— PRO —

East Lansing facing a ‘fiscal cliff’

BY MARK MEADOWS

On November 7th, residents of the City of East Lansing will have the opportunity to broaden the tax base of the City and reduce property taxes to a Charter maximum of 13 mills; a historic low and the lowest permissible City authorized property tax in Michigan.

The proposals, if adopted, will result in a projected net revenue increase of $5 million. The City needs the extra money. The request is not an exercise in greed. The City is faced with a fiscal cliff from which nearly all of the property tax revenue of the City will have to be poured into its pension fund. The result of a failure to pass the ballot proposals will, of necessity, exacerbate an already reduced array of Police, Fire and other personnel and a consequential significant reduction in City services.

In 2000, our pension fund was 86% funded. The City has never taken a holiday from its required contributions. But, by 2006 the Pension fund was 74% funded as the economy wavered and in 2008, when the economy crashed, the fund saw a 28% reduction in value. The fund has seen gains since that time but sits today at 54% funding with a requirement to attain full funding on an increasing scale of annual contributions. The City Council has passed a budget directive requiring 60% of any new revenue to be put into the fund. In the next 6 years, this amount coupled with existing required contributions will result in reducing our annual contributions to acceptable, predictable, affordable levels.

Cities all across Michigan are in the same boat. Since 2000, state revenue sharing has been reduced by 24%. East Lansing has reduced its work force by 130 positions. While the State standard for Police per thousand is 1.5 officers, we are operating at 1 per thousand. We sit today at 49 officers. In 2000 we had 69. We have reduced our general fund by 1.3%. All new employees have had pensions and health care reformed through negotiation Cities are not alone in dealing with this significant reduction in state revenue sharing. Michigan State University has suffered a 14% reduction over the same time period. It, however, has resources the City does not have. The City has two ways to raise revenue: property taxes and a City Income Tax. The University pays no property taxes but has the unlimited ability to raise its tax annually. Since 2000, the University has raised tuition from roughly $152 per credit hour to $482 per credit hour. While the City general fund has shrunk, the University’s has expanded from about $400 million to $1.3 billion.

There are some in the community who oppose the ballot proposals. The No folks can be divided into University related, Landlords and the Lansing Regional Chamber of Commerce, which has put an incredible amount of money into the No campaign.

The No folks have claimed: 1. The City has not adopted the recommendations of the Financial Health Team before putting the income tax on the ballot. This is a completely false claim. The City’s website contains a recommendation by recommendation discussion of the City’s actions. It should be noted that recommendation 27 is to seek voter approval of an income tax and a property tax reduction. Some of the others are to raise property taxes instead of pursuing an income tax; 2. The income tax is bad for business.

Study after study shows that businesses locate because of quality of life, available talent and good schools. Taxes are a consideration not a determiner. Utility rates are far more important. BWL has the lowest rates in the state; 3. The income tax will lower property values.

The proposals lower property taxes. Even if property values went down, which they would not, that would mean that a property owner would pay even lower taxes! People buy houses like they buy cars. They ask how much it will cost them a month. If property taxes go down, they can afford to pay more for a house. Consequently property values will more likely go up; 4. The income tax will make East Lansing less attractive to young families. See Number 3 above. The lowered property taxes will make it more affordable for young families, not less. Add to that the attraction of our incredibly great Schools and you have a true winning combination.

5. The property tax break will benefit Landlords. You can ask the Landlords that are funding the No campaign if they feel benefitted. Their property taxes will go down but their profits will be taxed. There is a reason rental property in East Lansing is called a cash cow.

A YES vote moves East Lansing forward or we can continue to slide backwards. I say YES. I hope you do too.

(Mark Meadows is the mayor of East Lansing.)

— CON —

Tax bad for city and schools

BY RONALD FISHER

East Lansing voters will have an option this November of approving a city income tax at rates of 1 percent for residents and businesses and .5 percent for nonresidents. The East Lansing City Council also proposed that with the implementation of the income tax, the property tax rate would be reduced to offset part of the income tax increase.

Economic research shows that this proposal would likely adversely affect the City of East Lansing and also likely create negative effects for the East Lansing School District.

The City is presenting the proposal as a tax on commuters – folks who work in East Lansing and live outside. In fact, many City residents will have a substantial tax increase, although all residents are not treated equally. Renters and younger homeowners and families are likely to see the largest net tax increases, whereas older and retired individuals are expected to have the smallest increases and even potential net tax reductions.

A young family living in a $150,000 home in the City with a $100,000 income would face a net tax increase of $500 to $600. Yet, a retired couple with the same income could expect a $200 to $400 tax cut. This happens because retirement and social security income are not taxed, and yet all property owners would benefit from the reduction in the property tax rate. Those whose property value is low relative to taxable income – including residents who are younger, families in starter homes, and renters – would be most likely to have large net tax increases.

The City Council has adopted an ordinance that would exempt people earning less than $5,000 from the tax, which would benefit undergraduate students working part time. However, a low- wage or part-time worker earning more than $5,000 would have to pay city income tax on that total amount (less a $600 exemption). Retirees would get a property tax cut, but not owe city income tax on retirement income, whereas young families and low-wage and part-time workers would face a tax increase.

These tax changes will reduce the incentive for many people, especially young families, to live in East Lansing. It may similarly encourage workers and employers to locate outside the City. Already many have opted for the newer and growing areas in Meridian and Bath townships and even Williamston or Mason, a trend that would be strengthened. Since 2000, population in Meridian Township has grown by about 7 percent, but only about one-half percent in East Lansing.

Therefore, the result of an East Lansing income tax could be a decrease in East Lansing’s resident population as well as decreases in land and housing prices. In addition, it could lead to a continuing decrease in the number of schoolage children living in the East Lansing School District. Others have noted that the tax could induce businesses to locate outside of East Lansing, as well.

Although many localities are facing severe fiscal challenges as a result of state government laws and policies, there are better alternatives for a place like East Lansing than a city income tax. A local income tax for the City of East Lansing will not resolve these problems and likely will make things worse. A combination of appropriate support from the state government (including fully funding Public Act 289), a payment from MSU in lieu of taxes, and improved regional cooperation among the variety of local governments in the area would be substantially better.

(Ronald Fisher is an economics professor at Michigan State University)