Public Hearings on New EL Tax Proposals Set for May 9

East Lansing’s City Council has decided to hold another set of public hearings about possible new revenue sources and has expanded the variations of tax proposals being considered. Possibilities include a City income tax, property taxes, and bonds for capital expenditures. Council is considering putting one or more tax proposals on the August 7 ballot in response to the growing financial crisis facing the City.

Public hearings have now been set for May 9, at 7 p.m. (Note that this is a Wednesday, not the Council’s normal Tuesday meeting day.) Council Members have indicated they will probably not vote on a tax proposal on May 9, but may do so at a dedicated meeting scheduled for soon thereafter, set for Monday, May 14, at 7 p.m.

The procedure and timing for putting a tax question on the ballot:

No new taxes can be levied by the City without majority approval of East Lansing voters in an election. It is up to the Council to decide what proposal, if any, to place on a ballot for the electorate to vote on. The Council does so by adopting a resolution containing language to be placed on the ballot.

In order to place a ballot question on the August 2018 primary ballot, Council must adopt a resolution by May 15, according to Mayor Mark Meadows. The Council set the special extra meeting for May 14 so it has the option to vote that day to place a question on the August ballot.

At the Council’s April 24 meeting, Council Member Ruth Beier suggested a ballot question might be placed on either the August or November ballot, and Council Member Shanna Draheim said she was leaning toward November.

Income tax options:

The first three resolutions up for consideration are all versions of a new City income tax. All three levy an income tax of 1.0% on the income of resident individuals and businesses and 0.5% on non-resident individuals for income earned in East Lansing.

This would mimic city income taxes in these same amounts in effect in Lansing as well as in Albion, Battle Creek, Big Rapids, Flint, Grayling, Hamtramck, Hudson, Ionia, Jackson, Lapeer, Muskegon, Muskegon Heights, Pontiac, Port Huron, Portland, Springfield and Walker. The cities of Detroit, Grand Rapids, Highland Park, and Saginaw also have income taxes on both residents and non-residents, but in higher amounts. Ann Arbor’s city government was considering a city income tax in 2017, as well.

The three new draft proposals for an East Lansing income tax all explicitly state that adoption of the income tax ballot question “implements the reduction of the City property taxes from a maximum of 20 mills to a maximum of 13 mills.” This property tax reduction, set to take effect automatically if and when an East Lansing income tax is being levied, was already approved by East Lansing voters in November 2017 and has been incorporated into the East Lansing City Charter.

The first income tax draft resolution exempts a certain amount of income from the tax (to make the tax less “regressive”), designates the revenue to be used for a specific purpose, and limits the number of years for the income tax to be collected. These amounts are all left blank, so the resolution can be used as a template for the Council to enter specifics.

The second draft version essentially fills in the blanks of the first resolution. It states that the first $5 million in annual revenue for an income tax will be used to pay unfunded liabilities in the City’s pension funds. It exempts the first $5,000 of income from the tax, and limits the income tax to 15 years, ending in December 2033. Adopting this language as part of the City Charter would mean that the tax would be terminated at this time without any further action. (The tax could be renewed only by another vote of the East Lansing electorate.)

The third draft version authorizes an income tax without any designated exemption, purpose, or time limit.

A Michigan city can decide on an income tax rate, an amount of income exempted from the tax, and whether some part of the property tax will be offset by the income tax. However, cities cannot decide what types of the income of residents are subject to a city tax; this is set by State law. How retirement-related income is treated by income tax in Michigan depends under State law on the type of income and the age of the recipient.

Property tax options:

Three draft resolutions would authorize a so-called “Headlee override” to return the property tax rate in East Lansing to 20 mills ($20 per $1,000 of taxable value), the level permitted under Michigan’s Home Rule City Act.

Why would Council consider asking voters for a Headlee override? Michigan’s Headlee Amendment has caused a significant decline in East Lansing’s revenues, as is true for many Michigan cities. By Fiscal Year 2018, because of the Headlee Amendment, the City’s millage rate has declined to 17.56 mills for general operations, and it is expected to decrease slightly again in FY 2019.

While the State’s Headlee Amendment can automatically reduce cities’ millage rates, as it has for East Lansing, a Headlee override requires a majority approval by a city’s voters. All three draft East Lansing Headlee override resolutions would authorize returning the property tax millage rate to 20 mills. This would represent an increase of 2.43 mills from its current level, or $2.43 per $1,000 of taxable value. (That comes to roughly $1.22 for every $1,000 in market value of a property.)

East Lansing’s specially-appointed volunteer Financial Health Team (FHT) estimated that returning East Lansing to a property tax rate of 20 mills would generate about $2.2 million in added annual revenue for the City.

The first draft resolution for a Headlee override dedicates income from 1.432 mills to fund parks and recreation and income from 1 mill to capital improvements. It sets a time limit to authorization of this millage increase, to be filled in by Council prior to the vote to put it on the ballot. The second draft resolution does not designate the increased tax revenue to any particular purpose. The third draft resolution provides for designating the added tax revenue to two as-yet-unnamed purposes.

Proposal to allow a new tax millage for police and fire pensions:

Another draft resolution being considered would ask voters to authorize establishing and administering a pension and retirement system for East Lansing’s police and fire personnel through a new Fire and Police Department Retirement Pensions and Retirement Board.

The agenda of the Council’s February 27 Council meeting stated that this resolution would levy 3 mills to fund fire and police pensions. Establishing this board, as permitted under Michigan Public Act 345, would enable levying this millage without bumping into the City’s Headlee Amendment cap.

Two options for bonding:

These draft resolutions would give voters the chance to authorize the City to issue general obligation bonds to fund “capital expenditures” to be used either for street improvements or for parks and recreation. The amount of these bonds is not specified in this draft.

Public comment continues to be sought:

The previous Council hearing on possible new taxes, at which one resident spoke and for which others sent written comments, was held on February 27. Since the beginning of the year, the City has also held several public engagement sessions and run a survey and a poll.

As Council now approaches some decision on whether to put proposals on the August ballot, written comments can be mailed to all Council members at council@cityofeastlansing.com. Oral comments can be made at the Council meetings on May 9 or May 14.

Update: This article was amended on May 9 to correct an error about how a taxable rate translates into a market rate-based tax rate. The line "This would represent an increase of 2.43 mills from its current level, or $2.43 per $1,000 of taxable value. (That comes to roughly $1.22 for every $1,000 in market value of a property.)" was changed to "roughly ever $4.86 for every $1,000 in market value of a property." We thank the ELi reader who brought the error to our attention.