Income Tax Proposal

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On May 14, 2018, the East Lansing City Council voted to place a new time-limited and dedicated income tax proposal on the August 7, 2018 Primary Election ballot.

About the Proposal

 
The proposal, while similar to the proposal that was placed on the November 2017 ballot, includes three key differences:

  • By City Charter, the tax would be time-limited to 12 years.
  • By City Charter, funding generated by the tax would be dedicated for specific purposes: 20% to police and fire protection, 20% to infrastructure (maintenance and improvement of streets and sidewalks; water and sewer systems; and parks, recreation and City-owned facilities) and 60% to supplemental payments for unfunded pension liabilities for retired City employees. 
  • Both the time limitation and the dedicated purposes for which the funding can be used would be written into the City Charter, meaning that the current Council and all future Councils will not be able to make any changes to these requirements without another vote of the people. 
View the ballot language

If the income tax ballot question is approved by voters, East Lansing residents would pay a 1% income tax (some income would be exempt, including retirement income) and non-residents would pay a 0.5% income tax. If a resident lives in East Lansing and works in another community with an income tax or works in East Lansing and lives in another community with an income tax, they would pay 0.5% to East Lansing and 0.5% to the community in which they work or live.

Additionally, if the income tax is approved by voters, the City Charter amendment approved by voters last November would go into effect, reducing City property taxes from a maximum of 20 mills to a maximum of 13 mills. This reduction in property taxes will lessen the impact of the income tax on property owners. 

According to Plante Moran’s Income Tax Studythe 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.

Financial Challenges


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.

Citizen Engagement


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.

Coming Soon!


An Income Tax Calculator & FAQ will be posted to this webpage soon.