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The city of Hills­dale’s general fund is set to go bottom out in 2020 if new sources of revenue are not found. | Wiki­media Commons

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.”