City Told by Advisors to Look at More Tax Options
East Lansing’s Financial Health Team has now released a report on the City’s pension debt, and to a large extent, it confirms what we knew: The City is facing a very large retiree-related debt, and as a result, new tax levies on people who live and work in East Lansing are probably on the way. These may include an income tax as well as special property taxes levied for emergency services.
The report shows that the City of East Lansing has a very large pension debt when compared to other Michigan cities. In one table based on 2014 numbers for “dollar amount of actuarial accrued liability,” East Lansing is shown has having the seventh largest debt in the Municipal Employees’ Retirement System (MERS) of Michigan, at $169,000,000, with only 58.1% of this debt funded. (A funding rate of 58.1% would mean we only have “money in the bank” to pay for 58.1% of what we owe.)
Other portions of the report estimate the real funding level to be even lower, depending on how it is calculated. Calculations have been showing the funding rate of the City’s MERS account falling, meaning we are falling farther behind rather than catching up.
The report shows a history of overly-optimistic assumptions about investment returns as one reason the City is not keeping up with the debt. More realistic projections indicate the City is going to have to start paying millions of dollars a year more to try not to fall farther behind. As of the end of 2015, the City owed about $81,800,000 for pensions, and that does not include tens of millions more owed in OPEB—other post-employment benefits, especially healthcare.
What should the City do? The report and the recommendations released by the Financial Health Team suggest possibly instituting a possible income tax, issuing bonds try to manage the debt, and raising taxes by creating entitles like “police and fire authorities,” which allow municipalities to raise special taxes to pay for emergency services.
According to the recommendations, State law allows a municipality to levy up to 20 mills for special emergency service authorities. The Financial Health Team points to South Macomb Oakland Regional Services Authority as an example. That Authority comprises the cities of Eastpointe and Hazel Park and is funded by 14 mils, meaning that, in these two cities, a property owner whose property is assessed at a value of $100,000 is paying an extra $1,400 per year in taxes for emergency services.
We reported earlier this week on the use of two library millages to deal with the City’s general fund shortfall, and on Mayor Mark Meadows' remarks about possibly instituting an emergency services authority to raise revenues.
In its new report, the Financial Health Team also says that “changes must be made to the City’s pension plan.” It calls for negotiating less generous packages with employees, including getting more employees to pay for more of their pensions.
You may also be interested in:
- our follow-up interview with the Chair of the Financial Health Team
- Financial Audit Shows "Staggering Numbers"
- Financial Health Team Looks at Unfunded Liabilities to City’s Retirees
- Financial Health Team Begins Its Work
- City Advisors Considering Income Tax for Budget Woes