Five New Tax Proposals Come to Public Hearing Tuesday

Tomorrow night, February 27, East Lansing’s City Council will hold a public hearing on five draft tax proposals at its meeting that begins at 7 p.m. The Council is considering placing some form of new tax on the August 2018 ballot. An August election would require Council to approve ballot language by May 15.

Council is seeking new sources of revenue as the City faces a major financial crisis brought on by “staggering” pensions costs following years of flat revenue. As ELi has reported, Council has also been having long discussions of what to cut from the City’s budget.

This time around, Council is seeking more input from the community than it did prior to its vote in June 2017 to place two proposals on November 2017 ballot. Last November’s ballot saw a pair of proposals: a new 1% income tax for city residents and 0.5% income tax for non-residents who work in East Lansing, coupled with an offsetting reduction in property taxes which would go into effect only if the income tax were implemented. The income tax failed to pass, and the property tax reduction passed, but will not go into effect unless an income tax is instituted.

Council’s unanimous vote to put an income tax on the ballot in 2017 followed the top recommendation of the Financial Health Review Team (FHT) regarding seeking additional revenue. The FHT Revenue Recommendations explained its rationale for this approach: “due to the exemption of University property from real property taxation, a city income tax offers to the City perhaps the only legally available means to tax monies earned within the City by all residents and nonresidents, and thus deserves serious consideration.”

Since voters rejected the income tax by 53% to 46% (3,259 votes against and 2,878 in favor) in November, Council now is seeking more input from voters before it decides what type of tax to put on the ballot. Last month, Council voted to hold a public hearing on five possible proposals, including an income tax, a Headlee override (which would raise property taxes), a dedicated millage to support emergency services pension-related costs, a bond for Parks & Rec repairs, and a bond for repair and maintenance of City streets.

Public input about various tax options was solicited by City leaders at a meeting held last Thursday, February 22 at the Hannah Center, facilitated by Public Sector Consultants. Those in attendance were asked for their reactions to several questions:

• Should a new tax be dedicated to a specific purpose?
• If so, what purpose should that be (e.g., public safety, parks and recreation, infrastructure, legacy costs, or general government operation)?
• What type of new revenue source is preferred (income tax, property tax, a combination of both, or no tax increase)?
• Should a possible new income tax be dedicated to a specific purpose, be limited to a specific time period (such as 10 or 15 years, unless it is renewed), or both?

People who did not attend this meeting can indicate their preferences on these and a few other questions online until 11:45 p.m. on Sunday, March 4.

At the public hearing tomorrow, February 27, citizens will be able to speak to one or more of the five suggested tax options, comment on any aspect of possible new revenue sources, or present their ideas on other aspects of City finances. (Any topic can be raised during Communications from the audience in the earlier part of the meeting; see agenda.)

As noted above, the first option is an income tax similar to what was on the ballot in November 2017, but this version is different in that it would dedicate the new revenue only to unfunded pension liability, which is the largest portion of the City’s debt.

If an income tax passes and goes into effect, the millage reduction approved by voters in November would also go into effect. But if voters in August were to vote also to raise property taxes in some other fashion, that could lead to greater revenue from property taxes, and higher taxes for property owners.

Councilmembers have said they do not plan to vote on a specific tax proposal at Tuesday’s meeting, but rather to work to hear from citizens.

Council previously asked City Manager George Lahanas to recommend $3 million in budget cuts, to be implemented over two years, “in the event that no new revenue is found,” according to the City’s February 23 press release.

Lahanas’ most recent recommendations for cuts came from suggestions by Councilmembers and expenditures identified by directors of City departments. Directors were asked to come up with plans for 5% or 10% budget cuts. Lahanas’s list also took into account survey data from citizens collected at two meetings in January and in an online survey, which brought input from more than 800 East Lansing residents. (At the first January meeting, citizens were given a list of 27 possible budget cuts to consider.)

The Public Sector Consultants (PSC) report and analysis of the survey results points out that possible cuts supported by residents – such as cutting the number of PACE staff in half, saving about $60,000 per year, or reducing hours at the Family Aquatic Center, saving about $18,000 per year – “do not yield significant savings.”

Thus, Lahanas pointed out at the Thursday public meeting that his current list of recommended cuts includes some services that are highly valued by the community, but that are needed, he suggested, in order to get to $3 million in cuts.

The PSC report shows that the two most highly valued City services, by far, are the Hannah Community Center and Public Safety, as shown in Figure 3 of the report.

Yet the recommended budget cuts include closing the Hannah Center, saving about $1 million a year, and cutting police and fire personnel by nine personnel in year 1 and eight more in year 2, saving $1,530,000 a year.

“While this list of cuts was extremely difficult to make,” Lahanas said, according to the City’s press release, “our hope is that a new revenue solution will be found that would eliminate the need for these reductions.”

As Lahanas suggests, the new revenue sources being considered, including the income tax, would certainly help mitigate the financial problems faced by the City, particularly in the short-term. But the possible new revenues are unlikely to solve the long-term problems, considering the City Finance Director’s recent presentation of the City’s financial forecast and what the City must pay into the retirement system in the coming years in required contributions.

The table below shows estimates of the size of the City’s pension debt and the amount of required contributions in the coming years. (Click here for a larger view.)

Details about tomorrow’s Council meeting and the draft tax proposals are available via  the published agenda. Written communications can be provided to Council by writing to council@cityofeastlansing.com.