“Local governments provide services—clean water, plowed streets, courts, elections—that keep our economy and democracy working smoothly. Just like we get regular health checkups to take good care of ourselves, we should also regularly check the ‘vital signs’ of our local governments,” said Ford School Lecturer Stephanie Leiser, who leads the Michigan Local Government Fiscal Health Project at the Center for Local, State, and Urban Policy (CLOSUP).
In March, CLOSUP released its second annual report analyzing the fiscal health of local Michigan governments. Using financial data reported to the State of Michigan in 2023, the researchers developed a set of indicators to look at cash, budgetary, long-term, and service solvency for counties, cities, villages, and townships in the state.
One way that the researchers understand fiscal health is to look at cash on hand to meet current obligations or to address an emergency. CLOSUP found that federal aid continues to bolster general fund balances and cash reserves, resulting in strong cash and budgetary solvency measures. However, local governments should beware of “fiscal cliffs” as one-time revenues from pandemic-era aid expire.
“By and large, most Michigan local governments are doing fairly well, at least in the short term. Most are balancing their budgets and keeping adequate reserves, thanks in no small part to pandemic-era federal and state grants,” Leiser said. “However, we have to be vigilant. Compared to local governments in other states, Michigan local governments have fewer tools to buffer themselves from risks—whether from inflation, economic uncertainty, political uncertainty, or demographic change.”
Key findings:
- Overall, there have been fewer significant changes in overall trends for the fiscal health of Michigan local governments in recent years compared to prior years.
- Most Michigan local governments continue to show healthy short-run financial conditions as few local government general fund balance levels are lower than recommended. Most of those that are below the recommended level are counties and cities, which suggests a need for closing monitoring.
- Local governments continue to show variability in their capabilities to meet long-term financial and service obligations in part due to restrictive revenue policy and high long-term liabilities from pensions and retiree healthcare benefits.
- Pension funded ratios slipped in 2023, with many values in the low 70% range, slightly lower for cities. Funded ratios for OPEB plans are generally low but improving.
- There is a wide range in expenditures and governmental assets per capita, suggesting that governments vary in their capacity to deliver services. Amounts are generally rising, but it is unclear whether this reflects service expansion or inflation-driven costs.
“Moving forward, local governments must remain proactive in addressing financial vulnerabilities, balancing fiscal responsibility with the need to provide essential services to Michigan’s residents,” the report states. “Continued monitoring of fiscal indicators and trends is essential to identifying warning signs of fiscal stress.”
