To tax or not to tax

EAST LANSING — Sunday, East Lansing Mayor Mark Meadows slogged through the 90-degree heat with a clipboard, walking door-to-door in the conservative Whitehills neighborhood seeking voter support for a controversial proposal to create an income tax in the city.

With $90 million in liabilities for employee pensions and $40 million for retiree healthcare, his city finds itself in do-or-die mode. It must find more revenue or cut services.

That proposal has caused a divide between the college town and Michigan State University.

If voters say yes on Nov. 7, the proposal would allow East Lansing to collect a 1 percent income tax from residents and a half percent from non-residents.

As an offset, East Lansing would reduce its property tax.

“I think it’s messed up that we’re gonna have to pay for the city’s mistakes,” said MSU student Zack Dushaj. “Just because the city’s officials can’t handle the money doesn’t mean students should have to pay extra taxes.”

City officials said that since 2006, East Lansing has seen a net loss in revenue.

“When the sales tax was instituted in Michigan, the agreement was part of the revenue would go to the cities — it’s called revenue sharing,” said Councilwoman Ruth Beier. “Our revenue sharing has fallen by 58 percent in the last eight years.”

The decline in revenue sharing has created holes in city budgets all across Michigan. While the move is legal under the Constitution, the Michigan Municipal League referred to the decline as a “heist.” Michigan is ranked dead last nationally in revenue sharing.

“If the city is having trouble generating revenue, they can use the revenue from this income tax to resolve so many issues,” said MSU student Michelle Rozwadowski, who said she earns about $1,000 a year working at campus jobs. “If the money is going to the greater good of the East Lansing community, I would be ok with paying a half percent.”

Even as absentee ballots are hitting mailboxes, the East Lansing City Council continues to debate about which exemptions and deductions, if any, will be wrapped into the final tax proposal, but whatever those are won’t appear on the ballot.

A proposed deduction being discussed by City Council is $600, but no decision has been made yet.

“You can either have a high deduction, or you can have a whole bracket amount and say anybody below this doesn’t pay any income tax,” Beier said. “But if we did that, we couldn’t have a very high deduction, because we wouldn’t raise any revenue.”

Beier said there will likely be additional deductions for the elderly and disabled.

How much these additional deductions will be worth is still being debated.

The estimated $5 million per year the proposal will generate would ease the financial burden on the budget, city officials said. But the package requires voter support, and the city has faced pushback for months.

MSU President Lou Anna K. Simon pressed Meadows to nix the income tax. The pressure came in an exchange of letters between the two leaders.

Simon argued in a July 21 letter to Meadows it would be unfair for MSU employees and students. Simon called the city’s problems a result of “financial mismanagement.”

Meadows shot back at Simon, calling her claims about the city “offensive and uninformed” in a July 25 letter. Meadows pointed out that Simon has no problem burdening students with tuition hikes.

Simon eventually offered the city $20 million over eight years to keep the income tax off the ballot. City Manager George Lahanas told the citizen journalism website East Lansing Info this offer was rescinded after Simon failed to get approval from MSU’s Board of Trustees.

This fruitless negotiation kept the income tax on the ballot.

“It’s the only option cities in the state of Michigan have,” said Meadows. “We can raise revenues by property tax, or we can raise revenues by public consensus approving an income tax.”

Some argue that the income tax will drive businesses up the street to Okemos.

“An income tax is the wrong way forward for the city, its citizens, its small businesses and its workers,” Bell’s Greek Pizza’s owner, Habib Jarwan, told a Sept. 11 press conference. “Many qualified workers would choose to just go down the street to Okemos, where they wouldn’t have to pay an income tax.”

If the proposal fails, downsizing public safety employees is a likely outcome, city officials said. Public safety accounts for the majority of East Lansing’s 2017 budget. According to Lahanas, the city would be forced to shrink its police and fire departments.

Eaton County recently addressed its own budget problems Friday, by laying off 20 public safety positions, including eight deputy sheriffs, and essentially ending rural road patrols in the county.

“The city has cut 130 positions since the year 2000,” said Meadows. “We don’t have a lot of options. That’s why it’s important voters make the decision.”