When it comes to economic news in Michigan, the headlines in recent months have been mostly about the financial crises facing the state of Michigan, the city of Detroit and Detroit Public Schools, all of which are awash in red ink.
Below the radar of a lot of people, though, is another layer of trouble that is only now becoming apparent, and is only going to get worse, experts say. We're talking about local units of government — counties, cities, townships and school districts across the state that are facing the harsh reality of severe budget cuts as the result of the housing market collapse.
"People believe it can't get worse, but we haven't even seen the worse yet," says Bob Daddow, deputy county executive for Oakland County. His is just one voice among many sounding the alarm over the dark fiscal times ahead for many officials.
Although Michigan's housing market has been in decline since 2006, experts like Daddow and others point to a lag time of two years or more before those drops start to show as reduced property tax revenue.
In 2006, the average price of a home sold in Michigan was nearly $153,000, according to the Michigan Association of Realtors. As of July, that number had dropped to $93,648, or 39 percent.
In the past year alone, there's been a drop of more than 23 percent.
"The lag time, for all practical purposes, is about two years before things begin to hit," says Louis Schimmel, a municipal bonding expert who served as emergency financial manager for the cities of Ecorse and Hamtramck, where he eliminated a municipal debt of $2.9 million. "We've seen the first wave hit this year, but it's going to be much worse next year, and the year after that."
He expects revenues from property taxes — which constitute about 50 percent of revenues for most municipalities that don't levy income taxes — to, in his word, "plummet."
For more than a year, Dave Boerger, of the Southeastern Michigan Council of Governments, has been trying to get local leaders to take heed of the downward trend, and the impact it would have. Until recently, he says, many had been able to "weather the storm" by tapping so-called rainy-day funds.
"But those funds are now depleted," says Boerger. "We're pretty much past the denial phase. There's no choice but to cut services, and deal with the problem the same way auto companies and their suppliers have."
Which means workforce reductions, the depth of which can vary significantly. In Troy, for example, the expectation is that 20 percent of the city's employees will be laid off over two to three years, City Council member Robin Beltramini says. That's on top of the 5 percent reduction that's already occurred. "And," she points out, "we're a well-run city with a triple-A bond rating."
Some units of government are able to make measured cuts. Oakland County, for instance, has managed to shrink its workforce through attrition rather than layoffs. But others are finding themselves perched at the edge of what Daddow calls a cliff.
Among those at the edge is Detroit, which is staring at an accumulated budget deficit of at least $300 million. The city is considering the layoffs of 1,000 employees and is considered such a risk that its municipal bonds have fallen to junk ratings.
But others are going to have problems borrowing money as well; the municipal bond market in Michigan has already fallen off sharply, Schimmel says. That means a reduction in the large-scale projects that would otherwise help provide economic stimulus.
That's at one end. At the other are cuts in services that help make communities safe and livable day to day: fewer cops, fewer inspectors, less-frequent mowing of grass in parks, deeper snow on roads before they get plowed.
Yet even if the state economy rebounds and housing prices start to rise at a double-digit rate, there are still problems ahead. That's because Proposition A, which voters approved in 1994, limits property evaluation increases to either 5 percent or the increase in inflation, whichever is lower. Consequently, says Catherine Mullhaupp, director of member information services for the Michigan Township Association, while the bottom can drop out quickly, as we are now seeing, recovering the lost tax base can take a decade or more.
Not all the problems can be attributed to declining property values, notes Beltramini, president of the Michigan Municipal League. The state has been slashing revenue-sharing funding throughout the decade. Since 2001, she says, those cuts have amounted to $3 billion. A cut of another $162 million is being considered for the fiscal year that begins Oct. 1.
"Cuts of this magnitude directly affect the health, public safety and welfare of every citizen and business in this state," she wrote in a recent op-ed piece. One result, she says, has been the layoff of more than 2,400 police officers and 1,800 firefighters across the state.
The good news amid the prevailing gloom is that governmental units will be forced to become more efficient, doing things that they should have been doing all along, Schimmel says.
Smaller school districts consolidating and municipalities cooperating to provide services are just two examples. Beltramini is among those who say new tax structures are needed in a state that has lost massive numbers of manufacturing jobs.
Insolvency, which could force the appointment of emergency financial managers, and even municipal bankruptcies, are likely for some, says Schimmel. "Places that haven't been looking ahead," he says, "are going to get blindsided by this.
"It's a huge problem, and it hasn't really settled in how bad it is going to be over the next couple of years. But it is going to be really grim."
Curt Guyette is Metro Times news editor. Contact him at 313-202-804 or [email protected]
