Governments at every level are being faced with difficult decisions as the fiscal implications of the COVID-19 crisis are becoming more clear. Local governments will be some of the hardest hit, as the main sources of revenue for most cities are shriveling up due to the shuttered economy.
EMU is one of several Michigan universities partnering up with the University of Michigan’s Center for Local, State, and Urban Policy (CLOSUP) to provide resources and guidance to local governments as they continue to navigate the COVID-19 crisis and the fiscal implications that follow.
Michigan State University, Oakland University, University of Michigan- Ann Arbor, and University of Michigan- Dearborn are the other universities participating, and the group is also being advised by the Michigan Department of Treasury and the Michigan Municipal League, among other groups.
Dr. Tucker Staley, an assistant professor in the Political Science department at EMU, is one of the members participating in this project. Staley’s research has focused primarily on budget and finance in public administration.
Local governments will soon be faced with difficult choices, Staley explained, because of how their revenue sources are impacted by the coronavirus crisis. Michigan collects its tax revenue primarily through an income tax, and a sales tax. With unemployment at unprecedented levels, and nonessential businesses closed throughout the state, both income and sales tax revenues will see a sharp decline.
“We’re going to see sales tax revenues at the state level greatly decrease . . . which means when it's time for the state to start funding local governments, we’re going to see a significant decrease in the amount of money that’s provided to local governments,” Staley said.
Ypsilanti receives around a quarter of its revenue from the state, but the even larger problem for local governments will be property taxes, from which Ypsilanti receives around 61% of its revenue.
“Property taxes go towards schools, [so] schools are going to be hit very hard by this. And also some local programs and county programs are mainly funded by property taxes,” Staley said.
As unemployment soars and large numbers of people see a decrease in their income, there may be a significant delay in people being able to pay their property tax bills, or not being able to pay those bills at all. This puts an even larger strain on local governments, as property taxes usually make up the bulk of municipal revenue.
Ann Arbor has already announced that the late fee for property taxes in the city will be waived for their Aug. 1 deadline, and they have cut the Sept. 1 late fee in half.
Because of the “self-imposed recession” that has occurred to deal with the coronavirus crisis, Staley explained that all three main sources of local government revenue are likely to decrease dramatically.
“A lot of these smaller communities in the Detroit area are going to be hit disproportionately, simply because they don’t have the kind of flexible spending that some of these larger governments have, that they’re more reliant on state revenues that simply aren’t going to be there,” Staley said.
Staley said he expects Ypsilanti to be one of these harder hit communities, “my guess is that Ypsilanti is going to be hit harder than Ann Arbor because in the last recession [that was the case],” Staley said.
According to the memos produced by the group, local governments could look at hiring freezes, unpaid furloughing of employees, and reduced energy usage as some ways to meet budget shortfalls in the short-term. Staley stressed that these are only short-term solutions, and local governments will need to focus on longer-term solutions to get through the crisis.
And although capital projects, such as construction on roads and buildings, are often funded differently than other municipal goods and services, cities will likely look at postponing or cancelling these projects as their budgets shrink. One of the group’s memos, “Capital Spending During an Economic Crisis” is aimed at helping governments work through this issue.
CLOSUP is currently publishing memos based on what they think city governments will have questions on, but Staley says he hopes local governments will soon come to the group with questions of their own, with the group acting as a central point of contact for these governments to get expert advice.
For more information about the group and to view the memos that have been published, visit CLOSUP’s website at closup.umich.edu.