to do with the levels of funding in prior
years than any measure of current needs.
Unequal Fiscal Capacity of Local Governments
Understanding the varying levels of fiscal capacity –
the varying ability to finance public services and the
varying demand to provide public services – across
local governments is key to understanding the insufficiency of leaving governments to their own devices
or attempting to address needs with a per capita
distribution of state funds. First, variances in tax
bases means that the challenge of raising revenues
is not uniform across local government.
Additionally, the services provided and the intensity
of service provision depends on a number of factors.
Most significantly, the need for an active local government increases when large numbers of people
CITIZENS
live, work, and interact in small geographic areas.
It is not practical to measure needs by assessing the
demand for individual services on a unit by unit basis,
but it is possible and common to assess needs based
on “pseudo” measures of needs by using population
density and housing density to identify jurisdictions
in which the conditions suggest more demands will
be placed on the local governments.
Taxable Value. Michigan local governments are highly dependent on property taxes to raise the necessary
revenue to provide services. On average, Michigan
communities have about $31,000 per person of taxable value upon which taxes can be levied to yield
R E S E A R C H C O U N C I L OF MICHIGAN
Eric W. Lupher, President
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