Are local municipalities headed for a fiscal cliff?

A lot has been reported about fiscal cliffs related to COVID-era funds drying up and now some local counties are talking about their concerns.

Wexford County learned in February 2022 that any municipality with an ARPA allocation under $10 million could consider the funds as revenue loss. What that means is Wexford County could use the $6.5 million in ARPA funds for the “provision of government service.”

That means the county could use it for most general fund expenditures except for three things. Those three things include paying down capital project debt, adding to its rainy day fund or fund balance, or paying down its unfunded pension liability.

While that gave the county more flexibility in how it used the money, there were four categories it must fall under. They included capital expenditures, expanding public sector hiring and capacity, premium pay for essential workers and broadening eligible broadband, water and sewer infrastructure.

The board has voted to use the funds to pay for several items, including nearly $104,000 for updating the elevator at the Wexford County Courthouse, nearly $37,800 for 12 radios for use by the emergency management department and nearly $14,300 for 25 sets of riot gear for the sheriff’s office.

It also has used the funds to give a $2,500 direct payment to all active county employees annually for three years. The payments were prorated per month of service from the prior year’s work as of July 31, 2021, 2022 and 2023. These payments also were subject to any contractual or collective bargaining agreement requirement.

Wexford County Administrator Joe Porterfield said although the county is not necessarily facing a fiscal cliff, Porterfield said there are concerns.

“We have been balancing the budget with ($500,000) of ARPA money. We know we won’t have that now. Our budgets have been doing well when we have had audits because we don’t have filled positions in certain county departments,” he said. “If we can fill those positions, like in the sheriff’s offices and other offices, we don’t know if we would be able to afford it?”

Currently, Porterfield said the county still has about $2.6 million in unused ARPA funds left in its coffers.

As for the fiscal cliff, Porterfield said Wexford County is not in panic mode. He said that is partly due to its health fund balance. While they have had to use funds to balance the budgets the past few years, the county also has been able to add money to its fund balance due to there being open positions in several county offices.

While they are not in panic mode, Porterfield said they also don’t want to deplete the fund balance that has been built. That said, Porterfield also believes the county should be able to get through the next couple of years without a problem financially.

Missaukee County Administrator Jessica Nielsen said she doesn’t believe her county is facing or approaching a fiscal cliff.

Like Wexford County, Nielsen said Missaukee County still has a large chunk of the funding in the county coffers. She said they received $2.9 million in ARPA funds and have about $1.8 million left. Projects that have been funded by these funds included $190,000 for the purchase of 800 MHz radios for county fire departments, $185,000 for lead service line replacement in the City of McBain and then a $200,000 loan to the Missaukee County Road Commission for the repair of a bridge in Holland Township.

She also said ARPA funds were used on renovations to the county’s new building located on Main Street in downtown Lake City.

In total, Nielsen said the county has spent $935,000 in ARPA funds and a net total of $735,000.

“It’s pretty similar to a fund balance in that we don’t want to use it all up for operating expenses because when it runs out, you have a bigger issue,” she said. “We are using it to finish up our Main Street project and aside from that it is up to the board to decide what to do.”

When it comes to financial concerns facing Wexford County and other counties in the state, Porterfield said there are some, including court funding.

The Michigan Association of Counties reported last month that House Bill 5392 was introduced and extends a quickly approaching May 1 expiration or sunset of the authority of trial courts to levy fees that constitute a key part of their operational funding.

However, MAC said HB 5392 was tie-barred to a separate measure through actions of the House Judiciary Committee. The companion bill, HB 5534, outlines a plan for the State Court Administrative Office to conduct data collection on certain trial court costs and revenue sources and provide a report to the Legislature with proposals to implement the Trial Court Funding Commission’s recommendations from 2019. A “tie-bar” means both bills must advance together.

Although MAC said it sees broad support for the extension, the prospects for the companion bill are much less clear. If, for political reasons, the legislation is delayed and not signed before May 1, MAC said a funding gap will result.

Porterfield said that could result in a shortfall of close to $200,000. He also said with the likelihood of the May 1 deadline not being met, the county courts and courts across the state may be left without funding, at least in the short term.

One thing that might help with financial concerns, however, is the restoration of revenue sharing, according to Porterfield. In particular, Porterfield said a revenue-sharing trust fund could help to bring it to how it used to be.

Last month, MAC and other local government groups explained the key to restoring the full meaning of state revenue sharing is creating a dedicated revenue stream and trust fund to exist outside the annual appropriations process to a Senate appropriations panel this week.

The Revenue Sharing Trust Fund plan is embodied in House Bill 4274 and HB 4275. MAC said the bills would require that 8% of the revenue generated by 4 percentage points of the state’s sales tax rate go into the fund. Counties would receive 46.14% of this total, which would be $273 million in the first year, an increase of nearly $16 million from the current total, according to MAC.

“MAC has been pushing the Revenue Sharing Trust Fund. It won’t bring us back to where we were, but it will help a great deal,” Porterfield said.