City of Plymouth Proposed 2022-2023 Budget - Flipbook - Page 284
CRC Memorandum
A New Formula to Address Fiscal Capacity
A new formula to address fiscal capacity should
recognize both that some local governments do not
have the sufficient tax base to productively raise
funding to support their own operations with local
taxation, and that some local governments are called
upon to provide services at higher levels. Keeping
in mind the need to keep a new formula simple and
understandable, a new formula should be broken
into parts based on different factors that recognize
that the needs of Michigan’s local governments are
not easily defined by one measure of need.
as population density and building density. These
measures recognize that the closer people are to one
another, and by extension the closer their residences
are to one another, the more they’ll interact. This will
result in a greater demand for public safety services,
a greater demand for services such as garbage collection or planning and zoning, and increased interest
in quality of life services such as parks, libraries, and
recreation facilities and programs.
Transition to Restricted
State Revenue Sharing
Insufficient Revenue Raising Capacity
Given Michigan’s heavy reliance on property taxes
as the primary source of local taxation for cities,
villages, and townships, the options that could be
used to assess revenue raising capacity are few. The
distribution of funding to equalize tax yields or on
a tax base per capita basis both achieve the same
goal. However as described above, wherein tax
yield equalization operates independent of population, making it better suited to meeting the needs
of Michigan’s urban places at this time.
The present scenario, with state policymakers
considering policy actions to rebuild the statutory
state revenue sharing program and many local
governments presently receiving no funding from
this program, offers an opportunity to rethink the
unrestricted nature of the funding that flows to local
governments. Rather than distributing the funds to
local governments with the understanding that public
safety is the function that consumes the most local
dollars, such a change would direct state funding
directly for these purposes – police, fire, and emergency medical services.
Heavier Service Demands
The second part of a fiscal capacity formula should
recognize the heavier demands for services placed
on some local governments. Because local government services are provided both to people and to
properties, service demands should be measured
Rather than using the pseudo measures of need, as
is necessary in the unrestricted state revenue sharing
distribution formulas, a restricted revenue sharing
program for public safety should be based on actual
measures of activities that drive the staffing and cost
of public safety agencies.
Conclusion
An economic, efficient use of taxpayer dollars suggests that the government responsible for providing
services should also be the government responsible
for collecting the taxes. Despite this bedrock principle of good government, reasons to continue and
reconstitute statutory state revenue sharing are
plentiful. On top of the fact that Michigan’s history
of sharing revenues has created a dependence from
which local governments will not easily be weaned,
state revenue sharing also serves to diversify the
revenue structure of local governments; to facilitate
economic development by diminishing the need for
local taxes to be levied at exorbitant and non-uniform
rates; and to ensure that a minimal level of services
are provided across all jurisdictions.
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The circumstances of the past decade have left
Michigan with a state revenue sharing program that
bears little resemblance to its prior self. There is
little rhyme or reason to the methodologies used to
distribute statutory state revenue sharing to local
governments, nor to the amounts that they receive.
This report identifies opportunities for addressing that
weakness, either in a continued unrestricted state revenue sharing formula or as a new restricted revenue
sharing program for public safety. The effective use
of public resources in such a program depends not
only on a sound formula for getting funding to the
governments with the greatest needs, but also on a
level of funding sufficient to make a difference.
