East Lansing officials think a new income tax could offer the cash infusion needed to rescue the city from financial turmoil while revenues flatten and concerns surrounding unfunded pension liabilities reach a precipice.
“The basic constraint that we’re under is the city is broke,” said Mayor Pro Tem Erik Altmann. “This is the only place left to go find those dollars. Everything else has been cut to the bone. There’s a certain set of essential functions that we can’t cut but we’ve already cut all our departments as far as we can possibly cut them.”
Officials — much like last year — are again turning to taxpayers to wrap a tourniquet around their financial bleed. Under the proposal, residents would pay a newly fashioned 1-percent income tax and out-oftowners would be forced to pay a half-percent into city coffers. Altmann said it’ll generate about $10 million annually.
An estimated $5 million property tax reduction, however, should slice those revenues in half, Altmann said.
The charter amendment is set to appear on the ballot next month, requiring voter approval to siphon income taxes for the next 12 years, funneling the bulk of the new revenue into the city’s unfunded pension liabilities for retired city employees. The remaining 40 percent would be split between emergency services and infrastructure.
“We don’t really have a choice here,” said Councilwoman Ruth Beier. “Because of the Headlee Amendment and Michigan’s Constitution, we cannot raise our property taxes much higher than they are right now. We can’t levy a sales tax. The only way to generate that revenue is with an income tax. That’s really the only option we have.”
Residents who live and work in East Lansing would be taxed at 1 percent. Those who live in East Lansing but work in another municipality with a local income tax — such as Lansing — would see the tax split between each jurisdiction. The same would apply to those who live in another tax-bearing city but work in East Lansing.
“Every single one of these people who live outside the city but drive in for work will have to pay,” Beier added. “And they should. If it wasn’t for the city’s infrastructure, they wouldn’t be able to do what they do.”
East Lansing’s general fund totals have only increased by about 1.9 percent within the last 12 years, according to budgets posted online. Officials attribute the flatline to less revenue sharing from the state, tighter restrictions on revenue generation and the ongoing impact of dropping property values in the wake of the 2008 recession.
MSU’s majority, tax-free stake in East Lansing’s land holdings further exacerbates the problem, Beier added.
The city’s legacy cost obligations have also increased in that same timeframe. Officials said pension plan obligations were 80 percent funded in 2003 but dropped to about 50 percent by this year. State regulators need the $190 million liability to be fully funded by 2041, requiring some local budgetary prowess in the meantime.
“We’ll continue to make our annually required contributions,” Altmann noted. “That new money will be on top of existing premiums. This brings new money into the pension system. The state has advised us we need to submit a corrective action plan. This income tax proposal, if it passes, would become that corrective plan.”
Council members last year sought to levy a new property tax, but the measure was narrowly defeated at the polls. Officials this time around hope the newly introduced 12- year limitation on the income tax, with specific allocations for the generated revenues, will convince voters to hop aboard. Or else face the consequences.
Altmann said the proposal’s failure will almost certainly spell a $5 million reduction in city services.
Council members have eyed police and fire departments — the largest expense in the city’s budget — for the first round of budget cuts. Each department would need to lose about four employees each, Altmann added. The Hannah Community Center could also be forced to close in the wake of the proposal’s failure, he said.
“The number of fire trucks and ambulances on the road would decrease,” Altmann said. “Response times would increase. Certain crimes wouldn’t be investigated anymore. Our residents need these services. The only reason these things are on the table is because we’ve cut everything else. There’s nowhere else to turn.”
Former MSU President Lou Anna Simon last year opposed the tax proposal because thousands of university employees would have felt a massive financial impact from the new tax. Interim President John Engler, however, has chosen to “not personally weigh in on the measure,” according to a university spokeswoman.
Lansing Mayor Andy Schor estimated the new tax will divert about $800,000 in income taxes that would have otherwise been passed through from East Lansing. He said he didn’t have strong thoughts one way or another but noted it would be hard to oppose the tax when his city collects an income tax of its own.
The Lansing Regional Chamber of Commerce, much like a stance taken last year, has again vehemently opposed the measure in favor of “common sense reforms,” said the marketing and communications director, Eric Dimoff. He said the bulk of 160 chamber-represented businesses downtown would rather avoid the additional tax.
“We understand the needs and some of the challenges with state funding reductions over the years,” Dimoff added. “That’s just a challenge they’ll need to face and make necessary adjustments in their budget. There are just things you have to get rid of. Sooner or later, Ingham County is going to be tapped out (on taxes).”
Altmann shot back at the criticism. He said Dimoff ’s rhetoric is largely based on ignorance.
“They’re making it up as they go along,” Altmann added. “I don’t think they represent any significant majority of businesses in East Lansing. Businesses depend on infrastructure just as much as anybody else.
This proposal is actually a good deal for the city.”
“We can’t leave that money on the table.
We can’t afford it.”