University of Michigan: Two-decade review of Flint finances by U-M shows consequences of lack of investment, legacy costs

The turmoil surrounding the city of Flint—most notably stemming from its lead-tainted water crisis—has become a cautionary tale for other Rust Belt cities struggling to balance their budgets, provide services and attract new business.

A 20-year review of the city’s finances by the Center for Local, State, and Urban Policy (CLOSUP) at the University of Michigan’s Ford School of Public Policy exposes the main factors that have contributed to the economic, social and infrastructure challenges it faces. Loss of tax base, lack of state government support and huge legacy costs all have contributed to Flint’s fiscal difficulties.

“Over the past 20 years, few cities have experienced as much fiscal stress as Flint, Michigan. After decades of economic decline, two periods of state receivership, the water crisis and the COVID-19 pandemic, the city of Flint is trying to shore up its finances and provide services to citizens,” says the report, A Twenty-year Review of Flint’s Financial Condition.

To find the best paths forward, an exhaustive look backward was necessary.

The tax base diminished as General Motors, which remains the city’s main employer, reduced its factory base, and the population shrank from a high of 200,000 in 1960 to just over 80,000 in 2021. That affected the city’s three main income sources: property tax, state revenue sharing and income tax.

The legacy of previous debt and pension and other retirement benefit obligations remain in place and take an increasing amount of the city’s budget: Almost a quarter of the city’s resources are not available for current operations, services to citizens or public investment. State revenue-sharing has been reduced over the years as well, leaving few options for the city.

Drawing on municipal finance research, the study relies on a comprehensive set of financial indicators, such as expenditures per capita, current ratio and debt burden. The full set of data and indicators, along with data visualization tools, may be accessed at CLOSUP.

Stephanie Leiser, who leads CLOSUP’s Fiscal Health Project, says the water crisis showed “what can happen when a city’s population and tax base are hollowed out and chronic fiscal stress goes unaddressed.”

“It is an example of what can happen when public officials become increasingly desperate for solutions to their community’s problems,” she said. “If we want to learn lessons from the tragedy in Flint, we must recognize that the next crisis in the next community may have nothing to do with drinking water.”

The state of Michigan intervened in Flint’s finances twice, appointing emergency managers in 2002-04, and again in 2011-15. Those managers focused on short-term solutions to balance the city’s budget, which may have had short-term effects, but may also have exacerbated the city’s long-term, structural problems.

“It is unmistakable that Flint has had its share of disinvestment over the years, and to clearly address future solutions, an analysis like this is very useful,” said Robert Widigan, Flint’s chief financial officer.

Shu Wang of Eastern Michigan University, a report co-author, says looking at all of the factors was necessary.

“This project allows us to examine not only financial indicators but also historical and institutional factors that lead to the structural deficit that pains Flint today,” Wang said. “These factors are prevalent in many post-industrial cities, which are challenged to do more with less. It is important to take a holistic view when examining the fiscal condition of these communities.”

The report advises that solving the problems “requires more than just budget cuts or changes in financial management practices.”

“The long-term health of the city of Flint will continue to depend on the underlying causes of population and economic decline, unreliable state revenue sharing, and state-imposed restrictions on local revenue options. State-level policy should be focused on these underlying drivers,” it states.

“It’s difficult to put the city of Flint’s many hardships into dollars and cents, but that is what this report does,” said James L. Tatum III, another co-author from Eastern Michigan. “We tabulate the disinvestment in the city’s water system that led to an environmental and public health crisis, and we detail the cuts that have left citizens bereft of the services they used to enjoy in better times.

“Our hope is that this record of what happened, put into financial terms, helps elected officials and citizens as they continue to structure a fiscally sound social contract.”

Addressing Flint’s finances moving forward will also require the state to explore ways to take a holistic and data-driven approach to improve its monitoring of local fiscal distress, including modernizing data reporting and collection efforts, which CLOSUP’s Fiscal Health Project will continue to examine.

“High quality detailed data are essential to detect signs of stress early, before they lead to crises,” the report concludes.