2013 Publications

School District Dissolutions: Another Approach to Address Local School District Fiscal Distress
Memo 1125 ( December 2013 ) 16 pages

In July, Michigan state government officials, acting under the authority of a new state law, dissolved two local school districts, resulting in the closure of all of the districts’ schools and the reassignment of the districts’ students to neighboring districts. The speedy dissolution of the Buena Vista and City of Inkster school districts came after the State Superintendent of Public Instruction, in consultation with the State Treasurer, determined that the districts were no longer financially sustainable. This report examines the state’s new policy allowing for school district dissolutions and its implications for local districts and the state at-large.

Although fiscal distress among Michigan’s nearly 550 local public school districts and almost 275 charter schools is not widespread, a growing number of districts are ending their fiscal years in deficit. Recently, the State Superintendent of Public Instruction reported that 50 school districts ended the 2012-13 fiscal year with a General Fund deficit, the largest number of deficit districts since the passage of 1994’s Proposal A. Until recently, state officials relied exclusively on the emergency manager statute to directly intervene in the affairs of local districts to address fiscal distress; now they have another tool at their disposal.

CRC’s new report identifies many of the causes of school district fiscal distress and the state’s oversight role in preventing distress from occurring in the first place. Additionally, the report discusses the justifications for state intervention, along with the state’s traditional response when districts are unable to address their problems on their own.

The report also examines a number of issues, some previously not contemplated, associated with the state’s new authority to dissolve local school districts under Public Act 96, including:

• the state’s departure from prior laws that require local voter approval to alter school district boundaries;
• the differences between the new law and the emergency manager law for dealing with fiscal distress;
• the provision of additional state resources to liquidate a dissolved school districts’ debts; and
• the potential inequitable treatment of those responsible for paying the local 18-mill school operating tax.

Medical Costs of No-fault Automobile Insurance
Report 385 ( October 2013 ) 35 pages

The report examines how Michigan's no-fault auto insurance system is contributing to higher health care spending in the state and outlines a variety of policy options that could be implemented to reduce the insurance system's medical costs.

Several factors are contributing to higher auto accident related medical costs in Michigan. Auto insurers pay higher prices than other payers for medical services and Michigan's auto accident victims use more medical services than in other states. Michigan is also unique in that its insurance coverage is unlimited for the lifetime of the sustained injuries. Finally, Michigan's Insurance Code ensures that auto accident victims have access to generous coverage, which provides a high quality insurance product, but undoubtedly causes it to be more expensive.

Topics covered in the new CRC report include:

• Medical costs associated with no-fault auto insurance in Michigan.
• The main drivers of auto accident related medical costs in Michigan.
• No-fault auto insurance policy reform options, how they could be implemented to reduce medical spending, and how they would impact major features of the state's auto insurance policy.

Michigan's Single-State Recession and Its Effects on Public Employment
Memo 1124 ( September 2013 ) 14 pages

Since the beginning of the 2001 recession, Michigan local government employment losses have exceeded private sector losses in percentage terms. This paper documents the changes and likely causes of public sector job losses.

Michigan's overall job picture is improving, albeit at a moderate pace. Michigan's total non-farm employment has increased by over six percent since the end of the Great Recession in June 2009. This growth has been driven largely by job gains in the private sector, particularly in key industries such as manufacturing and healthcare. At the same time, Michigan's public sector continues to shrink, fueled by significant local government job losses.

Although there have been losses in some areas of state government employment, job losses in local government have been widespread across many occupations.

Job losses in the K-12 education arena have been significant. This sub-sector, which comprises over 55 percent of local government employment, lost nearly 16 percent of its jobs between 2000 and 2011. Statewide enrollment declines and moves toward privatizing certain ancillary services likely contributed to the reduction. Another large segment, public safety, is down nearly 21 percent over the same period.

Public employment has increased for higher education, with both public 4-year universities and community colleges showing increases. The number of higher education jobs increased by nearly 23 percent during Michigan's economic downturn, largely in response to ballooning enrollments and the ability of schools to tap tuition and other revenue sources when faced with reduced state aid.

The contraction of the local government sector is a consequence of the housing market collapse, state policy decisions that impacted local government revenue, and, to some extent, privatization of local government services. Employment declines are likely to continue among local governments unless policy changes are adopted that allow local governments to realize increased revenues, either own-source funds or state-shared dollars.

Consolidation Issues Associated with the Proposed Merger of the City of the Village of Douglas and the City of Saugatuck
Report 384 ( July 2013 ) 54 pages

After performing an analysis commissioned by the City of Saugatuck and the City of the Village of Douglas, the Citizens Research Council of Michigan has released its findings in a new report. The analysis describes to the elected officials and citizens of these communities how the merger, which is to be voted on at the November 2013 election, would affect the operations and financing of local government.

Douglas and Saugatuck are two small, adjoining cities on the banks of Lake Michigan. Their small sizes and proximity to each other has led the two cities to develop mutual interdependencies, with half the money spent for local government services funneled through inter-local agreements. The most costly services -- police, fire, library, transit - are already provided across the jurisdictions. As a result, the proposed merger primarily would affect the provision of core governmental functions - city manager, treasurer, and clerk - and public works.

CRC's analysis examines

• How the proposed merger would affect planning and zoning;
• The cities' stewardship of the plentiful natural resources in the region;
• The similarities in the city charters and ordinances;
• The level of indebtedness of the two cities;
• What would happen to the property owned by the cities;
• The handling of public records;
• The potential reduction in the number of municipal workers;
• How merger would affect Douglas' DDA and Saugatuck's historic district;
• The financing of some of the most costly and capital intensive services through inter-local agreements;
• The potential affect of merger on road care, road funding, and street names; and
• The fiscal impact of merger on the level of services provided and potential savings that could be generated by streamlining the governments' operations.

CRC estimates that about $500,000 in savings can result if consolidation does occur. This is equal to 13.0 percent of the $3.6 million total expenditures for the two cities (not including the grant-funded $10 million capital expenditure Saugatuck made in 2012). The operating millage required to fund the reduced spending would decline from 13 mills in Saugatuck and 13.0818 mills in Douglas to 11.2 mills across the merged city. For a property valued at $200,000 ($100,000 in taxable value) in Douglas, the lower tax rate would result in about $192 a year in savings on city taxes. For an equally valued property in Saugatuck, the lower tax rate would result in about $184 a year in savings.

"The eyes of Michigan are on the Douglas and Saugatuck as the residents of these communities weigh the benefits and drawbacks of the proposed merger," said Eric Lupher, CRC's Director of Local Affairs. "CRC strongly feels that better information leads to better decision making. It is our hope that the residents of these communities will use the information in this report to consider the vote before them."

School Aid Budget: Will FY2014 Increases Be Sustainable in FY2015?
State Budget Note 2013-02 ( July 2013 ) 8 pages

The recently enacted school aid budget provided Michigan public schools with small increases in per-pupil funding, but state policymakers may find it challenging to maintain those budget increases in FY2015, according to a new report from the Citizens Research Council of Michigan.

The School Aid budget signed by the Governor in June will provide the average school district with a net increase of $60 per pupil in operational funding thanks to enhanced May revenue estimates which allowed the budget to increase by $126.6 million over the Governor's February budget recommendation. Those increases, however, rely on the utilization of existing fund balances. Those one-time revenues will not be available again in FY2015.

That creates structural issues next fiscal year, with another $246 million needed to meet escalating retirement system costs and another $65 million proposed by the Governor to finance a second-round increase for pre-kindergarten programs.

The report projects a shortfall of around $239 million in the School Aid Fund for FY2015 given current projections and assuming the increase for pre-kindergarten programs is implemented. That would mean further reductions that could wipe out the FY2014 gains unless new resources are tapped from the general fund or another source.

A major unknown is the eventual disposition of over $508 million in escrowed funds collected though a disputed three percent employee contribution implemented in 2010 legislation meant to cover retiree health care costs. The Michigan Court of Appeals has affirmed a lower court ruling that the charge is unconstitutional; the case is still pending before the state Supreme Court.

Great Start, Great Investment, Great Future: The Plan for Early Learning and Development in Michigan
Joint Report ( May 2013 ) 50 pages

A report prepared in cooperation with Michigan Department of Education’s Office of Great Start and Public Sector Consultants, this is Michigan’s comprehensive plan for early learning and development. This plan includes a look at Michigan’s current system and offers recommendations for ensuring that every Michigan child is born healthy; developmentally on track from birth through third grade; ready to succeed in school when they arrive; and reading proficiently by the end of third grade.

Funding for Public Education: The Recent Impact of Increased MPSERS Contributions
State Budget Note 2013-01 ( May 2013 ) 17 pages

Michigan public schools have seen fewer dollars remain available for classroom education in recent years as more of their revenues have been needed to meet unfunded retirement system liabilities.

Public school contributions to the Michigan Public School Employee Retirement System (MPSERS) have increased dramatically over the last decade. MPSERS provides for retirement benefits for public school teachers and staff as well as the staffs of community colleges and certain universities and public libraries. The contribution rate for public schools increased from 13.0 percent of payroll in FY2004 to 24.5 percent of payroll in FY2012. The primary cause has been sluggish growth in value of pension fund assets, an issue that came to a head with the severe financial market declines in 2008 and 2009. What followed was a significant increase in unfunded liabilities within the system, which fueled the increase in employer contributions to make up for the shortfall.

These new retirement costs have taken up a growing share of overall school revenues, leaving less for other educational purposes. Measured on a per-pupil basis, districts' contributions to the retirement system increased from 8.7 percent of per-pupil revenues in FY2004 to almost 14.8 percent of those revenues in FY2012 when public school employers contributed over $2.0 billion to cover their MPSERS obligations. The report shows that per-pupil revenues available to all public school districts in FY2012, after netting out the revenues needed to meet MPSERS contributions, declined by 8.8 percent from FY2004 levels after adjusting for inflation. For traditional K-12 school districts, the situation was even worse with inflation-adjusted per-pupil revenues after accounting for MPSERS costs falling by 13.1 percent from FY2004.

The report notes that while funding from the state has increased in recent years, most of the increase has been related to meeting these growing retirement costs and to restoring funds that had been offset by temporary federal stimulus funding.

The report notes that recent legislative changes aimed at reforming MPSERS should help contain and eventually reduce future public school contribution costs. But, in the near term, the crowding out effects of increased MPSERS contributions will remain an issue for public schools.

Health Care Costs in Michigan: Drivers and Policy Options
Report 383 ( May 2013 ) 91 pages

In light of constantly increasing health care costs, policymakers at the state and federal levels are seeking policy options to reduce the burden for families, businesses, and governments. In 2009, Michigan families, businesses, and governments spent $65.9 billion on personal health care services and products, which is more than $6,600 per Michigan resident.

Perhaps even more alarming than the level of health care spending, is the growth rate. While health care spending growth in Michigan is below the national average, it is still higher than the rate of inflation and increasingly growing in its share of the economy. On average, households spend 6.2 percent of their adjusted personal income on health care costs. Businesses spend the equivalent of 10.2 percent of wages and salaries on health care costs. In 2003, health insurance premiums paid by individuals and their employers in Michigan represented 14.6 percent of household income, and by 2011, this figure had risen to 20.0 percent. At the same time that insurance premium prices are rising, employees are covering a larger portion of their health care costs through increased deductibles and other out of pocket expenses. High health care costs are a significant financial risk to the uninsured and even to some covered by health insurance.

CRC's new report, Health Care Costs in Michigan: Drivers and Policy Options outlines the problem with the current level and growth rate of health care spending. The report synthesizes the research on 17 potential cost drivers, and discusses over 20 state policy reform options that may lower the level of spending or cost growth going forward.

Major topics covered in the new CRC report include:

• An overview of the state of health care spending nationally and in Michigan and how it has changed for families, businesses, and governments since 1990.
• Analyses of various health care cost drivers and how they may be adding to Michigan's health spending. These drivers include high prices, opacity of prices, provider payment systems, competition among providers, medical malpractice, and no-fault auto insurance.
• State-level policy reform options for each health care cost driver.
• Pertinent information about how the federal Affordable Care Act may play a role in certain health care cost drivers.

Moving Michigan Farther, Faster: Personalized Learning and the Transformation of Learning in Michigan
Joint Paper with Public Sector Consultants ( March 2013 ) 20 pages

Michigan Virtual University (MVU), a private nonprofit Michigan corporation established by the State of Michigan to serve as a champion for online learning, commissioned Public Sector Consultants (PSC) and the Citizens Research Council of Michigan (CRC) to answer two questions:

• What is the future of education in Michigan?
• What role does/could technology play in that future?

To answer these questions, PSC and CRC interviewed more than 30 state and national education leaders. In addition, the research team conducted an extensive literature scan including policy briefs and academic literature. This is the result of that research. This report contains a description of personalized learning and includes policy recommendations relating to students, teachers, schools, technology, data, and quality and accountability.

Detroit City Government Revenues
Report 381 ( April 2013 ) 62 pages

The Citizens Research Council of Michigan has released a report analyzing the tax and other revenues available to the City of Detroit for financing city services. The report provides context for Detroit's revenues by examining how major revenue streams have changed over time, as well as how the revenues available to city government compare with the revenues available to other large cities in Michigan.

It is clear that the City of Detroit faces profound fiscal problems resulting from population loss, legacy costs, and the decline of its economic base. However, when seeking a resolution to Detroit's fiscal problems, it is important to consider that Detroit generates significantly more revenue on a per capita basis than other large cities in Michigan, and that Detroit's tax rates are high compared to other Michigan cities and other cities across the U.S. While some actions, such as improving the rate of collection of income and property taxes, may enhance Detroit's revenues, the ability to address Detroit's fiscal problems through additional tax revenues will be extremely limited.

This version of the paper was revised on April 8, 2013. The original version had a problem with Chart 12 on page 17.

Can Dedicated Millages and Tax Increment Financing Coexist in Michigan?
CRC Note 2013-01 ( January 2013 ) 5 pages

The Detroit Free Press ran a series of articles last week that documented Wayne County communities diverting for their own economic development purposes taxes were levied to support the Detroit Zoo. Other governmental entities have asked the state Attorney General or the courts for clarification of issues similar to those raised by the zoo officials. Now the Citizens Research Council of Michigan has released a brief paper that asks: Can Dedicated Millages and Tax Increment Financing Coexist in Michigan?

Since 1975, Michigan law has authorized cities, villages, and townships to establish special authorities with the ability to "capture" taxes levied within a confined geographic district to be funneled back into that district as an economic development tool. These authorities include Downtown Development Authorities, Tax Increment Financing Authorities, Local Development Financing Authorities, Brownfield Redevelopment Authorities, Historic Neighborhood Tax Increment Financing Authorities, Corridor Improvement Authorities, and Water Resource Improvement Tax Increment Finance Authorities.

Tax increment financing takes tax revenues from where they were intended when they received voter approval and diverts them for economic development purposes. This practice has caused the governments from whom the revenues are being captured to levy taxes at artificially higher levels to yield sufficient revenues for their own purposes. It also creates a shadow government structure wherein resources are directed for economic development purposes without being subjected to the budgetary scrutiny that other resources and expenditures are put through.

Lessons from the Proposed Merger of Onekama Village with Onekama Township
Report 381 ( January 2013 ) 37 pages

For parts of 2011 and 2012, CRC worked with the residents of Onekama, a village and township in Manistee County on the shores of Lake Michigan, to investigate the possibility of disincorporating the village government. As the first community to use disincorporation provisions in the General Law Village Act that create a commission to investigate the changes that would result from merging with the township, Onekama discovered the benefits of this process and several weaknesses in the law's provisions.

Although the Onekama voters voted not to merge their two governments by disincorporating the village, their experiences can be valuable for communities contemplating use of these provisions in the future. This new CRC Report chronicles the experiences of the merger efforts and suggests several amendments to the General Law Village Act that could address the perceived weaknesses or simply improve the process.

It is the CRC policy to make all publications online. If a document you desire is not yet online, please let us know of your desire. It can be put online with little turn around time. Documents may be requested at crcmich@crcmich.org.

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Last Updated October 14, 2013