The Shrinking Services Problem

ericscorsoneBy Eric Scorsone

Legacy cities often face the difficult task of providing critical public services like police and fire protection and code enforcement, just when their tax base and fiscal capacity are shrinking. These very problems are occurring just as state and federal governments are reducing their support to city governments to balance their own budgets. Higher tax rates often become necessary just to try and maintain revenue streams. Cuts to public services, which are often an important element in attracting and maintaining population, are also implemented.

Witness the city of Saginaw, MI where a shrinking tax base and falling state support has led to the police force being the same size as it was in 1900. Saginaw also faces a huge underfunded liability related to retiree health care that will force further cuts or higher taxes in the future. Public services were over-consumed in the past and the city did not set aside enough funds for pensions and health care. Thus, legacy cities often face the double whammy of declining services and higher tax rates which only compounds their overall economic challenges. The solution lies in breaking this problem through two complementary solutions:

1) major changes to state laws that restrict local tax options or increase state aid
2) growing the tax base where possible via new economic development programs and attracting the empty nester boomers and millennials seeking an urban lifestyle

The second solution will require investments in some public services and new funding strategies.

Dr. Eric Scorsone is an Extension Specialist and Co-Director of the State & Local Government Program at Michigan State University. Dr. Scorsone’s work focuses on assisting local governments in the areas of performance measurement and reporting, service delivery options and strategies, intergovernmental cooperation and board governance. Dr. Scorsone previously worked as as an economist for the Colorado Governor’s Office of State Planning and Budget and as senior economist for the City of Aurora, Colorado.

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