Editor’s note: This article was previously titled “City of Hillsdale set to go bankrupt in 2020.” This was a inaccurate representation of the facts presented in the article below and was retitled to more accurately reflect the story. The city of Hillsdale is not going bankrupt.
The city of Hillsdale’s general fund balance will be completely empty by 2020 unless it finds new ways to raise revenue, according to its latest budget report.
“We are where we are not because the city was poorly managed, but because of a confluence of things that were out of the city’s control,” Professor of Economics Gary Wolfram said.
Due to a mixture of a decline in state revenue sharing — which is when the state government distributes income from sales taxes to cities and townships within the state — and the increase in non-taxable land, the current budget projects the city will have to continue to cut its services.
Wolfram said the city was able to stay out of debt last year because it cut things like road repair and shrank the size of its public services.
“The state’s revenue sharing in 2014 was 26 percent below what it was in 2001. And it’s not just Hillsdale — it’s everywhere in the state,” he said.
Wolfram also said that the state constitution is another cause for the decline in the city’s revenue. An amendment made in 1994 limits the annual increase in taxable value of property sold to no more than the rate of inflation or five percent, whichever is less, until the property is sold.
Wolfram said this amendment was not designed for a decline in property values.
“When you get a substantial decline in property values, like we did in 2008, these property values can’t come back at the rate they went down — they can only come back at like one to two percent,” he said. “So you get a substantial decline in property tax and revenue all at the same time.”
The city collects most of its revenue from property taxes, which have been declining in the past few years because the city’s major land holders — the college and the hospital — are non-taxable. However, several parcels of land the college has purchased in the past few years are taxable because they do not specifically pertain to the college’s academic mission.
These properties, located on N. Manning St. and West St. are part of an effort led by the college’s Board of Trustees to build a neighborhood in which donors and friends of the college can reside.
City councilman Adam Stockford said the city of Hillsdale is already benefitting from the college’s new real estate developments.
“The college is taking initiative to put property back on the tax role,” he said. “Those five lots that the college bought paid $5,000 year in property taxes. Now the Brodbeck house alone pays $20,000 a year in taxes.”
The Brodbeck house is a large house located on N. Manning St. built by Hillsdale alumnus William Brodbeck ’66 as the first installment in the donor neighborhood. Chief Administrative officer Rich Péwé said in an email some buyers have expressed interest in the other properties, but no one has made an offer yet.
Péwé did not respond to multiple requests for comment regarding the college’s intent toward the city’s revenue by building the new neighborhood.
Wolfram said regardless of the college’s intent, if its building initiative works, the city of Hillsdale will more likely become an affluent place.
“If we build the community the college is proposing, it will improve property values all around,” he said. “If Hillsdale becomes the cool place, the place where people want to be, you will see happen exactly what is happening in downtown Detroit — rich people will move here, pay taxes, and become customers at businesses in the city.”
City councilman Bill Zeiser said accusations that the college does nothing for the city and that it is buying more non-taxable land are unfounded.
“I’ll call it a zombie fact that keeps coming up from the dead — that the college seems to take more from the town economically ostensibly because it is not a source of tax revenue,” he said. “With regards to the houses that it has been purchasing, since they don’t fulfill the educational mission of the college, we’re taking in more revenue on those properties than we would have.”
Regardless of the college’s contributions to the city, the budget for the upcoming year does not predict increased revenue. In fact, if the city of Hillsdale outspends its revenue at all in the next few years, the city’s general fund is projected to bottom out by 2020.
The general fund is revenue the city receives from its property taxes. The fund provides revenue for public services, most notably the police and fire departments. Other services receive funds from state revenue sharing programs.
The city’s current revenue is about $4 million dollars, $1.9 million of which come from property taxes, according to city manager David Mackie.
The City of Hillsdale’s 2016 – 2017 budget shows that the general fund has been declining since 2012 — with the exception of a balanced fund in 2016 — and projects a steady decline to zero by June 2020. The budget does, however, note that these projections are for demonstration purposes only and reflect what the general fund will look like if the city is unable to balance its budget in the coming years.
Mackie said the city will have to balance its expenditures with its revenue and keep the city debt free, as it did last year, to keep from dipping into the general fund.
“If we spend more of the revenue we bring in, we would have to dip into the fund balance proportionally, then it will be depleted in four years,” he said.
The city’s success last year in balancing its budget came only after it pared down the city’s staff and cut equipment and personnel updates for public services. For example, the city of Hillsdale has cut the fire department’s staff from seven to four full-time firefighters. The fire department also owns the oldest operating fire truck in the state of Michigan.
“The oldest fire truck in the state — that’s not a badge of honor,” said city councilman Brian Watkins at a Jan. 24 city council meeting.
Former fire chief Kevin Pauken also said he was concerned with balancing the budget at the expense of public services.
“I think cutting staff to pay for a truck is fixing one problem only to create another problem,” he said at the same meeting. “And I would like to see Hillsdale College pay for a new one. Other communities have done this — the University of Michigan paid for a new station and trucks for its fire department.”
Mackie said things like cuts to the fire department are not enough to solve a bigger problem — the city of Hillsdale will need to find new ways to generate revenue in the coming years.
“There’s not much more meat to cut off the bone,” he said. “We’re going to need to get creative with how we create revenue.”
Stockford said the city will have to take responsibility for its own problems, regardless of who is to blame.
“We’ve got to focus on economic development, but especially educational development for the next generation, so we can recruit companies to come here and face the tide of decline,” he said. “That’s only way to solve this. We can’t go running to the state or federal governments for long-term help — they’re not going to help us. We have to handle this problem at a local level.”