A Changing Economy
A once relatively well-off state by most economic measures, Michigan suffered disproportionately under the weight of the Great Recession. Its reliance on the auto industry and the cyclical nature of its economy made it particularly susceptible to the effects of the nationwide economic downturn.
The Great Recession, prompted by the collapse of the U.S. housing market, shook financial markets and family pocket books. The far reaching effects very nearly bankrupted U.S. automakers but the federal government stepped in with a bailout that prevented the collapse. Amidst the loss of nearly one million automotive industry related jobs, Michigan experienced the highest unemployment rate in the nation during the recession, peaking at 15.3%. This further exacerbated the state’s housing crisis and weakened the labor market. Even before the Great Recession, Michigan’s economy was in downturn, impacting state revenues and in turn state funded programs. The I-75 manufacturing corridor from Saginaw to Detroit was one of the hardest hit regions in the nation losing hundreds of thousands of jobs and millions of dollars of property values.
One of the largest impacts of state budget decisions has been felt by Michigan’s communities. Declining state revenues led to declining payments to communities in the form of revenue sharing. Since 2002, $7.5 billion dollars in such payments has been diverted away from communities to pay for other state programs. As a matter of fact, between 2002 and 2012, Michigan is one of only four states whose municipalities saw declining revenues from state sources.
Along with declining revenues from the state, communities have also seen declining revenue from local sources such as property taxes. Brought on largely by the decline in property value due to the Great Recession, the decline in property taxes is compounded by some of the most restrictive tax limitations in the country. Statutory and constitutional mechanisms such as Proposal A and the Headlee Amendment limit the ability of local governments to recover lost taxable value. Other restrictions limit local revenue options generally.
Amid declining revenues and continued population loss, Michigan communities have struggled to maintain even essential services. Several were assigned emergency managers by the state and Michigan’s largest city, Detroit, declared bankruptcy
While population loss has nearly stabilized and the unemployment rate has declined significantly, matching the national average, the problems that resulted from or were worsened by the economic downturn remain significant.