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Governor proposes $70 million to make up for income tax shortfalls for Michigan cities

Governor Gretchen Whitmer’s administration wants to give an extra $70 million to cities in Michigan hurting from a decline in income tax revenues.

A total of 24 cities in the state collect local income taxes. They face the potential of a significant revenue decline in the coming year because of pandemic-related job losses.

Cities face additional shortfalls because more people have been working from home. Some cities collect much of their income tax revenue from non-residents who come into the city for work. During a budget update last week, Grand Rapids commissioners were told the city collects more than $46 million from non-residents who work inside the city limits. Molly Clarin, the city’s chief financial officer, said the city could lose a total of up to $20 million in income tax revenue.

“Probably all of us are a little depressed right now,” said mayor Rosalynn Bliss, following the presentation. “We knew the numbers were going to be bad. We knew we were facing shortfalls. I’m not sure I fully appreciated the depth of the potential shortfall.”

Bliss was among a group of mayors that campaigned for the Whitmer administration to include relief for cities in the upcoming state budget.

Another city involved in those discussions was the Grand Rapids suburb of Walker, where mayor Gary Carey said at a council meeting in January that he hopes the city will be better off than some others that rely on income taxes. Still, he said the city wasn’t sure yet how deep the hole could be.

“It could be a few hundred thousand, it could be a few million,” Carey said to fellow commissioners. “We don’t know at this point. And to speculate and try and guess is just, I think, steps in frustration, so we’re not going to go down that road.”

In a budget proposal announced Thursday, the Whitmer administration called for an extra $70 million in state funding for the cities in Michigan that rely on income taxes. The proposal comes with a cap of $25 million for any one city.

The 24 cities that collect local income taxes include Detroit, Grand Rapids, Lansing, Flint and others, according to the state.

Following the announcement of the governor’s budget proposal, the city of Grand Rapids provided this statement from Mayor Bliss:

“Michigan’s cities are on the front lines implementing the response and recovery efforts to the COVID-19 pandemic. Critical services from our first responders in public services, community development and public safety departments have been essential to keeping our community safe in the face of an unprecedented emergency and global pandemic. We are grateful that the Governor has prioritized funding to replace the revenue shortfalls that income tax cities all over our state are facing due to the continued work from home requirement issued to control and slow the spread of the coronavirus.”

But even with an infusion of cash from the state this year, some cities could face longer-term impacts if the trend in working from home continues.

“One of the greatest questions for me – or one of the biggest mysteries – is how the pandemic has changed the workplace,” said Grand Rapids city commissioner Joe Jones. “And if we’re looking at, perhaps the new norm.”

If the trend continues, some Grand Rapids leaders say the city may need to look at new options for tax revenue in coming years.

Dustin Dwyer reports enterprise and long-form stories from Michigan Public’s West Michigan bureau. He was a fellow in the class of 2018 at the Nieman Foundation for Journalism at Harvard. He’s been with Michigan Public since 2004, when he started as an intern in the newsroom.