Ann Arbor is drowning in red. The city has not escaped the budget crises experienced at the state and national levels, and the prospects at home are gloomy. The city is currently projecting a $6.1 million deficit, with no immediate solutions in sight. The budget crunch has forced city staff to consider laying off police officers as well as closing city swimming pools and recreational centers. City Council is even considering closing another fire station. While further spending cuts may be necessary to reduce the city’s budget deficit, they are temporary solutions that have already been tried and failed. Unfortunately, rising costs and static sources of revenue have placed the city in a difficult position.
Despite having cut 131 jobs, the city’s projected payroll costs for the current fiscal year will be $1.5 million higher than it was three years ago. Indeed, even though the city laid off workers, it gave 3 percent raises to all remaining unionized workers and double-digit percentage raises to top administrators. While ostensibly counterintuitive, these increases in worker compensation are logical. The 3-percent raises for unionized workers were an unavoidable expense; it is necessary to compensate workers for inflation. Even the large raises granted to administrative-level employees may be warranted. In 2000, there was only one person on the city’s payroll who had a six-figure salary. Currently, there are 13 city employees who earn at least $100,000. The city claims these salaries are an investment — highly competent administrators can save the city far more money than they earn. Of course, the City Council is obligated to research this issue and actually determine whether there is a legitimate reason to overpay city administrators.
Because the City Council has limited options in cutting its payroll costs, the city needs to address its other chief expenditure — the rising price of health care. According to Ann Arbor’s newly hired chief financial officer, Tom Crawford, if the health care system is not reformed, the city will go bankrupt. Unfortunately, reforming the health care system is beyond the scope of local leaders. The state and federal governments should fulfill prior pledges and act to lower medical costs. Across the nation, health care costs are growing at double-digit rates, putting extraordinary fiscal pressure on all levels of government. Politicians, especially those in Washington, need to act on promises to lower costs so that municipal governments are not forced into bankruptcy.
In addition to controlling its costs, the city of Ann Arbor desperately needs to increase its revenue. Unfortunately, no convenient revenue enhancements exist, as the city is constrained by an inadequate finance system that limits the total amount of revenue the city can generate. For example, Ann Arbor is not allowed to raise its property tax any higher than it already has due to a state constitutional amendment. Considering that property values in Ann Arbor are skyrocketing, limiting property taxes on high-value real estate deprives the city of a significant source of revenue. City Council members are debating a citywide income tax, but it is unlikely that such a drastic measure will be approved.
Ann Arbor will have to embark on a long and tough path toward solvency. It cannot, however, achieve solvency on its own. The state needs to consider relaxing budgetary constraints so that individual municipalities can increase property taxes when needed. Federal officials also need to take seriously pledges to decrease health care costs before they become crippling. Concerted action at all levels of government will be required if local budget crises are to be overcome.