Things Are Looking Up Financially for the City of East Lansing. How Come?

Above: Income Tax Administrator DaMar Boyd (top) and Finance Director Jill Feldpausch (photos by Raymond Holt) and the sculpture outside City Hall (photo by Gary Caldwell).

It’s been a long time since we’ve heard this positive a tone at the City of East Lansing’s annual financial forecast presentation.

“Don’t get too excited,” East Lansing’s Director of Finance told City Council last week, but the City’s finances are looking better.

What’s helping turn things around? The new income tax; the BWL franchise fee; the State of Michigan (finally) reimbursing the City appropriately for firefighting and paramedic services provided to Michigan State University; and big new housing developments, most notably The Hub, paying serious money into the system.

At the February 18 meeting of Council, Finance Director Jill Feldpausch was joined by Income Tax Administrator DaMar Boyd to present to Council the latest on the City’s revenues and expenditures.

For his part, Boyd shared the good news that the income tax brought in $11.6 million in payments for calendar year 2019. If the rate of refunds comes in at 15 percent, as is reasonable to anticipate based on other Michigan cities’ experiences, the City will see about $10 million in revenue from that new source. That’s up from the last estimate, reaching the amount anticipated in the pre-vote estimates.

Above: DaMar Boyd speaks to Council about the income tax revenue (photo by Raymond Holt)

Feldpausch did admonish Council, “I have a lot of anxiety about the income tax money because we don’t know what refunds are going to be.” We will know final numbers by early summer.

Voters approved the income tax with the qualifier that it would come with a property tax reduction of about 5 mills, and that’s causing the City to see about $4.5 million less in property tax than it would be obtaining without the income tax.

Still, the net gain from the income tax is substantial, big enough that Mayor Ruth Beier made a point of (again) thanking the voters at last week’s meeting.

And, Feldpausch noted, big new commercial developments are helping tax revenues. (For the full rundown of new revenue-generating projects, see pages 14-15 of this PDF.)

The Hub alone added about $20 million in taxable value to the City’s rolls, adding more than $350,000 per year in revenue just to the City of East Lansing. East Lansing Public Schools, Ingham County, and other local jurisdictions are also reaping the rewards of that and other big commercial projects. (A proposal for The Hub phase-2 comes to Council tonight, and if built, that could bring as much as $1 million more to the City’s coffers every year.)

Above: Jill Feldpausch presents the forecast to City Council (photo by Raymond Holt)

The City won’t see tax revenue from the Center City District project for about 30 years because all of that development’s capturable local tax revenue is being redirected under tax increment financing (TIF), mostly to pay for the new parking garage. But Center City will soon start bringing in $200,000 a year in rent for the public land on which is built the private redevelopments of The Landmark and Newman Lofts. (This year the rent payment is prorated.)

The big new developments have also been bringing in big permit fees and rental licensing fees, all to the good of the City’s bottom line.

In 2017, Council voted a through 5 percent BWL franchise fee, which did not require the consent of voters or BWL customers. The BWL franchise fee functions like a tax paid to the City of East Lansing by BWL customers in East Lansing; the 5 percent fee is collected by BWL through billing but is then transferred to the City.

The BWL franchise fee is currently bringing the City about $1.4 million per year, making a significant difference to the City’s financial status.

In 2018, Michigan legislation was passed promising that East Lansing and other municipalities would be appropriately reimbursed for emergency services provided to state universities, so East Lansing is finally seeing about $3.2 million a year from this, up from about $1.6 million.

What about costs?

Personnel costs make up about 75 percent of expenditures from the General Fund, and Fiscal Year 2020 is showing what Feldpausch called “a large increase” in salaries. That’s in part because of new hiring in the police and fire departments, with three new fire personnel positions funded with help from a multi-year grant.

Employees were also given a 3 percent cost-of-living adjustment and some received “step” raises.

The two people whose contracts are specifically negotiated by City Council — the City Manager and City Attorney — were both also recently given big contract raises. As the Lansing City Pulse reported, East Lansing’s City Manager George Lahanas is now the single highest paid municipal employee in the Greater Lansing region.

Above: City Manager George Lahanas at the February 18 Council meeting (photo by Raymond Holt)

Retirements continue to create challenges to the City’s budget, with life expectancy and health insurance costs for retirees continuing to climb. The City is currently planning to keep making supplemental pension system payments of about $5 million per year to try to turn around the funded ratio (funds saved versus what is owed).

As more and more City employees retire, things are not getting easier.

But Feldpausch told Council she is “super excited” that the City is finally available to do some sidewalk improvements using General Fund money. That said, the City continues to have to pay into the debt of Avondale Square, a project that has been a steady financial drag, costing about $5 million more than originally planned.

Feldpausch warned that her staff’s five-year forecast depends on a lot of assumptions, and things could turn out differently than anticipated — for example, if there’s a big market downturn. But even with her cautious approach, things are looking up in terms of the City’s ability to meet its obligations and provide services compared to years past.