Economic downturn caused by pandemic might cause budget problems for local governments
The COVID-19 pandemic could have an effect on local government operations for years to come. That’s the prediction from an online forum on city, township, and county governments held by the Lansing Economic Club.
Representatives of local government associations agreed that the economic downturn caused by the pandemic would not hit local governments this year, but would in following years.
“I think we’re going to see a significant hit over the next two or three years and local governments are going to have to batten down and see what solutions they can find,” said Eric Scorsone, an Associate Professor at Michigan State University who also works as a consultant for cities.
The panel agreed the revenue streams that local governments depend on will drop. The question is: by how much?
“Depending on how significant that drop is, we’re going to have a similar situation to when we had the big recession,” said Summer Minnick, Deputy Executive Director of the Michigan Municipal League.
She expects the property values to go down, a major source of revenue for local governments.
While the market can force down property values and bring them back up, property tax increases are limited to the rate of inflation by the Michigan Constitution. That means tax revenue recovery lags behind the economic recovery, leaving local governments short on funds.
The groups also expected lower revenue sharing by the state and reduced income tax for those cities that have that tax.
They hope for some federal help, but also expect to have to ask voters for millage increases for things such as street repair.