CRC's Blog

Check out the latest posts on the Citizens Research Council of Michigan blog, CRC Column. Recent blog posts include:

• Detroit Income Tax Rate Rollback Scheduled for July
• CRC continuing to help Onekama Village residents understand implications of disincorporation
• Does Michigan’s Unemployment Rate Drop Mean Anything
• Recalling State Officials in Michigan
• Improving the Efficiency of PA 51, a Long Over-Due Reform
• Local-Option Motor Vehicle Registration Taxes
• Is the Homestead Exemption going to disappear?
• Good News on State Revenues
• Restoring Cash Reserves and Improving the State’s Cash Flow
• Explaining the Role for Headlee Override Tax Votes
• State Budget Will See Some of the $145 Million Savings from the State Workforce

IN THE NEWS

CRC Report Identifies Opportunities to Improve Service Delivery in Lenawee County

January 20, 2012, A new report by the Citizens Research Council of Michigan examines the people, places, and governments in Lenawee County to identify opportunities for consolidation or collaboration among the local governments. The report, which considers existing service delivery and expenditure patterns, suggests services for which the communities might benefit by collaborating for their provision. Entitled Streamlining Local Government Service Delivery in Lenawee County, the report was conducted at the request of One Lenawee, a citizen-led community development initiative that seeks to make Lenawee County a more desirable place to live, locate a business, and visit.

The Michigan economy, in the doldrums for more than a decade, has placed fiscal stress on local units of government, which are searching for ways to continue to provide services to their residents in an era of constrained revenues. One Lenawee contacted CRC with the stated goal of making Lenawee County "A community that controls its own destiny, has its own identity, saves tax dollars, and is attractive to new and existing businesses and residents."

Lenawee County has a population of about 100,000 people with 34 units of government, including four cities, seven villages, 22 townships, and the county government. The City of Adrian, Michigan's 52nd largest city and by far Lenawee County's largest, has 21 percent of the total population and the six largest governments constitute 57 percent of the county total. The other governments are either very small geographic entities with small populations or sparsely populated townships.

"The local governments in Lenawee County display wide variance in population and housing units, in the number of services provided, in their capacity to tax themselves to provide services, and in their efforts tax themselves to fund those services," said Eric Lupher, CRC's Director of Local Affairs. "Consolidation or collaboration among the cities, villages, and townships would require the cities and villages to provide services at lower levels than they currently do, or the townships to provide services that are not currently provided."

"Instead of seeking opportunities for the sub-county governments to work together," continued Mr. Lupher, "Our report recommends that the Lenawee County government redoubles its efforts to serve the needs of the local governments with new intergovernmental collaboration focused on aiding the operations of the cities, villages, and townships."

"Michigan has many counties that look like Lenawee County, with a medium-sized city surrounded by sparsely populated townships," said CRC President Jeffrey Guilfoyle. "It is our hope that this report will be widely used throughout the state as community leaders adjust to the new economic realities facing our local governments. County governments are regional entities that are well positioned to serve the needs of their local governments. Our report suggests that these underutilized resources should be brought to the forefront in Michigan's efforts to reinvent itself."

IN THE NEWS

CRC Report Examines the Importance of Pre and Post Employment Teacher Training

January 9, 2012, The Citizens Research Council of Michigan has published a new paper, Education Reform: Pre and Post Employment Teacher Training, which examines teacher training both before and after certification and employment. Recent research demonstrates the importance of teachers to student success: a teacher one standard deviation above the mean can increase the present value of future earnings of a class of 20 by $400,000 each year. Similarly, replacing the lowest performing 5 to 8 percent of teachers with average teachers would increase overall economic growth significantly.

While there is agreement on the importance of teachers, there is little consensus on the best way to prepare teachers for teaching. The vast majority of Michigan teachers are prepared at one of 33 state recognized teacher training programs. Nationally about one-third of teachers hired since 2005 have come through alternative certification programs. These alternative programs are seen as a way to achieve a number of goals including: increasing the number of minority teachers, recruiting individuals with desirable occupational experience, and expanding the pool of math, science, or other specialty teachers.

Michigan is a net exporter of traditionally trained new teachers. The Michigan Education Association estimates that 5,000 of the 7,500 annual teacher training graduates leave the state each year. "The difference between the number of teachers we train each year and the number we can employ is dramatic," said CRC Senior Research Associate Bettie Buss. "While this may mean that Michigan has the opportunity to cherry pick the best teaching graduates, it also suggests that Michigan is not allocating scarce higher education resources in the most efficient manner."

IN THE NEWS

New CRC Report Documents Detroit's Legacy Costs and Indebtedness

December 1, 2011. Both the Mayor of Detroit and the Governor of Michigan have expressed concerns over Detroit's precarious financial position. The Mayor has indicated that the city may run out of cash early next year, and there is a significant risk that an emergency manager will be appointed to oversee the city's finances. Balancing Detroit's budget is made more difficult by the significant indebtedness and legacy costs of the city. The Citizens Research Council of Michigan announces the publication of Legacy Costs and Indebtedness of the City of Detroit, an analysis of the city's current obligations to bond holders, retirees, and others. The city had in excess of $14.1 billion of such liabilities outstanding as of June 30, 2010.

While total legacy costs and debt approaches $20,000 for each resident of the city, over a third of the liability ($5.2 billion of the $14.1 billion) is bonded debt of the water and sewerage system that will be repaid from payments made by residents of suburban communities as well as Detroiters who use the water and sewerage system. In addition to this debt, Detroit has voter-approved unlimited tax general obligation debt (the city's debt service levy is 8.92 mills) and limited tax general obligation debt totaling more than $1 billion, on which it will pay an additional $467.7 million in interest. The city's general obligation debt rating is below investment grade.

The Michigan Constitution makes pensions earned by state and local government workers contractual obligations of the governmental employer. Detroit's pension funds have high funded ratios with the General Retirement System 87 percent funded, and the Police and Fire Retirement System 97 percent funded. However, these high funding ratios were achieved by issuing pension obligation certificates in 2005 and 2006, under the assumption that Detroit could earn enough investing the bond proceeds to both pay the debt service and help fund future pension payments. Detroit has $1.5 billion of principal debt outstanding on the certificates, plus unfunded actuarial accrued liabilities of $615.7 million for the two pension systems. The current year Detroit budget allocates $191.8 million for payments to the pension funds ($147.2 million from general city agencies and $44.5 million from enterprise agencies including Water and Sewerage).

In addition to pension obligations, the city has promised to pay a portion of the cost of health care and other benefits for retirees. These costs have traditionally been funded on a "pay-as-you-go" basis, and in the current fiscal year the city budgeted $157.3 million ($124.7 million for general city agencies) for fringe benefits for retirees (this compares to $181.8 million for fringe benefits for all active employees). Detroit has $5.0 billion of unfunded actuarial accrued liabilities for other post employment benefits, equal to approximately $7,000 per resident. Making the contribution required to pay off the unfunded liability over 30 years would have required more than $150 million in additional payments in FY2010.

"Any plan to reduce the city's deficit, restructure service delivery systems, or revise collective bargaining agreements must recognize the obligations the city has to active and retired employees, bondholders, and other entities with contractual claims against the city," according to CRC Senior Researcher Bettie Buss. This analysis explains the source of payment for the various liabilities, the effect of payments on general city services, and the penalties that may be associated with not meeting those obligations.

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