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.
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:
costs associated with no-fault auto insurance in Michigan.
main drivers of auto accident related medical costs in Michigan.
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.
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
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.
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
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
the proposed merger would affect planning and zoning;
cities' stewardship of the plentiful natural resources in the region;
similarities in the city charters and ordinances;
level of indebtedness of the two cities;
would happen to the property owned by the cities;
handling of public records;
potential reduction in the number of municipal workers;
merger would affect Douglas' DDA and Saugatuck's historic district;
financing of some of the most costly and capital intensive services
through inter-local agreements;
potential affect of merger on road care, road funding, and street
fiscal impact of merger on the level of services provided and potential
savings that could be generated by streamlining the governments'
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."
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
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.
Start, Great Investment, Great Future:
The Plan for Early Learning and Development in Michigan
Joint Report ( May 2013 ) 50 pages
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.
for Public Education: The Recent Impact of Increased MPSERS
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
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
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.
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:
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
- 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.
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:
is the future of education in Michigan?
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.
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
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.
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
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
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.
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.
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Updated October 14, 2013