Michigan Cities Brace for Possible Recession in 2020

Local officials across Michigan are concerned about what a recession would mean for their communities.

Nobody, including economists, can say whether a recession is coming. But there have been some troubling indicators over the past year, including some especially bad signs for Michigan specifically.

Local governments, generally, aren’t taking any chances. They are doing what they can to prepare for an economic downturn, even though many of them are still feeling the effects of the Great Recession.

Click on the audio player above to hear MichMash hosts Cheyna Roth and Jake Neher talk about what cities are doing to prepare for a possible economic downturn in 2020.

“I’m pretty concerned,” says Lansing Mayor Andy Schor. “I see it as an inevitability.”

Schor says preparations in his city are about structuring the budget in responsible and sustainable ways. He says he’s holding off on hiring new staff, even if he has the money to take them on in the short term.

“If you over-hire staff, then we’re going to have to lay off later,” he says. “So we don’t want to over-hire staff even though we have needs. You know, we need more police officers, we need more public safety, we need more public services, plow drivers and other things.”

He also says he’s trying to move quickly with developers to try to get projects started in Lansing.

“You want to bank all the financing,” says Schor. “If a recession comes, the banks may not do the same amount of financing. So we want to make sure to book all that financing now because the dollars are available, as opposed to a recession where they’re not.”

Many of the economic challenges cities face are rooted in the ways Michigan finances local governments. 

The 1978 “Headlee Amendment” to the state Constitution limits revenues to local governments, as does 1994’s Proposal A. Headlee requires local governments to reduce their millage when annual growth on existing property is greater than the rate of inflation. Under Proposal A, local governments cannot raise property taxes more than five percent or the rate of inflation.

In the case of a major recession and/or housing crisis like we saw more than a decade ago, property tax revenues can plummet suddenly, crippling cities’ ability to pay for services and other costs. And yet, the state constitution’s limits on revenue growth mean it can take years to recover from that collapse, no matter how fast property values rebound.

Learn more: Michigan’s Broken Model of Municipal Finance (Citizens Research Council of Michigan)

On top of that, state support for local governments through revenue sharing have fallen in recent years.

“Much less of our budgets are based on dollars that the state is supposed to be sending through,” says Schor, who previously served in the state Legislature. “As of 2001, 2002, there was about a billion dollars in a formula that went to local governments…now it’s probably about $250 million, $300 million, I think it’s less than that. So, locals are now getting significantly less, and yet, with inflation, our costs are significantly higher.”

Schor also points to an increase in “unfunded mandates” from the state. Those are requirements the state puts on local governments that cost money, but that don’t come with extra funding to meet those requirements. 

All of these things taken together, local officials say, hamstring their ability to weather any recession without serious effects on their ability to govern and provide services for residents.