By the Numbers: Counties

“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. The articles will look at how Michigan compares over time to the rest of the nation.

Several articles will benchmark 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, will be evaluated for each type of local government in Michigan – municipalities, counties, townships, and school districts.

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

This installment, second in the series, looks at county revenues. Read the first installment to learn about city revenues.

Counties

General Revenue

From 2002-2012, Michigan counties ranked 40th out of the 48 states which had county operations in revenue growth. While county revenues in Michigan increased by 25.5 percent over the course of 10 years, they still fell substantially below the 43.4 percent national average growth rate.

According to the Census report, Michigan counties had $10.562 billion in General Revenues in 2012. This was an increase of 7.0 percent over the $9.871 billion received in 2007 and a 25.5 percent increase over the $8.415 billion received in 2002.

Between 2002 and 2007, Michigan ranked 47th out of the 48 states that have county operations in revenue growth. Only Kentucky, with a seven-percent loss in revenue, fared worse than Michigan. At 17.3 percent, Michigan’s growth rate was about half the national average during this time period. Just as happened with Michigan’s cities; Michigan counties were not able to keep pace with what was happening in other areas of the country.

During the time of the Great Recession, Michigan counties struggled in much the same way as counties did across the nation. The revenue growth in Michigan counties slowed to a 7.0 percent increase in General Revenues, just slightly lower than the national average of 8.2 percent during the 2007-2012 time period. This placed Michigan 32nd in the nation in growth.

Own Sources of Revenue

Less than half of the revenues in counties come from their own sources, as compared to nearly 75 percent for cities and 80 percent for townships. That being said, very little of state and federal revenue coming into counties can be used by the county for general operations. Instead, most of these revenues are directed to specific programs. The one notable exception is statutory revenue sharing. This means that revenues derived at the local level, especially property tax revenue, is much more important to meeting the needs of general county operations than are federal or state revenues.

According to the U.S. Census, counties in Michigan collected $4.228 billion in 2002, $5.276 billion in 2007, and $4.971 billion in 2012 in local taxes and charges for services. However, the revenue numbers for 2007 are misleading, due to a change in state law. That resulted in an accounting anomaly. Which overstated the amount of property taxes that were collected, as compared to how the taxes could be used. This change was enacted to benefit the state, which was cutting county revenue sharing and requiring counties to move up property-tax collections, to create a fund to offset the state revenue-sharing loss. In 2007, counties were booking 133 percent of their normal property-tax revenue.

Looking at the long-term impact on the state’s county operations, Michigan saw a 17.6 percent increase in revenues collected at the county level between 2002 and 2012 – this is one-third of the national average growth rate. Only Massachusetts and Kentucky saw a smaller growth rate in revenues collected at the county level. While included in the study, counties in Massachusetts have an extremely limited role and operate on less than $200 million per year; Michigan’s counties operate on $10 billion.

Federal Revenue

Federal revenues have taken an expanded role in county operations over the course of this study. In 2002, the $415 million in revenue from the federal government made up five percent of the total general revenues of county operation in Michigan. By 2012, the $903 million represented approximately nine percent of total county revenues. Michigan’s 117 percent growth in federal revenues from 2002-2012 exceeded the national average of 85 percent. This placed Michigan 19th in the nation in growth in federal support for county services. Michigan’s federal support was significantly above the national average between 2002 and 2007, but slightly below average between 2007 and 2012.

State Revenues

In Michigan, counties are often described as the local provider of state services. The timeframe of the study from 2002-2012 supports this statement. Michigan was hit as hard as any state by the Great Recession. As jobs were lost, the demand for support services grew. State support for county operations grew from $3.110 billion in 2002 to $3.264 billion in 2007 to $4.148 billion in 2012. The 26.8 percent jump in funds sent to the county from 2007 to 2012 was spurred on by the state’s poor economy.

Between 2002 and 2007, Michigan’s counties saw a five percent increase in state support for their operations. Nationally, counties saw a nearly 21 percent increase in state support; Michigan ranked 43rd in the nation in this category during the 2002-2007 time period. Part of this lower ranking was also due to the accounting issue described earlier, which allowed the state to eliminate statutory revenue-sharing payments to counties in 2007. The next five years saw a 26.8 percent jump in state support to counties. This was five times the national average between 2007 and 2012; Michigan ranked 11th in the nation in the growth of state support during this time.

Over the long term, Michigan counties saw a 33.1 percent increase in state support from 2002-2012. This increase was greater than the national average of 27.6 percent and resulted in the state ranking 26th nationally in this growth category.

Conclusion

Counties provide a broad range of services. Many of the social services provided at the county level are heavily dependent on state or federal support. Because of this reality, state and federal funds play a much more significant role in county operations compared to cities or townships. However, general county operations are extremely dependent on local funding. Changes in federal and state funding driven by increased needs for social services during times of economic downturns should not be allowed to mask the underlying problem of funding basic county operations. The fact that only two states saw smaller growth rates in self-derived revenues and that one of those states, Massachusetts, has virtually no county functions, once again indicates how difficult the last decade has been on local government operation in Michigan. The reality that own source revenues grew at one-third the rate of the national average over a 10-year period is a trend that can’t be ignored.