A new survey from the University of Michigan shows that small towns and rural communities across Michigan are increasingly worried about their finances. The Michigan Public Policy Study spoke to leadership in 1,328 counties, cities, villages and townships.
The study found that 56% of Michigan local governments statewide report “relatively good fiscal health,” which is down from 63% from 2023.
Thirty-one percent say they are experiencing medium levels of fiscal stress, and 8% are experiencing significant stress. Officials in rural areas and small cities reported the highest levels of financial discomfort.
"Seems to be a lot of fiscal health deterioration right in that central part of the state, in the UP, scattered throughout Northern Michigan, and the thumb," said Stephanie Leiser, a co-author of the report.
The findings also say that local officials are skeptical about future prospects. Forty-nine percent of local governments surveyed say they expect positive fiscal health five years from now. Only 24% say their jurisdiction will be able to “better handle fiscal needs next year. “
The findings, Leiser says, are indicative of a longer trend of decline economic conditions in Michigan starting after the Great Recession in 2008.
She says that temporary aid in the form of temporary state and federal spending programs during the pandemic provided help that has now dissipated.
As for why local governments seem to be struggling, Leiser says the revenue model for many local governments depends on property taxes, which is a reliable source of revenue.
“But it doesn't grow very fast,” she said. “As we all know, there's been a lot of inflation and so there's no cap on costs for local governments. And they've had to increase spending on personnel and pretty much everything across the board just to maintain services."
Local governments, Leiser added, often don’t have the money to compete for employees with the private sector. Localities also have to deal with the state’s stagnating population growth, which makes future financial planning more difficult.
“We have governments who have outsized infrastructure compared to what the population is,” Leise said. “We also have many who have outsized, liabilities associated with mostly like pension and retiree healthcare liabilities.”
As for solutions, Leiser says that localities have gotten creative in saving money, she says the property tax-based revenue model is ultimately not flexible enough to keep up with economic changes.
“City managers are honestly some of the most creative people I know, when it comes to solving those kinds of problems, but it's only going to get you so far,” she said.
