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By GRAHAM JAEHNIG

gjaehnig@mininggazette.com

EAGLE RIVER — The Keweenaw County Board unanimously approved a motion in favor of Letters of Support for Historic Reform of Revenue Sharing.

The letter, dated July 12, 2023, sent by Jonathan Mead, president of the Uppper Peninsula Commission for Area Progress, is urging the support of a historic reform of revenue sharing with local governments. The letter was sent on behalf of U.P. Association of County Commissioners.

“House Bills 4274-75 and Senate Bills 229-230,” the letter states, “would implement a carefully negotiated series of reforms that are backed by the Michigan Association of Counties and other local government groups.”

The bills, if passed, would create a separate “Revenue Sharing Trust Fund” to receive and hold dollars solely for the purpose of fulfilling the state’s promise to local governments on revenue sharing. It would require that 8% of the revenue generated by four percentage points of the state’s sales tax rate be placed into the fund. The result would be $591 million from the current total, the letter says.

Counties would receive 46.14% of this total in the first year, amounting to $273 million, which would be an increase of nearly $27 million from the total.

In Michigan, there are two types of revenue sharing, constitutional revenue sharing and statutory revenue sharing.

The Odessa Township (Ionia County, MI) website defines revenue sharing as money that local governments, such as townships, cities, villages and counties, receive from the state.

Revenue sharing was established in 1946 by a vote of the people through a constitutional amendment to replace and relieve local taxation. The primary purpose of revenue sharing, when first implemented, was to limit local taxing authority while increasing state taxing authority, with the idea that a predetermined amount would be shared with local governments. Revenue sharing provides a basic level of funding for services to all cities, villages and townships, and to a few counties.

The state promised to give local governments a portion of the money it received from other state taxes, including the sales and income taxes, and the Single Business Tax.

The 1946 constitutional amendment established that revenue sharing be funded by taking 15% of the first 4% gross collection of the state sales tax. Constitutional revenue sharing payments, are distributed to cities, villages, and townships on a per capita basis.

Statutory revenue sharing, on the other hand, is funded by using 21.3% of the 4% gross collections of the state sales tax. The remaining 63.7% of revenue from the 4% gross collections is used to fund other state obligations. The remaining 2% of sales tax collected is dedicated to the school aid fund.

Statutory Revenue Sharing, revenue sharing for cities, villages and townships, according to the Michigan Municipal League, have traditionally been distributed by a formula, rather than on a per capita basis. The formula is designed to compensate for the significant variation in local governments’ service delivery needs, infrastructure maintenance requirements, and capacity to generate local tax revenue. This statutory program calls for 21.3% of the 4% sales tax collections to be distributed in accordance with language set in Public Act 532 of 1998.

Although voters approved an increase in the sales tax rate to 6% in 1994, constitutional revenue sharing payments continue to be calculated based on the first 4% since the 2% increase is constitutionally dedicated to the School Aid Fund.

In 1996, the state consolidated shared revenues from the income tax and single business tax into an expanded percentage of the sales tax. Past revenue reductions in statutory allocations are made permanent through the reduced sale tax percentage.

As Michigan State University pointed out on March 16, 2023, since the late 1990s, Michigan local governments have experienced significant fiscal setbacks in their ability to provide critical public services to the residents of Michigan.

The statutory payments that should have been phased in in 1998 were never fully implemented due to funding cuts. An MML survey found cuts in revenue sharing have negatively impacted basic community services across Michigan. Capital projects, such as street and sidewalk repairs and sewer and water improvements, have been postponed; recreation and library programs have been curtailed or eliminated. Subsequent house fiscal agency testimony estimates that statutory revenue sharing is only about one-third of what is specified in law. In fact, statutory revenue sharing levels haven’t even recovered from the 33% cuts made in 2011.

Due to the method used by the state Legislature to cut revenue sharing in order to balance the state budget, of the 1,242 townships across the state, less than 300 townships receive any amount of statutory revenue sharing. More than 945 townships receive only constitutional revenue sharing.