According to Plante Moran’s Income Tax Study, the income tax is expected to produce approximately $10 million, but with an estimated $5 million less in property taxes as a result of the property tax reduction, the total net revenue is estimated to be $5 million annually to be used for the dedicated purposes outlined above.
The City of East Lansing is facing significant, long-term financial challenges due in large part to relatively flat revenue growth over the past 12 years and rising legacy cost obligations.
When looking back 12 years (FY 2007-FY 2019), the City's general fund totals have only increased 1.9%. This can be attributed to less revenue sharing from the state, tight state restrictions on the ability for local governments to raise new revenue, the ongoing impact of the drop in property values as the result of the recession and Proposal A and Headlee Amendment limits and the fact that the City has a relatively low taxable value per capita (the average amount of taxes that are collected per person residing in a community).
The City's legacy cost obligations have increased due in large part to the recession and below-average market returns. The City’s pension plan obligations were 80% funded in 2003 (pre-recession) and are only 50% funded today. The City's pension plan liability was $90 million (as of the last valuation on 12/31/16) and the City is required by MERS (the Municipal Employees' Retirement System) to have the pension plan fully funded by the end of Fiscal Year 2041. The City's OPEB (healthcare) liability was $35.8 million (as of the last valuation on 12/31/16).
Community members can learn more about the City’s financial challenges and the steps that have been made to address the challenges over the years at www.cityofeastlansing.com/financialbackground.
Council’s decision to place the income tax proposal back on the ballot was preceded by an intensive citizen engagement process, which included three in-person citizen engagement meetings with surveys, two online surveys and a scientific phone survey of 300 registered East Lansing voters conducted by EPIC-MRA. The meetings and surveys served to provide education on the City’s ongoing financial challenges and gather community feedback. As a result of the community engagement process, it was determined that East Lansing citizens were most supportive of a solution that combined both cuts to services and new revenue and that an income tax was preferred over an increase in property taxes by the majority of voters polled as part of the EPIC-MRA survey. There was increased support for an income tax that included a time limit and included dedicating the funding for support services, such as infrastructure and public safety.
Cuts to Services
In addition to the income tax ballot proposal, City administrators have proposed a series of budget cuts over two years as a method of freeing up additional funding for the City’s pension obligations. Council’s plan is to make some initial necessary cuts to service in Fiscal Year 2019; however, service cuts proposed for Fiscal Year 2020 would largely only be necessary in the event that new revenue is not secured. Learn more.
An Income Tax Calculator & FAQ will be posted to this webpage soon.