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Why your local government just might be going broke

Lawmakers in Lansing may have to cut revenue sharing with local governments to fill the $1.8 billion budget hole.

State government has been distracted by the water contamination crisis it created in Flint, by the financial problems in Detroit schools, and the day-to-day issues that are just a natural part of running a huge operation in a large state. One issue that’s been set aside often – the proverbial “kicking the can down the road” – is underfunded pension plans and health care costs for retirees.

At the state level, Governor Snyder implemented a plan early in his first term to chip away at the problem. At the local level, most cities have been struggling with cutting services and just paying the bills. The idea of trying to catch up on putting more money into pension plans or setting aside money for growing retiree health care costs don’t seem to be as pressing. The result: A looming financial disaster for many cities and counties.
For example, the Michigan State University Extension Center for Local Government Finance and Policy shows cities such as Lansing, Warren, and Flint have liabilities and shortcomings of hundreds of millions of dollars. If that seems like a lot for local government, it is. But the state is getting some help.

Eric Scorsone from the MSU Extension Center joined Stateside to talk about how local governments are receiving help from the state. Scorsone is an economist and an expert on municipal financing. He’s taking a sabbatical and going to work as Senior Deputy Treasurer for Finance.

Listen to the full interview above to hear the impact the retiree health care costs and underfunded pension funds are having, and how the handling of sales tax has made the situation worse. 

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