Municipal Finance Blog

2010: A Year of Difficult Decisions for Local Government Leaders

For many local governments in Michigan, 2009 has produced some significant changes in government funding:

• Housing value declines have lead to stagnating or declining property tax revenues
• New construction virtually halted, resulting in significant revenue losses in planning fees, building permits, register of deeds, and other development-related income streams
• Losses on Wall Street have dwindled retirement savings, causing many locals to increase retirement contributions out of already stressed operating funds
• State fiscal problems have been pushed to the local level in the form of reduced revenue sharing payments

While this year has been difficult, 2010 is shaping up to be even more challenging. We already know that the Proposal A limit on taxable value will, for the first time in its 15-year history, be negative, resulting in a reduction in property taxes paid by almost all property owners in Michigan. On top of this, property values are expected to decline further and more sharply in many communities, and the State may make further cuts in revenue sharing.

As a result, most local elected officials will find themselves having to make some difficult decisions in 2010. Layoffs, cuts in employee compensation, service reductions, tax increases and other unpleasant choices will have to be considered.

How will your community adjust to the “new normal” of municipal financing in the new year? Many local governments are turning to longer-term financial planning and budgeting, while others are re-evaluating fees, operating costs and other avenues of cost savings.

The important thing is, you have to start making decisions soon, and ideally those decisions will be based on realistic forecasts of revenues and expenditures. Taking the time to strategically plan for your community’s long-term success will result in less drastic changes and a more acceptable outcome!

For more ideas on how you can better position your government to manage and adapt to fiscal changes, visit www.municipalanalytics.com

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