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Posted on: May 14, 2018

East Lansing City Council Votes to Place New Income Tax Proposal on Ballot

EAST LANSING, Mich. — At tonight’s special meeting, the East Lansing City Council voted 5-0 to place a new income tax proposal on the August 7, 2018 Primary Election ballot.

The proposal, while similar to the proposal that was placed on last November’s ballot, includes two key differences in that, by City Charter, the tax would be time-limited to 12 years and, by City Charter, funding generated by the tax would be dedicated for specific purposes: police and fire protection, infrastructure (maintenance and improvement of streets and sidewalks; water and sewer systems; and parks, recreation and City-owned facilities) and supplemental payments for unfunded pension liabilities for retired City employees. The ballot language will read as follows:

Shall Section 11.1 of the East Lansing City Charter be amended to authorize an excise tax on income for 12 years commencing January 1, 2019 implementing reduction of the City property taxes from a maximum of 20 mills to a maximum of 13 mills and requiring the net income tax revenue to be dedicated as follows: 20% to police and fire protection; 20% to the 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.  

If the income tax 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.

It’s also important to note that, 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.

Council’s decision to place the income tax proposal back on the ballot comes after an intensive citizen engagement process, which included providing education on the City’s ongoing financial challenges and gathering community feedback. The engagement process included three community surveys, the results of which can be found here: http://www.cityofeastlansing.com/budgetprioritiesfeedback.

Financial Challenges & Steps Taken to Address the Challenges
The City has and continues to face significant, long-term budget challenges as a result of decreased revenue sharing from the state, no growth in revenue over a decade (the percent change from 2006 to 2017 is -1.4%), tight state restrictions on the ability of local governments to raise new revenue, the ongoing impact of the drop in property values as a result of the recession and limits imposed by Proposal A and the Headlee Amendement, low taxable value per capita and legacy cost obligations (retiree pension and healthcare), which have increased due in large part to the recession and below-average market returns (80% funded in 2003, 50% funded today; pension only). The City also has a growing need to renew aging infrastructure and City facilities.

Many steps have been taken over the years to address the City’s challenges, including reducing the overall size of government (elimination of 110 full-time positions from 2001 to 2017), restructuring pension and retirement benefits for current and new employees, consolidating and restructuring City departments, creating a Healthcare Task Force to keep rising costs at a minimum, sharing services with neighboring municipalities for cost efficiencies, adding 2 mills to the East Lansing Public Library’s operating budget and making other strategic cost-cutting decisions across all City departments.

Additional information on the City’s financial background can be found at www.cityofeastlansing.com/financialbackground.

Next Steps to Address the City’s Financial Challenges
After the income tax vote failed last year, City Council went back to the drawing board to consider different options for ensuring the City’s future financial sustainability. Council kicked off its citizen engagement process by indicating that it was looking at new revenue options, service cuts or a combination of both. As a result of feedback gathered during the citizen engagement process, Council determined that a combination of new revenue and service cuts was strongly supported by community members. In addition to placing the income tax proposal back on the ballot, which spreads the cost of running the City across a larger tax base (including non-residents), almost $1.3 million in service cuts have been included in the preliminary Fiscal Year 2019 Budget (including a reduction of four firefighter paramedics and five police officers through attrition, the elimination of community agency funding, a reduction in East Lansing Family Aquatic Center hours and more). More substantial cuts will need to be made in Fiscal Year 2020 if new revenue is not secured.

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