Michigan Auto Revival Spreading Stabilizes Property After Slide

Property values in Ottawa County, Michigan, a lakeside community of 266,300 known for its annual Tulip Time festival, may halt a three-year slide in 2013 as the auto-industry comeback spreads across the state’s economy.

“We do think things are improving,” said Keith Van Beek, assistant administrator for the county that was forced to eliminate 46 positions in recent years to balance its budget. “We’re still not looking at restoring things we cut. It’s not that good yet. But we feel like we’re getting back to equilibrium.”

Michigan’s economic health ranked second among U.S. states in the first quarter, according to data compiled by Bloomberg. The state trailed only North Dakota, which is benefiting from an oil-drilling boom.

The improving economy means only one-third of Michigan’s local governments say they’re somewhat or significantly less able to meet their fiscal needs this year, according to a survey released today by the Gerald R. Ford School of Public Policy at the University of Michigan. That compares with 48 percent in 2011 and 61 percent in the 2010 survey of 1,856 general-purpose governments. About a quarter said conditions improved in the latest report.

“We see a clear easing trend,” said Thomas Ivacko, one of the study’s authors. “But you can’t yet say it’s a good time for local government in Michigan.”

Economic Chaos

The 18-month recession that ended in June 2009, and bankruptcies that year of two automakers, plunged Michigan’s economy into chaos. Detroit and three other cities are under state-appointed emergency managers because of failing finances.

Three years after the federally backed rescue of General Motors Co. (GM) and Chrysler Group LLC, 2012 U.S. light-vehicle sales are on pace to exceed 14 million, the industry’s best year since 2007, according to Autodata Corp., which collects sales information in Woodcliff Lake, New Jersey. Industrywide deliveries through July climbed 14 percent, to 8.43 million. That puts the market on track for a third-straight year of at least a 10 percent gain, the first such streak since 1973.

Michigan’s unemployment rate of 9 percent is down from 14.2 percent in August 2009, shortly after GM and Chrysler emerged from the rescue effort. The current jobless rate, even after three straight months of gains, marks the biggest decrease in that measure over the last three years among all 50 states.

Along Lake Michigan in Ottawa County, 167 miles (269 kilometers) west of Detroit, unemployment, which peaked at 12.3 percent in 2009, has fallen to an annualized rate of about 6.8 percent so far this year, Van Beek said.

Auto Suppliers

The county has operations for large auto suppliers such as Johnson Controls Inc. (JCI), Gentex (GNTX) Corp. and Magna International (MGA) Corp., he said. Another example of improving fortunes is the conversion of an idled Delphi Automotive Plc auto-parts plant into a dairy processing operation, Van Beek said.

Tax valuation, which had been improving at an annual rate of 6 percent in 2008 started to weaken in 2009 and then fell the next three years, he said.

This year, projections suggest the values might hold steady, he said.

“We’re at a point where we probably don’t need to make additional cuts in employees,” said Van Beek, whose county is the state’s leading blueberry and turkey producer, according to its website.

The University of Michigan survey marks the first time in four years that more officials predict good times in the upcoming year than expect bad times. Yet it also shows that communities are working to offset continuing declines in revenue with more cost cuts, Ivacko said.

Of communities responding to the survey, 64 percent said property tax revenues continue to fall and 46 percent said state aid was reduced. About 14 percent said they’ll reduce services and 19 planned to increase fees.

Health-Cost Shifting

About 40 percent of communities plan to increase cooperation among governments while 36 percent intend to increase privatization and 62 percent expect to shift more health care costs to employees, the survey found. About 19 percent cut the number of workers among all communities, including 59 percent of places with 30,000 or more residents, according to the survey results.

Home foreclosures rose in 41 percent of the communities this year, compared with 56 percent last year, according to the survey.

As its economy has gained, Michigan’s state and local bonds have beaten the $3.7 trillion municipal market this year through Aug. 29, returning about 5.5 percent, including price change and interest, versus the U.S. average of 5.4 percent, according to Barclays Capital index data.

The economic improvement has also helped the state and its municipalities win a decline in their relative borrowing costs. Michigan securities maturing in 10 years yielded 69 basis points more than top-rated muni debt as of Aug. 30, down from 101 basis points on Jan. 2, according to data compiled by Bloomberg.

“The devil is in the details, and hundreds of communities are still in trouble,” Ivacko said. “But I am surprised how many fewer communities are expecting hardship.”

To contact the reporter on this story: Jeff Green in Southfield, Michigan, at jgreen16@bloomberg.net.

To contact the editor responsible for this story: William Glasgall in New York at wglasgall@bloomberg.net

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