Federal, State, and Local Fiscal Partnership

by Dr. Lynn R. Harvey

Introduction

        The financing of governments in Michigan is accomplished through a complex set of interdependent relationships between federal, state and local governments.  Federal funds to Michigan (state government) for FY 2000-01 were in excess of $9.7 billion².   The $9.7 billion includes monies directly to the state.   If direct payment to individuals, federal, salaries and wages, federal procurement and grants to local government are included, the total federal monies to Michigan exceed $42 billion³ with direct payments to individuals accounting for 68 percent of total.  In some cases, federal funds are allocated to the state and passed directly on to sub-state unit of governments, while in other cases the federal funds are incorporated into the allocation and budget process of the Legislature and related state departments.  The funds may come in the form of block or matching grants, the “rules of the game”, that is the structure of the grant and the associated restriction in part, dictate the flexibility of the state or local governments in the use of the funds.

Federal Fiscal Interdependence

        Federal funds for FY 2000-01 represents 26.7 percent of the $36.49 billion in funds appropriated by the Legislature.   Appropriations from federal sources for Community Health and Family Independent Agency account for 68.1 percent of federal transfers to state government.  These federal funds include appropriations for Medicaid match and reimbursement, psychotropic medications, food and nutrition and transfers to Community Health.   Federal transfers for education, both secondary and higher education represent 10.46 percent of federal monies.

        Transportation accounted for 9.36 percent⁴ and Career Development 4.80 percent.  The remaining 17 budget areas only represent 7.20 percent of federal funds to Michigan.  On a per capita basis, Michigan ranks 33rd in the return of federal monies to states, a position that has remained relatively unchanged for the past eight years.

        As Congress debates the enactment of restructuring block grants to states, significant policy issues arise that will impact state finances in the future.  Paramount among these issues are: (1) structure of the block grants; (2) amount of the grants; (3) state flexibility in the use of the grants; (4) substitutability of the transfers; (5) maintenance of efforts requirements; and (6) accountability.

        Michigan taxpayers, as a result of changes to Michigan's tax structure with the adoption of Proposal A in March of 1994 and legislative action subsequent to school finance reform, will contribute in excess of  $500 million⁵ in additional federal income tax revenues principally due to the loss of federal deductibility of reduced property taxes.  Therefore while the discussion of federal devolution has focused on increasing state's flexibility through reorganizing the federal grant structure, income flows between state and federal governments have and will continue to change as fiscal policies at both the federal and state level are enacted.

Structure of Grants

        Policymakers, especially those at the sub-state level, place a high premium on the ability of administrators to secure grants to subsidize the cost of infrastructure development (sewer, water, roads, buildings, etc.) and enhance the fiscal capacity of a unit of government to expand program operation.  The impact of grants on recipient governments and resulting expenditure behavior is a function of the structure of the grant.

        Lump sum grants, such as the old federal revenue sharing program (1972-86) and the state’s current state revenue sharing program, while providing additional revenue for programs tend to lead to tax substitution.  Since recipient governments are not required to match lump sum grants, the unit may choose to use the lump sum grant instead of own resources for programmatic services or reduce their own taxing effort.  Such was the case of the federal revenue sharing program which during the fifteen year operation of the program millage rates for general purpose governments declined.  When the FRS program was eliminated by Congress, local units raised millage rates to compensate for the loss of the lump sum grants.

        Matching grants, grants that require recipient governments to provides a monetary match at some level, induces increased expenditures.  Matching grants reduce the tax price of services to the recipient unit.  For example, assume the donor unit will provide a 50 percent match, for every $1.00 the recipient unit expends, the grantor will provide a $1.00 match, thus the tax cost of the recipient service is one-half of what it would have been without the grant.  Therefore an incentive exists to expand the service or engage in the production and provision of a service that the unit may not have chosen to produce if the grant had not been available or would have produced less of the service.  Medicaid grants to the state represent a matching grant.  The funding of community health services (mental and public health) at the county level is accomplished through a matching grant process with state and federal government.

        The structure of the matching grant also makes a difference as to the expenditure behavior of the recipient unit.  Two types of matching grants are used by governments - closed end and open end.  For example, prior to federal welfare reform, the federal government matched state medicaid expenditures dollar for dollar.  Thus a state could create increased funding liabilities for the federal government by establishing higher reimbursement rates for medical services.  The net result was rising Medicaid expenditures at the federal level, that is, the grant to states for Medicaid were not capped or were referred to a s “open ended”.  Federal welfare reform changed the rules on reimbursement to a “closed end” matching grant.  Currently, the federal government will match reimbursements for Medicaid expenditures up to a given level.  Exceeding the capped level for Medicaid is permitted but the state bears 100 percent of the cost above the established level eligible for reimbursement.  The rule change will result in states attempting to limit Medicaid expenditures in order not to incur expenditures above the expenditure ceiling eligible for reimbursement.

        Grants are an important public finance instrument, they can be used to encourage the production and provision of desired services.  Policymakers must recognize that the structure of the grant makes a difference as to the expenditure behavior of recipient units.  Some grant programs tie-bar rules requiring a unit to maintain service levels at a pre-grant level in order to maintain eligibility and to discourage substitution of grant funds for local funding efforts, as in the case of the state’s secondary road patrol program for county sheriff departments.  Road patrol levels must be maintained at pre-grant levels.  The goal of a grant program is to initiate or increase the level of a service by lowering the tax price of the provision of the service, thus grants in the long run increase expenditures.  The same impact results for the use of subsidies which in effect, lower the cost of acquiring or providing a service.

State-Local Fiscal Interdependence

        State payments to Michigan local governments in FY 2000-01 were $15.3⁶  billion with the largest being state school aid payments of $10.6 billion representing 69.0 percent of state transfers to locals.  State revenue sharing payments to general purpose governments are projected to be  $1.6 billion for FY 2000-01 representing 10.4 percent of total state payments to local governments.  The balance of the payments, $3.1 billion is distributed to local governments through formulas and grants-in-aid for community colleges, mental health, public health, corrections, regulatory activities, state police, and safety/defense.

        A basic policy question is “why share state revenues with local governments”?  Why not lower state taxes, grant additional authority to local governments to raise their own revenue?  A simple response would be that the state constitution requires it as in the case of state sales tax sharing with municipalities (cities, villages and townships).  The sharing of state resources with locals also is a recognition by the state that local governments, in some cases, are carrying out functions and responsibilities on behalf of state government.  For example, the state provides partial funding for the court system, mental health, public health, and K-12 education.  Revenues are shared to accomplish revenue redistribution goals to address equity goals (fiscal equalization).  The state revenue sharing program to general purpose governments is an example of a redistribution of state resources.  Through the sharing of state revenues, the state also captures tax collection efficiencies.  While a portion of the state sales tax is shared with local governments, inefficiencies would occur if each local unit had to establish their own sales tax collection system, therefore by having the state assume the role as tax collector, collection efficiencies are gained.  Revenue sharing can be used to influence program initiatives, such as in the case of mental health and public health, where state funding involvement increases local participation and increased production of community health services.

         The amount and method of sharing state revenues is subject to much policy discussion as evidenced by the lingering two year debate on the state revenue sharing programs for local governments.  While Article 9, Section 30 of the Michigan Constitution requires that payments to locals not fall below the proportion in effect in FY 1978-79 (Headlee Amendment), the timing, distribution method, services to be included and amount for each service is subject to legislative debate.  By Constitution, the minimum amount of state resources that must be shared with local governments is 48.97% (MCLA 18.497)⁷.

State Revenue Sharing

        Michigan’s unrestricted state revenue sharing programs began in the early 1930s when 85 percent of retail liquor-license revenues were paid to cities, villages and townships.  Over the years, various elements to revenue sharing were added with a significant boost to local revenue when state voters in 1946 passed a constitutional amendment for sales tax was adopted and as part of the amendment, one-half cent of the sales tax was to be shared with cities, villages and townships. In 1967, 11.5 percent of the new state income tax revenue was targeted for sharing with one-half going to cities, and one-half to municipalities.  Additional changes to the revenue sharing program were made in 1972 the establishment of the concept of relative tax effort and portion of single business tax collections added in 1975.  The intangibles tax was eliminated from the revenue sharing distribution pool in 1991.⁸

        The reason a discussion of state revenue sharing leads to such a spirited debate at both the state and local level is that such payments represent slightly less than 50 percent of total general fund revenue collections for cities, villages and township.  For cities, the dependence ranged from a low of 5.69 percent to a high of 45.21 percent.  Villages dependence on revenue sharing ranged from a low of 3.36 percent to a high of 65.62 percent.  Townships displayed the highest variation in revenue sharing dependence ranging from 4.60 percent to 79.52 percent.⁹

        In 1996, the state revenue sharing program to local governments was amended (P.A. 342, 1996) by changing both the method of distributing funds as well as the source of funds that were targeted for state revenue sharing program.  State revenue sharing is comprised of both constitutional and statutory revenue portions.  Of the $1.60 billion that will be shared with general purpose governments in FY 2000-01, approximately 41.3 percent ($661.4 million) represents the constitutional portion, distributed to cities, villages and townships on a per-capita basis.  The constitutional portion of the program is funded with revenue derived from 15 percent of gross sales collections at the 4% rate.   The balance of the revenue sharing pool, $939.2 million, is considered the statutory payment portion to local governments derived from state sales tax collections but distributed to counties, cities, villages and townships on a  weighted formula basis.

        Prior to the 1996 reform, revenues for the state revenue sharing program were derived from personal income tax, state sales tax, intangible tax,  and single business tax collections.  Payments were distributed to cities, villages and townships both on a per capita (constitutional portion) and on a relative tax effort basis (statutory portion).  Counties received their allocated share on a per capita basis but from the statutory distribution pool.  The portion of the state revenue sharing fund distributed on the basis of “relative tax effort” or RTE took into account each units tax effort related to property taxes (millage), income tax (cities) and utility taxes.  A local units tax effort was compared against an average statewide RTE.  Local units with a higher than average RTE received a higher payment.  When the RTE formula was enacted in 1971, the goal was to encourage local units to make increased efforts to generate local revenue by providing additional state monies.  It is the RTE portion of the state revenue sharing formula that became the subject of legislative debate in 1996, with Detroit’s share particularly being scrutinized.  The perception by some was that Detroit received a dis-proportionate share from the pool.  Additionally, townships argued that since population growth was occurring in areas outside of city limits (suburban growth), that townships should receive a greater share from the revenue sharing fund.  Townships argued that the relative tax effort distribution rewarded cities for high tax rates, thus townships supported the distribution of the statutory portion to be made on a per capita basis, similar to the constitutional portion.  Such a change in the distribution would reduce payments to cities and increase payments to townships.

        The 1996 amendment resulted in a compromise in the method of distribution.  Principal among the changes was the capping of payments to locals under the "relative tax effort" formula with future payments from the growth in the targeted sources for state revenue sharing distributed on a per capita basis.  The changes in the state revenue sharing distribution translate into higher payments or local units with increasing population and less growth in payments to units experiencing population declines but with a high relative tax effort.

        Beginning in FY 1999 as provided by PA 534, 1998, a new set of three factors were added to distribute the statutory portion of state revenue sharing to local units with the formula being phased in over a ten-year period.  Such a phase in was needed to insure that no unit experienced a fiscal shock due to implementing the new method of distribution.  For example, in the first year of operation, ten percent of the statutory distribution was made using the new formula and 90 percent of the payment based on the statutory share the unit received in FY 1998.

        The weighted factor, “taxable value per capita”, attempts to recognize the fiscal capacity of a unit as measured by taxable value.  The tax base of local units vary widely across the state and by including the taxable value per capita as one factor recognizes the differences.  The “unit type and population” weighted factor recognizes that cities, village and townships have different responsibilities thus different funding requirements.  The final factor proposed to be included in the distribution formula is “yield equalization”.  The factor is designed to equalize the amount of per capita total revenue (local plus state) that the local unit collects for each mill it levies up to 20 mills.  All units are held harmless, that is, no unit would experience a decrease in revenue sharing payments.  The legislation also amended the City Income Tax Act by decreasing the maximum city income tax rate that the city of Detroit can levy.
 

Revenue Capacity Varies Among Local Units

        The debate on state revenue sharing and other cost sharing arrangements between the state and local governments creates much political debate in part due to the varying revenue capacities among local governments.  One source of the variation can be attributed to differing property tax bases exhibited by Michigan's 83 counties, 1,242 townships, 272 cities and 260 villages.  Property tax bases (taxable value) range at the county level of a low of $62 million (Keweenaw Co.) to a high of $44 billion (Oakland Co.) -- Table 1.  It should be noted that the four largest counties (Oakland, Wayne, Macomb and Kent) account for 48.2 percent of the state’s taxable value.  The counties also exhibit a high degree of variation in terms of tax base growth with Luce County's tax base increasing 101 percent between 1995 and 2000 while Midland County's tax base only increased 20.66  percent over the same period.

        The adoption of Proposal A by Michigan voters in 1994 created a new term for the tax base, taxable value, which represents the capped value of individual assessments.  Taxing jurisdictions now keep three types of assessment rolls: assessed value (value as determined by the assessor), state equalized value (50 percent of market value), and taxable value (capped value).  Millage is applied against the taxable value, however, special assessment levies are applied to the state equalized value (SEV).  Table 1 lists both the SEV and taxable value.  The 2000 SEV of Michigan is $284 billion whereas the taxable value for 2000 is $240 billion.  The difference ($44 billion) is the effect of Proposal A’s assessment cap.  Thus only 84.6 percent of the state’s tax base is subject to property tax levies.

        The taxable value v. SEV percentage ranges from a high of 94.63percent for Midland County to a low of 68.22 percent for Luce County.  Midland County’s relatively high ratio of taxable value to SEV is a function of a State Tax Tribunal decision to lower Dow Chemical’s SEV and taxable value thus the loss in tax base was reflected in the county’s ability to maintain the taxable value roll almost the same as the SEV.  Whether a taxing jurisdiction taxable and SEV remain relatively close is a function of the level of real estate exchange, new construction, and real estate demand.  Jurisdictions with an active real estate market will be able to recapture capped values as property is exchanged.  Taxing units with significant new development will also be able to maintain their taxable values close to the SEV.  However, jurisdictions with low real estate exchange and slow development will, in most cases, will see a widening gap between taxable values and SEV.

        The composition of the tax base by taxing jurisdiction exhibit wide variation across local units.  The composition of the tax base also impact school funding.  The higher the proportion of property that is designated as non-homestead for property taxation purposes the larger share of K-12 funding is generated locally.  If a K-12 district has a large percentage of tax base designated as homestead (residential and ag land) the larger share of funding to schools that is provided by the state.  Figure 2 displays the growth in tax base by class over a number of years.  The implementation of Proposal A’s assessment cap is evident in the three lines representing the classes of property tracking fairly close together last five years.

Composition of the State’s Tax Base

        The composition of the state equalized value for the state has shown some shifts over the past two decades.  In 1981, the agricultural class of property represented 7.4 percent of the $92.0 billion tax base but has dropped as a percent of the total to 3.8 percent (Figure 3).  The residential class on the other hand has increased its share of total SEV from 57.6 percent to 66.4 percent.  All other classes have constituted approximately the same proportion of the tax base other than the industrial class which has declined from 9.9 percent of total to 6.2 percent.  The personal property class represents currently 10.1 of the state’s tax base, down slightly from the 11.5 percent in 1981.  The personal property class remains the subject of legislative debate.  Legislation in the past has been proposed to eliminate the personal property class but such proposals have been met with strong opposition from local governments since such a legislative change would decrease property tax revenues by 10 percent to locals.  Additional legislative debate the past session focused on changing the method of assessing agricultural lands from the current market value approach to a “use value” approach.  The use value assessment approach is utilized by a majority of the states.  Such an approach takes into account the ability of the land to provide an economic return to the landowner.  While a variety of approaches are used throughout the U.S., a common approach is to combine the variables of soil productivity, crop yield, and crop prices into an econometric  model to arrive at imputed value for the land.  MSU’s Department of Agricultural Economics is currently engaged in a research projects assessing whether such a change in the assessment methodology would indeed change the value of the land, and if so, what would be the fiscal impact to local government if such a change?  If the legislature did indeed decide to legislatively change the method of assessing ag lands, such a change would take 3-5 years to implement based on the experience of other states that have adopted such an approach.

Figure 3: Composition of Tax Base

Property Tax Collections

        Of the $8.9 billion in property tax collected in 1999, 58.35 percent was collected for K-12 education (state education tax plus local levies), cities collected 19.41 percent, counties 16.03 percent, townships 5.39 percent and villages 0.79 percent¹⁰. Figure 4 compares the property tax distribution pre-Proposal A (1993) and Post Proposal A 1999.  Obviously, property tax collections are related to millage levy rates which have remained relatively constant over time as will be discussed.  In 1993, prior to school finance reform, property tax levies for K-12 education accounted for approximately 72 percent of total property tax collections.  For 1999, property taxes for K-12 education represented 58.35 percent of total collections.  Fifteen percent of property taxes for schools were derived from the State Education Tax (6.0 mills levied statewide), and 43 percent from local allocated, extra-voted and debt levies at the local school district level.  Proposal A while altering the system of school finance in Michigan also reduced total property tax collections.  In 1993, total collections were $9.5 billion, six years later, total property tax collections are still below the $9 billion level.  The capping of individual assessments has slowed property tax collections for all general and special purpose governments as was the intent of the legislation.   Since total property tax collections declined post-Proposal A, the proportionate share for the general purpose governments: county, city, village, and township) increased.  The increase is due to the decrease in total collections this their share increased.  As will be seen in the next section, millage rates have remained relatively constant for general purpose units.
 

        Total property tax collections decreased 25.4 percent between 1993 and 1995 with the decrease attributed to Proposal A.  The decrease in collections between 1993 and 1999 is $567 million or 6.0 percent lower compared to 1993, pre-Proposal A.  The shift in the method of school funding with its movement away from property tax resulted in general purpose governments share of total property tax collections increasing but it should be noted that their collections are also tempered by the impact of Proposal A.  Individual units of government may see property tax collections increase beyond the CPI or 5 percent as dictated by the Constitution.  The added collections are possible in units experiencing rapid development or growth in new addition to the tax roll since new construction is exempt from the assessment cap for the first year and a new cap is established once new construction is on the assessment roll.

        Maintaining up-to-date assessment rolls is critical in the post-Proposal A era.  While many policy makers assumed that assessing had been made simple due to the capping of assessments, in reality, legislative changes dramatically increased the workload of local assessors.  Not only do assessors now have to keep an additional assessment roll (taxable value roll) but maintaining an up-to-date file on homestead versus non-homestead properties has added to the complexity of assessing at the local level.  If assessment rolls are not kept current with market values, the potential gain from real estate turnover or exchange is tempered since the recapture provision accompanying Proposal A can only recapture value that can be proven by the assessors assessment roll.  Or stated differently, it is not automatic that an assessor place on the tax roll, fifty percent of the value resulting from a sale or property exchange.  

Millage Levies

        The average millage rate statewide has declined from a high of 58.09 recorded in 1992 to the present level (1999) of 39.16 mills.   The average millage rate includes the State Education Tax of 6.0 mills.  If millage rates are separated based on homestead versus non-homestead  the average millage rates for the two classifications of property vary a great deal.  For example,  the average millage rate on commercial, industrial and utility property for 1999 was 50.36 mills, since these properties are taxed as non-homesteads.  Figure 5 displays average millage data over a 21 year period.

        Average millage rates for general purpose governments over the past 26 years have remained relatively constant, although county millage rates overall have increased about 0.1 mills, moving from 6.18  mills in 1973 to the 1999 rate of 6.28 mills.  The composition of county millages has changed over the 26 years.  In 1973, counties levied 5.62 mills allocated and 0.56 mills extra-voted for a total of 6.28 mills with 40 counties leving extra-voted millage.  In 1999, counties levied on average 4.88 mills allocated and 1.40 mills extra-voted for a total of 6.28 mills with 82 counties leving extra-voted.  At present counties levy 25 different types of extra-voted millage with levies for senior citizen program, medical care facilties, transportation, ambulance, E-911 and libraries being the services most likely to be supported in part by extra-voted millage.

        Village millage rates have decreased slightly from 12.47 mills in 1973 to 12.37 mills in 1999.   City millage rates have declined 1.20 mills over the 26 years moving from 17.37 mills to 16.17 mils.  Township millage rates have increased 1.00 mills, 2.99 to 3.99 over the same  period reflecting increasing suburbanization.  As a township’s population increases and development occurs, especially residential, the demand for more urban types services drives millage rates upward.   The decline in millage rates for A portion of the decline in millage rates can be attributed to required Headlee rollbacks which has tempered millage increases.

        Proposal A also impacted local governments by prohibiting millage rollups, thus when millages are reduced due to millage rollbacks (Headlee 1978), a new authorized millage rate is established.  For a unit to move back to a previously voter approved millage authorization rate, local governments must seek voter approval of a new millage levy, not an easy task in today's political climate.          Twenty three of Michigan's 272 cities levy a local city income tax yielding a total of $496 million¹¹.  In view of Proposal A and the restraints imposed on local government millages, it would not be surprising to see more cities seek voter approval of a local city income tax.

Other Issues Facing Michigan Local Governments

        While property tax, millage rates, and state revenue sharing shine bright on the horizon of fiscal issues facing local governments, several other state-local issues bear mentioning.  Included in the issue group is a continuing debate on court financing, corrections and community health, all which have been subject of policy debate and changes.  Funding of the state courts system is a significant issue for county government.  Law enforcement and the courts represent between 45 and 65 percent of total general fund expenditures by county government.  The elimination of Detroit's Recorders Court and an attempt to equalize funding between county courts based on caseload is bound to be an issue seeking attention by the legislature.  Since the county courts are under the supervision of the State Supreme Court legislative changes both in policy and funding directly impact sub-state governments.  While the state has increased funding for the Department of Corrections significantly over the past decade, local governments have experienced a similar demand for local correctional facilities (jails).  Expenditures for local jails represent the largest portion of a county's law enforcement budget.  The competition between dollars for jail expansion versus expenditures for other county general services has enhanced the policy debate at the local level, a debate in which state government is a significant player.  The impact is derived from the rules governing the operation of correction facilities, sentencing guidelines established by the legislature and courts, and state reimbursement for some inmates.

        The merging of the public health and mental health departments at the state level also impacts local governments in part due to the cost sharing arrangements between the state and county for health services.  An interesting observation is that prior to the merger, mental health budgets which are accounted for as special revenue funds in county government were equal to or exceeded the general fund budget of counties.

        As of early December, the legislature was still struggling with the revision of the state’s Drain Code, an issue of particular interest to agriculture dependent counties.  Another issue mentioned previously is the use value of assessment of agricultural lands in the state.  It would seem prudent to await research results before moving ahead with legislative action.

Inter and Intra State Comparisons: State and Local Finance

        Policymakers frequently seek data for comparing their state or sub-state unit of government to other states, regions, or local units in an attempt to ascertain their relative ranking for individual and aggregate service expenditures, or individual or aggregate tax burden.  Public discourse for example, often includes statements of how Michigan residents compare to neighboring states relative to property tax burdens, expenditures for higher education or K-12 education, taxes per capita, and entitlement payments, to cite a few.  Attempts are made to somehow measure and compare the welfare of Michigan residents to the welfare of other citizens or governmental units to some standard.  This raises the question of "what are appropriate comparisons?".  Should one use "per capita", "percent of household income", "an index, the percent above or below an state or national average" or another indicator when one is attempting to determine where does our state stand relative to others?

 During the recent school finance and property tax reform debate, Michigan was cited as having a high property tax burden and a low state support for K-12 education.  Depending on the measure utilized to support one's position, Michigan's position relative to other states varied.  Different policy conclusions can be drawn depending on the measure chosen as part of the calculus.  Therefore it is important in policy discussions that policymakers understand various comparative measures and how they are used and abused.

Per Capita Measures

        Perhaps the most frequently used measure is "per capita" be it for taxes per capita, expenditures per capita, expenditures per household, etc.  The measure is favored by some since it is a straight forward comparison - for example, total taxes divided by population.  Thus high income states with low population are cited as having a high per capita tax burden.  Or, low income states with high population yields a low per capita tax burden.  The measure may be useful but fails to answer the question of whether citizens in state A have less of their income consumed by taxes relative to state B.  Per capita measures also become incorporated in formulas for distributing state aid.  For the past twenty years Michigan used a version of the per capita measure in distributing membership aid to K-12 school systems.  The "per student SEV of a district" was compared to the "per pupil state average SEV" (total SEV of Michigan divided by the number of public K-12 students) to determine in part the amount of state aid to be granted to individual school districts.  The incorporation of the "per student SEV" factor resulted in a significant of school districts being ineligible for state membership aid since a local districts SEV per pupil exceeded the state average SEV. While per capita measures are useful in comparing local units or states with similar demographic and economic characteristics such as population, income, tax bases, and composition of public services, caution is needed when using per capita comparisons when community or state characteristics vary.

Percent of Income Measure

         While cross-state comparisons may be distorted using the "per capita measure", such distortions can be mitigated in part by utilizing a "percent of personal income" measure (PIM).  The PIM measure provides a welfare measure of how much of one's income is converted from private use to public use thus making it possible to compare across state lines or between units within a state.

Indexes

        Indexes are frequently used to measure whether a unit or state is above or below the average with an index of 100 being the average for the U.S. or state.  For example, if state personal taxes collection were being examined and a state had an index of 110.0, this translates into the state taxing residents 10 percent higher than the national average.  An index of 95.0 means the state is five percent below the national average.

Selected Comparisons of Michigan Tax Revenues Relative to U.S. Average¹²

        (See Attachment)
 

Additional Reference for Legislators

VerBurg, Kenneth, Guide to Michigan County Government, 3rd Edition, Michigan State University Extension, Room 11 Ag Hall, East Lansing, MI 48824.  Price $29.50

 VerBurg, Kenneth, Managing the Modern Township, 3rd Edition, Michigan State University Extension, Room 11 Ag Hall, East Lansing, MI 48824. (Available February 2001)  

Web-Sites

http://www.aec.msu.edu/agecon/government/index.htm (local government finances and information)

http://www.crcmich.org/ (public policy information and data)

http://www.census.gov/ftp/pub/govs/www/state.html (state finance data by state and state comparisons)  

²FY 2000-01 Appropriations Report, Senate Fiscal Agency, Lansing, MI August 2000, pp. 7.

³1999 Statistical Report, Senate Fiscal Agency, Lansing, MI January 2000, pp. 125.

⁴An Executive Order in 1999 established the Department of Career Development which includes workforce development, job training, rehabilitation services, employment services, state career preparation, and adult education.

⁵Kleine, Robert. "Michigan Fiscal Overview", December 10, 1996, pp. 25.

⁶Estimated for FY 2000-01 using FY 1999 as base and assuming rate of inflation growth.  School aid amount is the enacted amount from PA 297, 2000.

⁷Pursuant to an out-of-court settlement in the case of Oakland County vs. the State of Michigan the required minimum State payment to local government increased from 41.61% to 48.97 effective FY 1992-93.  1999 Statistical Report, Senate Fiscal Agency, January 2000, pp. 141.

⁸“Michigan’s Unrestricted Revenue Sharing Program Retrospect and Prospect”, Citizens Research Council Memorandum, No. 1504, September 2000, page 2.  See <crcmich.org> website for additional information or checkout the Senate Fiscal Agency’s website for detailed information on distribution of state revenue sharing amounts to local units.

⁹Duprey, Steven B. and Lynn R. Harvey, “The Financial Health and Fiscal Capacity of Municipal Governments in Michigan”, Report prepared for the Joint Senate and House Task Force on State Revenue Sharing, Department of Agricultural Economics, Michigan State University, East Lansing, MI 48824, March 1988.

¹⁰Ad Valorem Property Tax Report, State Tax Commission, Department of Treasury, November 2000, pp. 2.

¹¹Outline of the Michigan Tax System, 19th edition, Citizens Research Council of Michigan, Report No. 322, September 1997, pp. 4.

¹²CRC Notes, Citizen’s Research Council of Michigan, November 1999.