By the Numbers: Public Payroll Growth Stifled in Michigan as Cities Make Drastic Cuts

“By the Numbers” is a series of short articles evaluating the finances of Michigan local governments, primarily through the use of U.S. Census reports on Local Government Revenues and Expenditures by Type of Government, and State and Local Government Revenues and Expenditures. These articles look at how Michigan compares over time to the rest of the nation.

Several articles have benchmarked changes in revenues for local governments comparing the years 2002, 2007, and 2012. Changes in revenue collections, as well as transfers from the State and Federal governments, have been evaluated for each type of local government in Michigan – municipalities, counties, townships, and school districts. Another installment looked at two distinct types of own source revenues: taxes and fees.

Later articles benchmark Michigan’s state and local expenditures on various categories of services on a per capita basis as compared to other states, using information from 1992, 1997, 2002, 2007, and 2012.

Finally, overall results will be evaluated with a critical look at Michigan’s current system of funding local governments and the services they provide.

In 1992, Michigan ranked 13th in the nation in per capita expenditures for public employee payroll at the combined state and local level. By 2002, the combined total had slipped to 23rd; in 2012 Michigan was 37th. From 1992-2012, the payroll of state-level employees was increasing at a faster pace than payrolls of Michigan’s local governments.

State Payroll

According to U.S. Census information, from 1992-2012 Michigan saw its state employee payroll increase from $4.5 billion to $7.5 billion. Nationally, state governments paid their employees a total of $113 billion in salaries and wages in 1992; by 2012, the total payroll for state governments had increased to $251 billion. This would mean that Michigan’s total state payroll only increased by 67% compared to the national change of 123%. The 67% increase in Michigan matches very closely with the rate of inflation from 1992-2012, which was 64%.

This begs the question: When looking at state expenditures for employee pay, is Michigan state government headed in the right or wrong direction when compared to the rest of the nation? Salary growth that is just half of the rest of the nation’s rate over an extended period of time has ramifications. Even after adjusting for changes in population over the years, Michigan’s growth rate is two-thirds of the national rate. Is this making state government more affordable for its citizens? Yes. Is it impacting the level of service? Possibly.

Local Government Payroll

The U.S. Census also details local government spending on salaries and wages by each state. Nationally, the growth in salaries paid to local government employees – including schools, counties, cities, and townships, as well as other special districts – closely matched state government trends. Nationally, local governments paid out $270 billion in wages in 1992; that amount increased to $591 billion in 2012 – a 118% increase over 20 years. State-level wages increased 123% over the same time period.

While Michigan state government can be viewed as diligent in controlling its payroll when compared to other states, it was a spendthrift when compared to Michigan’s local governments. In 1992, local governments in Michigan paid $10.1 billion in employee wages. By 2012, this amount had increased to only $14.6 billion. This 45% increase over 20 years compares to the 67% increase in payroll at the state level. Total wage expenditures for Michigan’s local government employees grew at just two-thirds the rate of inflation over the two decades under study and just a third of the rate of the rest of the nation. Even after adjusting for population changes, Michigan’s local government payrolls grew at half the rate of the rest of the nation.

While some may explain that maintaining state government salaries at the level of inflation over 20 years is a solid and frugal policy, it would be hard to use those same terms to describe a policy that has seen total wages paid to local government employees increase at a rate that is only two-thirds the rate of inflation over the same 20-year period.

Looking at public employee salary growth from the shorter period of 2002-2012 is even more disconcerting for Michigan. Nationally, state-level employee wage compensation increased by 50%, while in Michigan, state employees saw total payroll increase by 24%, just half of the national rate. However, the more dramatic scenario involves the total payroll for local governments in Michigan. The total payroll for Michigan’s schools, cities, counties, townships, and other governments remained virtually unchanged between 2002 and 2012. Total salaries increased by just 0.3% over 10 years. This compares to a 34% increase by all local governments across the rest of the country.

Cities hit hard

The U.S. Census provides even greater detail on local government spending. In Michigan, between 2002 and 2012, state employee payroll increased by 24.3 %, townships saw a 23.5% increase, and counties had a 13.2% overall increase. Public schools in Michigan saw an increase of 10.6% in their payroll over the decade. The most startling numbers are associated with municipal operations in Michigan. Cities and villages saw their total payrolls go from $3.6 billion to $2.4 billion over the 10-year span from 2002-2012, a 33% decrease.

The concern of Michigan’s local governments is that the state’s financing mechanisms for their operations do not allow a “recovery” from the impact of the recession. The strict limitations on property-tax growth will likely mean that local governments will continue to grow at a much slower pace than similar governments in other states from a now-diminished base. The ability to provide basic services, particularly in areas that are funded by local property tax revenues, are likely to continue on a path of decline compared to the rest of the nation.