Fiscal Distress in Metro Detroit

The Michigan Department of Treasury is required by law (PA 72-1990; PA 34-2001) to assess fiscal health scores for all jurisdictions in the state.  To this end, the department collaborated with economists to develop 10 indicators of fiscal health.  These indicators include measurable trends, such as population loss, general fund expenditures, and declines in taxable valuation. A description of all of the indicators can be found here.  Each year, a jurisdiction may earn one point for each indicator on which it exhibits fiscal distress, for a maximum of 10 points.  Using the most recent year of available data (2009), the chart demonstrates that the jurisdictions in the Metro Detroit tri-county area (Macomb, Oakland, and Wayne counties) earned scores ranging from 2 to 8; a distress score of 3 was the most common amongst all three counties.  The State of Michigan notifies jurisdictions earning scores of 5 and above because they are under a financial watch.  In 2009, nearly one third of incorporated cities in Metro Detroit attained fiscal distress scores of 5 or greater.  This was true of 10 percent of townships and approximately 8 percent of villages.

*The fiscal distress indicators are the following:

•Indicator 1: Population Growth
•Indicator 2: Real Taxable Value Growth
•Indicator 3: Large Real Taxable Value Decrease
•Indicator 4: General Fund Expenditures as a Percent of Taxable Value
•Indicator 5: General Fund Operating Deficits
•Indicator 6: Prior General Fund Operating Deficits
•Indicator 7: Size of General Fund Balance
•Indicator 8: Fund Deficits in Current or Previous Years
•Indicator 9: General Long-term Debt as a Percent of Taxable Value

This chart shows the change in fiscal distress score from 2006 to 2009 for Metro Detroit’s jurisdictions by type of jurisdiction (cities, townships, and villages).  It reveals a decline in the percentage of jurisdictions–across all three types–considered to have the best fiscal health, meaning they received one of the two lowest fiscal distress scores, a score of 0 or 1.  Yet, the percentage of jurisdictions attaining the worst fiscal distress scores of 5 and above (indicating that the categorization of “fiscal watch” or “fiscal stress”) remained relatively low, according to the data.  Between 2006 and 2009, no villages in the Metro Detroit area received a fiscal distress score higher than 5 and no cities and townships received a score of 9 or 10 points.

Detroit exhibits higher levels of fiscal distress than its counterparts in the tri-county region.  This chart shows that, for the period 2006-2009, the City of Detroit consistently scored higher than the average fiscal distress score for municipalities in Macomb, Oakland, and Wayne counties.  Detroit did, however, experience a drop in its fiscal distress score for the years 2007 and 2008—the same time its metropolitan counterparts were, on average, exhibiting increases.

In Metro Detroit’s present fiscal environment, several fiscal distress indicators are more problematic than others, according to the most recent data from 2009. This chart illustrates two indicators that deal directly with taxable valuation—Indicators 2 and 3—are highly problematic across the tri-county region.  Some indicators are more problematic for some counties.  For example, a greater percentage of jurisdictions in Wayne County are afflicted by population loss (Indicator 1), increasing general fund expenditures relative to taxable valuation (Indicator 4), and low general fund balances (Indicator 7) than those in Macomb and Oakland counties combined.  Few jurisdictions demonstrated a problem with general long-term debt as a percentage of taxable value (Indicator 9).

Detroit’s fiscal distress score has been persistently under financial watch from 2006-2009.  During this four-year period, the indicators that consistently characterized the city’s financial distress include population loss (Indicator 1), large general fund expenditures relative to taxable valuation (Indicator 4), low general fund balances (Indicator 7), major fund deficits (Indicator 8), and general long-term debt relative to taxable value (Indicator 9).  Indicators 6a and 6b, which measure prior year general fund operating deficits, contributed to the city’s fiscal distress score in 2006 but were not a factor in 2009.  However, in 2009 the city began to struggle with Indicators 2 and 3, both of which deal with real taxable value declines.  The sole indicator for which the city did not exhibit fiscal distress from 2006-2009 was Indicator 5, which measures current year general fund operating deficits.

None of the Metro Detroit tri-counties were exempt from decline in real taxable valuation (Indicator 2).  This chart shows in the most recent year for which data are available (2009), at least 95 percent of jurisdictions in Macomb, Oakland, and Wayne counties exhibited such declines.  The chart also reveals a consistent upward trend for all three counties over the time period 2006-2009, except for Oakland County which was flat from 2006 to 2007.  This exception resulted in a visible inter-county discrepancy on this indicator that dramatically closed in the two years following. In 2007, 5.3 percent of Oakland County’s communities exhibited declines in real taxable value and, by 2008, the percentage increased to 68.3. In 2007, the percentage was 12 percent for Macomb County and 28.3 percent for Wayne County. By 2008, all three counties saw at least a 35 percent increase in the number of jurisdictions exhibiting a decline. This trend continued into 2009, when 100 percent of the municipalities in Oakland County exhibited declines in real taxable value, as did 96.2 percent of those in Macomb County and 95.2 percent of those in Wayne County.

A key fiscal distress indicator used by the Michigan Department of Treasury is population loss (Indicator 1).  This chart reveals that between 75 percent and 85 percent of Wayne County jurisdictions reported a population loss during the period 2006-2009, with a slight upward trend.  The percentage of jurisdictions in Oakland County reporting a population loss climbed about 10 percentage points from 2006 to 2008 to 58 percent, before declining slightly in 2009.  Macomb County fared best; around 30 percent of its jurisdictions reported a population loss during this period.

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