City Income Tax Looks Likely to Be on November Ballot

Wednesday, May 17, 2017, 6:46 am
By: 
Chris Root

All five members of City Council support putting to East Lansing voters a proposal for a new City income tax, coupled with a reduction in property taxes. Council is looking to the possibility of putting the issue to the voters on the November 7, 2017, ballot.

This news emerged at last night’s discussion-only meeting, at which the City Council began its consideration of recommendations made in December 2016 by the specially-appointed East Lansing Financial Health Review Team (FHT). The FHT had urged considering new sources of revenue to address the City’s growing debt as well as to address a backlog in needed investment in infrastructure such as roads and the water and sewer system.

The proposal being discussed by Council includes two components: (a) institute a new, one-percent City income tax – similar to Lansing’s existing city income tax – and (b) reduce the property tax rate. These two changes would be linked, so that the cost to East Lansing homeowners of the new income tax would be offset somewhat by a reduction in their property tax.

This approach would net more tax revenue to the City partly because an income tax of half of one percent could also be imposed on people who work in East Lansing but do not live here, including the many employees who work on MSU’s main campus but do not live in East Lansing.

The Council reviewed options from how these tax changes could impact residents and what increased revenue it could bring in to the City. Jill Feldpausch, the City’s new Finance Director, prepared a table showing the cost of the income tax to residents with options of either a $600 or $3,000 exemption and the savings from property tax rollbacks of between 5.0 and 5.6 mills. (One mill is a tax of $1.00 for every $1,000 of assessed property value.)

These two tax changes, taken together, could increase annual revenue to the city by $3 million to $5 million, depending on the amount of the exemption allowed on the income tax and the extent of the reduction in the millage rate.

In this initial discussion, members of the Council did not express agreement on details of a specific proposal for tax changes. Mayor Mark Meadows and Mayor Pro Tem Ruth Beier concurred that it would be helpful for the Council to agree on a proposal. Councilmember Erik Altmann said it made sense to start by quantifying the size of additional expenditures that the City needs to make – and for what purposes – and then hone in on how much additional revenue is needed. Councilmembers also discussed the possibility of linking the tax proposal to earmarks of specific expenditures. On this topic, last night’s discussion was just a beginning; Councilmembers are not all on the same page at this time.

Councilmember Shanna Draheim said a lot of education needs to happen on a tax proposal and that there would be need for honesty about the City’s financial situation. The City Council asked for more information in order to both make their decision about details of the proposal and to explain the impact of various options to the public. Council requested a chart showing how much additional taxes would be owed by people with various incomes and with property of various taxable values.

City Manager George Lahanas pointed out that the examples provided at Tuesday’s meeting were only for people with average household income and homes of average taxable value, and that people with higher income and who owned modestly-priced property would see bigger tax hikes. However, Mayor Mark Meadows also pointed out that the impact on retirees would be lessened by Michigan’s policy of not taxing pensions and social security income.

Although this was the Council’s first discussion of this major issue of a new income tax, they realized that Council will need to move quickly. Additional information is to be made available prior to the Council’s regular meeting on June 6 so that the discussion can continue then.

Council indicated they are looking toward a vote this November on a City Charter amendment that would both initiate an income tax (for residents and non-residents) and cap the millage rate on property. The language of an amendment would need to be voted on by Council – as early as June – and provided to the City Clerk in August.

Councilmembers Susan Woods and Ruth Beier both noted that they would be on the same November ballot as a tax proposal, since they will both be up for reelection for their seats on Council.

Councilmembers also discussed another major Financial Health Team recommendation, that they consider issuing bonds on some of the $81 million in unfunded liabilities that East Lansing owes on pensions for its retirees.

City Manager George Lahanas explained that the City could issue 20-year bonds for about $30 million in order to make a payment in that amount to MERS, the system East Lansing uses for retirement funding. This could improve the City’s financial situation, if the earnings on the $30 million were consistently higher than the amount owed on the bonds. But if the market crashed some time during the 20 years of the bond, the City could be stuck with continuing to make bond payments while the additional contributions to MERS experienced little growth.

Lahanas recommended that Council consider issuing bonds as only a last resort, considering the risk involved. Councilmembers appeared to be in agreement with this cautious approach. They also wanted to wait on this decision until at least the fall, when the state legislature might address this issue. Mayor Meadows was not particularly optimistic that the legislature would act this year, however.

 

Note: The public can speak at Council meetings during the public comment portion of the agenda. Council can also be reached via email by writing to council@cityofeastlansing.com.

 

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