Local governments throughout the greater Lansing area are struggling now to adopt budgets that are balanced and still meet the basic needs and expectations of taxpayers and residents
By Howard T. Spence
It is that time of year again. Local governments at all levels are now struggling to adopt budgets for the coming fiscal budget year which will allow those governments to continue to provide services to their residents and taxpayers. The Michigan Constitution requires that these local government entities adopt these annual budgets, and that those annual budgets be "balanced." Balanced means that local government entities must not spend more to provide services and pay bills and obligations than they expect to collect in revenues or borrow each year.
In the mid-Michigan area, local governments at all levels are now focused on enacting budgets. Those government bodies include counties, townships, cities, and a number of local villages and small municipalities. In addition, there also are a number of various other types of government or nonprofit organizations which have responsibilities to provide public services and/or which utilize government generated revenue dollars for public purposes. Examples of those government units include authorities like Capital Area Transportation Authority (CATA) and Eaton County Transportation Authority (EATRAN), some of the local library districts, and, of course, public school districts charged with providing education services.
Historically it has always been a challenge to match revenues with expenses and obligations at the local government level. In some instances the levels of local government revenues or government income is predictable. That is especially true if the government revenue comes from annual property taxes, which are based upon how much the various houses, businesses, factories and other real estate owned in the jurisdictions are valued to be worth. The property tax values are assessed and multiplied a "millage" or voter authorized tax rate, which is then used to generate an annual property tax bill. Even renters who do not own real estate property indirectly pay that property tax through the amounts they pay for their monthly rent to their landlords.
Sometimes the revenues available to the local government units are less predictable or stable, and variations from year to year can have significant impact on the local government’s budgeting process. Because of restrictions in state law, local governments usually are not able to quickly adjust their revenues, In almost all instances if money or revenue shortages arise, the government bodies must go back to the taxpayers and voters for their approval to raise millage or property tax rates before the local governments can begin to collect higher taxes. Sometimes the millage based tax collections that are approved historically by voters in local jurisdictions are not permanent and expire. When a millage expires, if it is not reapproved by voters and renewed, the services provided by the expiring millage must usually be discontinued.
Government revenues are raised from a number of taxing sources besides property taxes. Options for raising tax revenues to fund government services vary from government body to government body. Some local government authorities can assess income tax, fees for services, various costs for services, or have other ways to raise money to pay for the government and government services which are provided to local residents. Many of these local governments also are dependent upon revenue or tax "transfer payments" that they receive from the State government and/or from the federal government - which usually are “restricted” to fund specific local programs.
Where does the money go? It goes where the locally adopted budgets say that the money can or must go. Depending on the level of government involved, those tax revenues go to budgeted programs for public safety, health and welfare of residents, and other programs and services which either the local government officials or the local government voters have directed be funded and provided. Sometimes those revenues can only be used for a voter specified or restricted use. In Eaton County, voters approved the county collecting a new and additional property tax millage for up to 12 years to pay for maintenance and care on county local roads.
One of the primary functions of local government is to provide services in the area of public safety. Almost all of the voters and residents in local jurisdictions agree that government should be funded to provide police services and emergency EMT and fire protection services to protect and serve them. Within the category of public safety you will find local police – such as the Lansing Police Department, and the sheriff departments in the Ingham, Eaton, and Clinton Counties, - as well the courts at all levels within the three counties. Tax dollars are also collected to fund and pay for the county jails and youth detention facilities. Tax dollars also must be spent to assure the prosecution of criminal cases in the three counties through the various prosecutor offices and other contracted legal representation and prosecution provider services. Providing these public safety services is very expensive and is typically one of the more staff or personnel intensive functions of local government.
Health and Human Services
Another relatively expensive area of services which the public expects the local governments to provide is health and human services programs. Included in this group would be the local health departments and the related local community mental health authorities such as the Community Mental Health Authority of Clinton, Eaton, and Ingham counties (CMH-CEI), some of the social welfare or safety net programs designed to help those who are poor and vulnerable in our communities, and the costs associated with keeping local environments safe and healthy and free of significant infectious disease. While the state and federal government do provide significant tax dollars in the areas of public health, local governments at the county, city and township level also use their separate tax dollars to help pay for these important health and human services.
In addition to these basic services, local governments also have the burden of funding and providing "mandated services" which can often be very expensive. Mandated services are services which government at higher levels (such as the state legislature) requires that local governments provide whether they like it or not and even if the residents in a particular jurisdiction have not requested those services. The state legislature will frequently enact programs which have significant costs and “mandate” that those services be provided, but then after mandating those services be provided, the state legislature often will not provide the additional funding or appropriation necessary to allow those services to be implemented as mandated.
When such services are mandated by the state legislature, local governments – counties, townships, and cities - may suddenly find that they are now required to pay for programs and services which their local voters did not request or require, and for which there are no additional funds provided to the local government entities to implement those mandated programs and services. When the state legislature mandates new programs and services, but does not provide the revenue or funds for those services, it is almost as if the state legislature is "stealing" from the local government entities’ already existing budgets and the taxpayers who are there.
Budget Difficulties or Not?
Local government officials are having greater difficulties than usual in putting together balanced budgets for the coming fiscal year – which in many instances begins October 1, 2017. Local governments have also faced a slow erosion of revenue generated over the past decade as the result of reductions in payments for mandated services, and the reduction of actual property tax revenues available for local government purposes because of "exemptions" or statutory funneling of local property tax revenues away from county and city government for special authorities with restricted purposes. Examples of such diversions of local property tax dollars would include organizations such as downtown development districts being able to intercept and use property tax dollars raised in their local districts for purposes specifically tied to their districts. The local budgeting process is further complicated when state government decides to change the amount of revenues the state returns to local government as “revenue sharing” tax dollars.”
Not all area local government units are experiencing significant stresses of budgeting in the coming fiscal year. Some local governments have significantly smaller budgets because they serve fewer people, or their residents require smaller degrees of government provided services or functions. Some local government jurisdictions have access to more tax revenue or funds because they have areas of concentrated factory or commercial property within their jurisdiction boundaries, which provide greater tax revenue to be used in that jurisdiction. Some local government entities also are not under as great pressure from their residents for services as other jurisdictions might receive from their residents and voters because their voters do not demand as much in services. Some local governments are benefiting in their budget processes and planning today because of budgetary decisions they made in the past for more conservative expenditures and use of tax dollars for contractual purposes to run their governments in the past.
In the local budgeting process, when costs and demands for service change, the only alternatives for consideration often are either reducing and discontinuing services or raising taxes. One basic reality of the budget process for governments and their residents is that "there is no free lunch." You get what you pay for, and you pay for what you get.
If the residents of an area or their elected officials want new and additional or expensive services, the voters either have to pay more taxes to generate revenue to fund those additional desired services and programs, or the governments may have to cut or discontinue already existing services provided by local government.
In addition to the budget process focusing on the upcoming fiscal or budget year, your elected government officials and those responsible for the budgeting process must also be aware of “long-term” financial implications and obligations which may not only affect the coming budget year, but also likely will impact on future budget years perhaps to an even greater degree. As many residents in our area now are aware, decisions made in the past during budgeting processes and made in processes involving hiring and compensation of Government employees, are now starting to have escalating impacts and costs on local governments and their taxpayers which were not addressed properly, anticipated, or planned for historically.
Some of the most significant such unanticipated problems are frequently called "unfunded liabilities" which are sitting there, growing, and eventually will need to be paid. A part of the problem is that adverse financial results from decisions which were made during the times in the past that those programs and promises were being made are now accumulating or aggregating into payment obligations by government which are not properly or fully funded, and which realistically in the long run may not even be payable as promised.
Local government budget planning is also impacted inversely by "unexpected" expenses which may come up as the result of liabilities and legal obligations which result from acts of local government employees. Many readers are familiar with the now escalating number of lawsuits against counties, cities, townships and other government entities which relate to alleged improper actions by government employees. Most notable among those potential liabilities are some of the liabilities, which are beginning to arise from actions of local law enforcement officers who may be acting outside of the best practice protocols and requirements and duties of law enforcement. When such incidents occur, the costs and liabilities for local government can be almost unbelievable.
One example of a small and little noticed obligation or mandated service which county governments must deal with is providing safety and rehabilitation services related to problem behaviors or crimes committed by juveniles within our states. As some readers are aware, young offenders and/or troubled adolescents are sometimes involved in significant behavioral problems, which "must" be treated at public expense. It is hard to plan in a budget for the number of such juvenile cases that must be addressed in any coming budget year. But the unexpected costs associated with caring for adolescents – both those who commit crimes and those who require protective services and counseling - can be catastrophic for a county budget. For example, last year two juveniles in Eaton County were involved in a criminal sexual conduct case which led to their conviction in a long term continued detention and treatment program. The costs to Eaton County for the detention and treatment or therapy for those two kids alone could be as high as $160,000 per year for the next three or four years.
One of the additional budget related obligations of local government officials who are now struggling with the budget process is to make sure that they approach their decision-making throughout the year in a responsible manner and are aware of "risk management" techniques in decision making which will hopefully make it less likely that local government bodies and jurisdictions will be sued successfully. When local governments are sued and judgements occur, even when there is "insurance" purchased by local government bodies to cover unexpected or extremely high liability or judgment costs, local governments and their taxpayers are exposed to the possibility of having to pay large amounts of additional unanticipated taxpayer dollars to cover judgments or other unexpected/emergency types of expenses and costs which may not be covered by liability insurance.
Most of the elected officials are in the process of having to deal with these local government budgeting processes and decisions are hardly experts in budgeting or management. They rely to extremely large degrees upon the expertise of hired professional staff with financial backgrounds and high-level financial management skills. At the county level locally the various boards of County commissioners rely on staff advice and assistance from their local county controllers (who are essentially the chief operating officers of the county).
The city of Lansing also has its own financial and personnel staff to assist with the budgeting process and planning. Local townships also sometimes have those types of professional staff's available to help them make decisions that are reasonable, and consistent with the statutory mandates that will allow them to operate with balanced budgets.
The budgeting process has also become more complicated and more difficult in recent years because there are developing wider gaps in political budgeting and providing services philosophy approaches to "what government is" and how it should be funded and what should be funded. While historically elected government officials have always been responsible for protecting the public purse and for keeping taxes as low as possible, in recent years more and more elected officials are being elected to local area governments who have more extreme or aggressive philosophies about cutting costs, doing away with "unnecessary services," and reducing tax "burdens" not only on their local constituents but upon taxpayers throughout the area. This complicates local budgeting processes because instead of merely balancing the budget, the budgeting dialogue now is more and more becoming "where can we cut budgets" and which programs are ones that should be discontinued. As this aggressive budget cutting approach takes hold in some areas, it has a spiraling effect even on other governments and their budgeting process because today so many intra-regional and collaborative agreements and cost sharing processes are in place. A budgetary action or program discontinuance in Eaton County may have an adverse budget impact on Ingham county, or even Clinton county.
The approach to budgeting and government is not only crucial to the continuing operation of local government units, but it also must occur against the backdrop of oversight from the state legislature and governor. Along with unfunded mandates, the state legislature has also enacted provisions which prohibit local governments from making fiscal and public policy decisions about some programs offered in their communities. State government also has introduced the concept of financial oversight, or the use of "emergency managers," to actually allow state government to step in and run local cities and government entities when the state government determines that the financial standing of local government entities is not sound, properly managed, or appropriate.
As local governments move forward to enact their budgets for the coming fiscal year and beyond, they all are aware of the "huge elephant in the background" which is the threat that the state government will determine that their finances are not sufficiently strong, and that state government should “step in” to take over the running of local government operations. That can have tragic impacts on local residents. We all know the histories of the cities of Detroit and Flint, Michigan where state government stepped in to take away the financial and budgetary process from local elected officials. As the state level focus on the bottom line and financial dollar issues is becoming much more aggressive, the concerns by state level officials and politicians for the local impacts of the state level financial decisions is often not properly considered or regarded in terms of the quality of life of the affected residents. Sometimes we have a "penny wise and pound foolish" approach to government which can lead to situation such as the Flint water crisis that we all know about. It saved money, it helped with the city of Flint budget, but in the process thousands of area kids were poisoned and apparently a number of people died as a tradeoff to decisions by state oversight administrators to reduce local costs.
In Eaton County the Board of Commissioners is presently embroiled in a very significant budget crisis which "arose unexpectedly" – at least partly caused as the result of increases in pension contribution expenses required by the pension fund administrative agency over which county government had no direct control. Other counties in our area who utilize that pension administrator are also getting bad news about mandatory additional payments to existing pension plan funds in the fiscal budget year beginning in October of 2017.
The Eaton County Commissioners are in the process of having to address a shortfall of approximately $5 million in our county budget for the coming year starting October 1, 2017. The realization of the seriousness of our budget situation is not a partisan issue – the dollars and numbers are there to see, and the Republican and Democrat members of the board of commissioners are collaborating to address an obvious and non-partisan emergency budget issue. An important duty and function of county government elected officials is to generate a balanced budget.
Some of those financial problems and issues in the Eaton County budget process derived from earlier boards of commissioners not previously addressing in an adequate manner some of the long-term financial funding issues that those previous groups of elected officials "kicked down the road" for future generations to address.
In local government budgets, any reductions in budget often translate almost immediately into layoffs and/or employee concessions. That is because those portions of the budget which can be adjusted and over which elected government officials have short-term control are almost always in the area personnel staffing and related benefits. Many of the other annual expenses which are in our budget are fixed, contractual obligations, or necessary purchases and transactions which cannot be avoided or deferred to future times.
By way of example of budgetary development and issues which are ongoing locally, in Eaton County in order to address and present the mandated balanced budget which we as county commissioners must adopt prior to October 1, 2017, we are considering a number of budget "adjustments" which will be painful but apparently unavoidable. While final decisions of how the budget will be balanced have not yet been made, it seems clear at this point that there will be layoffs, employee concessions, discontinuance of some services which are not essential or mandated, and some deferred purchases and expenditures of needed equipment or improvements and repairs to County physical assets. We also have considered reduction in the paid hours of employment for all of our county employees through "furlough" days.
Among the budgetary actions that are still being considered in Eaton County are laying off 24 Sheriff's Department Deputies who constitute the Eaton County road patrol. In many instances, those deputies are the only law enforcement officers who have been patrolling or available to respond to resident calls for help in certain parts of Eaton County. Voters have already begun to voice their concerns and opposition to discontinuing the Eaton County road patrol - which is one possible option offered and still under consideration in this budget year process.
Other topics which are being discussed and considered in conjunction with the 2017 – 2018 budget deliberations are reductions in employee benefits, and reductions in retiree benefits – such as the retiree Health Care benefit upon which so many of our former employees rely now that they are older and no longer working.
Elected officials realize that the decisions that they are making now very quickly translate into life changing decisions for government employees, government retirees, taxpayers, and those in our community who are dependent upon services provided by local government entities. Decisions being made right now will impact all of these groups in the coming years.
Disclaimer: This article was written by Howard T. Spence, who is Eaton County Commissioner representing residents in Delta Township. The views, comments, and observations in this article are those solely of the author, and do not reflect public policy decisions or conclusions of any other elected official either in Eaton County or in any other area of the greater Lansing region. The actions and issues discussed in this article are not actions which have been accomplished or finalized, but which are merely being considered by the local government entities. The author does not claim to be an expert in government budgeting, or to have covered all aspects of government budgeting in this article.
This was printed in the July 23, 2017 - August 5, 2017 edition