City Hears Public Input on Budget Cuts, New Taxes, or a Combination of Both

Above: City Manager George Lahanas addresses community members at the Hannah Center. Photo: Jessy Gregg.

The Hannah Community Center second floor meeting room was full on Wednesday evening as East Lansing residents were asked to grapple with the full range of financial issues that the City Council must address. More than 70 residents attended, with Council members and senior City staff observing from the back, and available for questions.

The session will be repeated on Thursday, January 18 at 7:00 pm, also at the Hannah Center.

City Manager George Lahanas provided a basic introduction about the City’s financial situation. He summarized the City’s $34-million General Fund expenditures and income sources, causes of the City’s financial stress, pension liabilities, reductions in City employees, changes to compensation and benefits, and where things stand now.

Lahanas’ talk was familiar to people who heard one of his 28 presentations before last November’s vote on a new income tax, which voters defeated by a vote of 3,249 to 2,863 (or 53% to 47%).

Most of Lahanas’ presentation on Wednesday was videotaped and streamed on Facebook Live, where it can be seen by people with a Facebook account. A similar presentation, made to the Planning Commission on October 11, 2017 can be viewed as part of that meeting. (To get to this portion of the video, go to the agenda listed below the video, and click on item 3A, “Income tax presentation (Lahanas).”)

Lahanas concluded his presentation by saying that, in order to maintain current levels of services and amenities, $5 million in new revenue is needed. He characterized $5 million as a good amount with which to make progress on paying for needed services and infrastructure.

On the other hand, if no new revenue is generated (in other words, if voters do not approve some new proposal for a tax increase of an amount similar to what was rejected in November 2017), Lahanas said the challenge is to find $3 million in reductions to City services and amenities. Three options were given as parameters for much of the discussion: either make $3 million in budget cuts, adopt $5 million in tax increases, or some mix of the two.

Considering budget cuts:

Attendees were asked to discuss possible budget cuts at their tables, using a list of 27 possible cuts. This list is similar to one discussed by the City Council at meetings on Sunday, December 10 and Tuesday, December 12. The version shared at the community meeting included possible cuts totaling an estimated $3.9 million from the $34-million General Fund.

In the 20 minutes that were available, people were asked to identify services and amenities that they particularly value; groups were not expected to reach consensus about how to make to total of $3 million in cuts.

In answer to a question about how East Lansing’s police and fire personnel compare to national standards, Lahanas said that both services are understaffed, according to national standards. Police Chief Sparkes said the national standard is 1.6 police officers per 1,000 people (or 80 officers per 50,000 people, which is approximately East Lansing’s population), whereas ELPD currently has 49 sworn police officers, down from 69 officers. The list of budget cut options includes cutting either 4 or 8 additional police officers, for a saving of $360,000 or $720,000. Reduction of the same number of fire fighters also appears on this list, with approximately the same savings.

Resident Bob Nelson went outside the focus only on General Fund cuts or tax increases and asked if consideration is being given to selling the water utility that East Lansing jointly owns with Meridian Township. Nelson said the Board of Water and Light (BWL) may be interested in buying it, which would bring in considerable one-time revenue. Lahanas replied that he had heard preliminarily of BWL’s interest in this purchase, but that selling this facility has not been seriously considered. He pointed out that doing so would give away the City’s power to control water rates, and Public Works Director Scott House said that water rates are significantly higher in Lansing than they are in East Lansing.

Considering new revenue sources:

Participants were given a list of alternatives for new taxes that could be considered to put before voters in an election in 2018, since the income tax proposal failed in November 2017. Lahanas said that Council would need to vote on a ballot question by mid-February to get it on a ballot in a special election in May or would need to vote in August to put a question on the November ballot.

Three different taxes are on the list, with the explanation that option 1 by itself would bring in about $5 million per year, while it would take both options 2 and 3 to bring in a similar amount.

Option 1: New Income tax

How would this be different from the income tax proposal that was on the November 2017 ballot? If it was put before voters again, it might contain ballot language stipulating that the revenue would be dedicated to specific types of expenditures and perhaps also setting a time limit, such as 15 years. Expanding revenues for such a time period could enable the City to catch up significantly on funding its pension liabilities for current retirees. East Lansing’s pensions are currently only 53% funded, and increasing payments will need to be made from the General Fund in upcoming years to improve this funding ratio.

A resident pointed out that the language of the two ballot questions on the November 2017 was confusing. Lahanas pointed out that one of the questions, reducing property taxes in any year in which an income tax is imposed, did pass and is now part of the City’s Charter. So only the income tax question would need to be on the ballot in the future, which could be somewhat less confusing.

A resident who spoke at the December 10 special meeting of City Council expressed the belief that some people who voted against the prior income tax would be willing to vote for such a tax if the Charter amendment explicitly directed how the funds could be spent, taking the choice out of the hands of the City Council. Mayor Mark Meadows showed an interest in his comment at that time. Since then, the City Council has briefly discussed the idea of dedicating an income tax to a specific purpose or purposes.

The $5 million projected to be raised by this income tax would not all come from East Lansing residents. Residents would pay a 1% tax on designated income, and commuters who live outside East Lansing but work in the City would pay a .5% tax.

Option 2: Override the Headlee cap to raise an additional 2.4 mills in property taxes

The state Headlee amendment limits increases in property taxes resulting from property tax assessment increases and requires voter approval for an override. (Read more about the Headlee amendment here.) The ballot language suggested here is to dedicate half of the new taxes (of about $2.4 million per year) to parks and recreation and half to capital improvements and deferred maintenance for facilities and streets. Option 2 was suggested together with Option 3 to bring in the amount of revenue needed.

Option 3: Create a public safety pension board and levy 3 mills to fund it

Michigan municipalities may establish a pension fund board that can be funded with property taxes that do not count against the Headlee cap. So this is another way that can be used to seek voter approval to obtain additional revenue. Such a tax would have to be used exclusively to pay for pension fund costs for public service employees, who constitute the largest portion of East Lansing retirees. Adopting both Options 2 and 3 would be an alternative to the income tax, together bringing in a comparable amount of new revenue.

Lahanas explained that the City does not actually receive the full amount of property taxes levied on properties in its jurisdiction. The City receives 35% of the tax amount; 28% of the tax goes to the General Fund, specifically, while 7% goes to other City funds. The remaining 65% must be passed on to other public entities, including, for example, Lansing Community College, CATA, and the Ingham Intermediate School District.

People sitting at three of the tables at the Wednesday night meeting said they wanted more education about tax ballot questions than they received in 2017 or to be more involved in promoting it and engaging with other residents. People recognized that the City Manager made many educational presentations (which is what City staff are permitted to do by law) and that City Council members took on the responsibility of going door-to-door to promote the income tax ballot question. Lahanas pointed out that the “no” committee on the income tax raised more than $30,000, while the “yes” committee had much fewer resources. Two people commented that engagement among residents favoring the proposal could counteract some money on the other side.

Residents are invited to attend a second community meeting on budget and revenue challenges on Thursday, January 18 at 7:00 pm. Attendees will have the opportunity to complete a survey at the end of the meeting. Survey results from both meetings will be analyzed and reported to the City by Public Sector Consultants.