In the Business of Government: Do you ever wonder how it works?

By Cristin Popelier

Background

Have you ever wondered how government works?  How much it costs to operate the city, township or village that you reside in?  And who’s making the decisions?  In an era of declining revenues, increasing costs and changing communities, running the local unit of government in your community may be harder than you think.

Given that townships are Michigan’s most notable local unit of government, let’s take a closer look.  Established by The Northwest Ordinance of 1787, townships were organized as the governing body of Michigan prior to statehood.  One of only twenty states with township governments, there are 1,113 general law townships in Michigan, and 128 Charter Townships, incorporated under Charter Twp Act of 1947, which grants townships additional administrative capabilities. 

A five member elected board, consisting of a township supervisor, clerk, treasurer, trustees, carries out township functions. Townships are mandated to perform three essential duties including, property value assessment, administration of all elections, and tax collection.  Most townships also serve their communities by providing fire protection and rescue authorities.  In addition, township governments may also provide access to a water supply, wastewater treatment, police, and zoning and building code enforcement.

Garfield Charter Township Hall

Local Government Revenues

Local units of government generate revenues through the collection of taxes, state revenue sharing, service charges, interest income, and other special assessments.  Property taxes (equal to the value of property multiplied by the tax/millage rate) are one of the main sources of local government funding, although many communities also rely heavily on state revenue sharing.  The average millage rate in Michigan is about 40 mills, although most of the revenues collected by townships are dispersed to schools, colleges, and other units of government (to see a breakdown of millage rates by County see: http://aec.msu.edu/government/avmillagerate.htm).  In charter townships the millage rate, or the amount the township is automatically able to collect for township general operating purposes, is 5 mills; however, townships have the authority to levy up to 10 mills with voter approval.  For instance, The Garfield Charter Township Board, after a public hearing passed an eight year one mill increase in order to purchase park property and to construct a new town hall (pictured to the right), according to Lee Wilson, Garfield Charter Township Supervisor.

In essence, property values are tied to the level of service the community can afford to supply, perhaps providing an incentive for high-value residential development in some communities.  Since the adoption of Proposition A of 1994, which limited the growth of property taxes, the difference between the state equalized value (old) and taxable value (new) of property has increased to $87.9 billion, for the most part removing that amount of revenue from the hands of local governments.  Given all of this, extra-voted millages for specialty purposes, such as schools, fire and police protection, are increasingly important to local government finances.

Local Government Expenses

Revenues generated, in turn, are used to fund the many services that local units of government provide.  Townships, for instance, are mandated to provide for the legislative activities of the township board, the general governmental activities performed by the township supervisor and assessor, elections, and officials salaries.  Other functions of local government, which are not mandated but desired by constituents, include public safety (police, building inspector, planning and zoning), public works (street lighting), and recreation and cultural resources (parks and zoos). 

Township officials, who are solely responsible for the administration of funds, are often forced to make difficult financial decisions.  “The best bargain doesn’t always give us the biggest bang for the buck”, Supervisor Lee Wilson said in a recent interview, adding “we as township officials have a duty not only to provide the best services possible but also to provide them in the most valuable way.”  Herein lies the challenge.  The cost of doing business is rising.  Many local officials and residents are not interested in raising taxes. Cutting services isn’t really an option either.  Therefore, inter-jurisdictional cooperation and collaboration are becoming increasingly important cost saving measures.

A Closer Look at Garfield Charter Township

Garfield Charter Township, which incorporated in 1976, is located on the Southside of Traverse City.  The township government serves almost 14,000 residents and 5,800 households.  The administrators of the township collect property tax payments, special assessment payments (state education tax @ 6 mills), the local school & college millage, and fees for services.  As shown in the financial snapshot below, total revenues collected by the township in 2005 were $10.7 million.  In turn, these funds are utilized to cover the $9.1 million in expenses incurred.

Many communities are looking to coordinate, cooperate and consolidate as a way to decrease the cost of doing business.  In fact, the Michigan Land Use Leadership Council (MLULC) recommends that cooperation is key to the future prosperity of the state, although the transaction costs associated with inter-governmental cooperation generate significant barriers.  As Garfield Charter Township addresses its budgetary situation in the coming months it may look into the creation of a special assessment fund for police protection.  It is unclear now how the special assessment for police protection would work but opportunities for coordination with nearby government may exist.  Just as in the business world, local units of government must search for the most valuable way to provide services; inter-jurisdictional cooperation and special purpose governments are just two of the options. 

To look in on the finances of your local government visit:
Michigan Dept. of Treasury Local Unit Audit Reports: http://www.michigan.gov/treasury/

A recent transplant to Traverse City, Cristin Popelier is an agricultural economist and planner for the Land Information Access Association (LIAA). She is also a skilled gardner with a keen interest in all aspects of wine production.