A new approach to evaluating the fiscal health of Michigan local governments: Comparing fiscal performance relative to available resources
DOWNLOADJune 1, 2018 - Robert Kleine and Mary Schulz (schulzm2@msu.edu), MSU Extension Center for Local Government Finance and Policy
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EmailThe purpose of this report is to develop a scoring system for Michigan local governments that accurately reflects their fiscal condition. The previous scoring system used by the Department of Treasury from 2007 to 2010 fell short in several areas as explained below. One of the weaknesses was that economic and financial measures were both included to develop the fiscal distress score. The proposed new system calculates two scores, an internal score that measures the financial performance of local units and an external score that measures the fiscal resources available to a local unit. Presenting two scores allows local units to be evaluated based on how effectively they use their resources.
A comparison of these two scores may be most useful in identifying situations that warrant a deeper analysis to determine if assistance from the state would be appropriate. This type of analysis can help the state decide which cities may need state intervention and which cities can likely only benefit from a change in state policy, such as increased revenue sharing. For example, cities that rank in the 3rd or 4th quartile on the external score and the 4th quartile on the internal score are more likely to benefit from a change in state policy than state intervention. Cities that rank in the top or 2nd quartile on the external score but in the 4th quartile on the internal score may have management issues that may warrant state intervention.
