City of Plymouth Proposed 2022-2023 Budget - Flipbook - Page 280
CRC Memorandum
History of State Revenue Sharing
Michigan’s state revenue sharing program was
created in a series of policy actions spread over
60 years. In many ways it is constructive to think
about the overall program in two parts: constitutional revenue sharing and statutory revenue sharing.
Constitutional revenue sharing is the result of a 1946
amendment to the state Constitution that dedicated
revenues to local governments and schools. The
dedication of revenues from the intangibles, income,
and single business taxes eventually came to be
known as statutory revenue sharing. In the late
1990s, these individual dedications were melded into
a single dedication of additional funding from sales
tax revenues (beyond the constitutional dedication).
The significance of constitutional and statutory state
revenue sharing has grown as Michigan’s systems
of state and local government finance have evolved.
People at various times may interchangeably term
the program state aid instead of state revenue sharing. State aid would imply that state policymakers
at some point decided that state revenues were
sufficiently plentiful that they could be put to good
use helping the finances of local governments. Such
an implication would assume that local governments
were in need of assistance and since each revenue
sharing distribution was designed to distribute revenues to all units of local government, that all local
governments were in need of assistance.
In fact, the program is termed state revenue sharing because state policymakers agreed to serve in
a revenue raising capacity to capitalize on revenue
raising efficiencies and share state-collected revenue
with local governments, usually because the finances of local governments were negatively affected
by statutory changes that exempted parts of the
property tax base from taxation. Historically, the
state has adopted policies to distribute revenues
to local governments for two purposes: 1) the replacement of revenue after certain local taxes were
either discontinued or preempted by the state; and
2) to supplement local government revenues and
general funds.
Reforming Michigan’s State Revenue Sharing Distribution
Part of the need for this report rests with the fact
that the goals of statutory state revenue sharing
have not been clearly delineated in the past. State
policymakers may just see a pot of money being
distributed to local governments without a common
understanding of the goals behind it. The loss of
institutional knowledge inherent in the system because of term limits for state officials further lessens
connections to past policy decisions.
Thus, it is of fundamental importance that state policymakers define a goal for state revenue sharing.
Michigan has had different goals that drove the distribution of state revenue sharing over the years, but
none of those goals are applicable to the distributions
in the current program, which have been revised and
changed yet again over the years without a focus
on the overarching goal of the program. Given the
current scarcity of resources at the state level and
the challenges confronting many of Michigan’s local
governments, that goal should be to send funding to
those governments with the greatest needs.
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A necessary first step in defining need and setting
goals for state revenue sharing is establishing a
common understanding of the purpose of local
government. For the Citizens Research Council of
Michigan, the purpose of local government is to
manage the interaction between people. People
can exist in nature without government, but when
people aggregate into communities, there begins to
develop a demand for public services. People seek
public safety to protect against injury to their person or property. They seek planning and zoning to
protect against negative externalities such as noise
or air pollution. They seek parks, recreation services
and other quality of life amenities.
Having established the purpose of local government,
a necessary next step is to establish the state’s interest in local government. The common denominator
for systems that attempt to recognize needs is an
interest in equalizing the fiscal capacity of the local
governments so that citizens are not deprived of
basic governmental services simply because of the
jurisdiction within which they live or work.
