Council Looks Set to Put City Income Tax on November Ballot

Above, East Lansing's City Council (from left: Mark Meadows, Shanna Draheim, Susan Woods, Ruth Beier, Erik Altmann)

East Lansing’s City Council appears set to decide tomorrow night whether to put a City income tax on the ballot this November. Facing the City’s serious budgetary problems, Councilmembers appear unanimous in their support of instituting a City income tax in conjunction with a property tax reduction. This combination would mean that people working in East Lansing but not owning a home in East Lansing would ultimately bear the brunt of the new tax liability.

Michigan law allows cities, with the consent of a City’s voters, to institute income taxes in which residents pay up to one percent tax on their income and non-residents working in the same city pay up to half of whatever residents are required to pay. East Lansing’s Council is looking to seek voter approval to max out the option (1% for residents and 0.5% for nonresidents).

The City engaged a volunteer Financial Health Review Team last year to make recommendations on how the City could deal with its growing budget crisis. The City’s debt is approaching $200 million and, with changing requirements with regard to retiree benefit management, the City’s need to meet retiree obligations will soon start swamping its annual budget. The Financial Health Team recommended, among other things, bringing an income tax to the voters for approval.

An analysis done for the City by external consultant Plante Moran last October suggested that “a 1.0% tax on income of residents and businesses (0.5% on non-residents) with a $600 exemption for individuals and seniors would produce approximately $10.4 million in revenue per year for the City.” Plante Moran says the income tax would cost about $400,000 to administer per year.

Plante Moran estimates that over half of the revenue raised would come from residents, coming in at about $5.3 million per year for residents. Non-residents are expected to pay a total of about $4.7 million per year, and businesses about $400,000.

Passage of this plan would require that a majority of those voting in the election approve the income tax plan. The vote would be restricted to people registered to vote in the City of East Lansing in the November election. Council would put on the same ballot a property tax reduction in the City Charter, to give homeowners a property tax reduction while they face having to pay a new income tax.

Council has asked City Attorney Tom Yeadon to draft resolution and ballot wording that would ensure that a property tax reduction would be enacted only if voters also simultaneously approve the income tax. The idea here is to prevent a situation where no income tax is instituted while a property tax reduction is instituted, a situation that would leave the City in an even worse financial state than it is currently in, because it would reduce revenues rather than increasing them.

Council’s strategy in setting up the tax this way recognizes that, in the average election, the majority of East Lansing voters are probably homeowners in East Lansing—people who might approve this plan if they are convinced it won’t mean more taxes for them. Councilmember Erik Altmann has said that his goal with this plan is to tax “tenured MSU professors living in Okemos”—in other words, to use this as a way to obtain funding from MSU’s economy, albeit via MSU’s workers.

MSU exists mainly within the City of East Lansing, and East Lansing taxpayers have been footing the bill for emergency services for MSU, with alcohol-fueled game days straining the system and the City considering closing the East Lansing Fire Department station on campus due to budget woes.

Altmann has also said he does not think it unreasonable to ask people working in the City of East Lansing to help pay for City infrastructure and services the way, for example, people working in Lansing, Grand Rapids, and Flint pay income tax in those cities. (If a person works in more than one city that has an income tax, the tax liability is divided, so that no individual pays more than a total of one percent in city income tax statewide.)

Councilmembers Ruth Beier and Susan Woods, who are both running for re-election in November, have both indicated support for a City income tax. In stating her campaign goals to ELi, Woods specifically named “the institution of a City income tax” as an issue for her campaign.

Members of Council have repeatedly remarked that getting voters to vote "yes" on this issue will take a lot of public education about the City's financial situation and what the income tax institution with property tax reduction would mean to homeowners.

Council is considering an income floor for the income tax, so that people on the lower end of the income spectrum would not have to pay tax. But anyone who works in East Lansing and earns over that minimum—be they MSU staff, East Lansing restaurant managers or store clerks, or City of East Lansing workers—would be subject to the income tax.

Those who work in East Lansing and rent housing in East Lansing would be hit harder than those who own homes, because it appears unlikely landlords will pass on the concomitant property tax reduction to their tenants. (Most MSU students are unlikely to be impacted by an income tax because of the floor that will be above what most of them would earn working in East Lansing.)

In a memo last November to City Council, City Attorney Tom Yeadon noted that Plante Moran had advised that ten percent of the electorate would have to approve putting the income tax question on the ballot. But Yeadon says Plante Moran is wrong about this, and that City Council can move to put this issue on the ballot.

City Council is set to take up this issue at the end of what is likely to be a long night, as Council begins with a special meeting on the Center City District proposal starting at 6 p.m. and then moves to regular session. The income tax question appears last on the second agenda for the night, so it seems unlikely Council will get to this issue before 9 p.m.

People wishing to weigh in this issue can speak at Council during designated public comment periods and can write to City Council at council@cityofeastlansing.com.

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