Report Reveals Insights into City's Finances
East Lansing’s public parking system is consistently a money-loser; the City’s large unfunded retiree liabilities are about to become more visible; and property taxes are going up. These were three of the major issues covered last night at City Council during discussion of a report on the City’s finances.
At the meeting, external financial auditors Joe Heffernan and Dan Block presented on behalf of the consulting firm Plante Moran their company's audit of last year’s financials, i.e., July, 2013 – June, 2014. This audit happens each year.
Unpacking the three major issues that arose:
First, the City of East Lansing’s parking system continues to lose money every year. This is because the cost of providing parking cannot be met by the money the city can earn from people paying to park. The parking system is consequently a drag on the City’s budget.
Based on this history—the cost of the parking system consistently exceeding revenue from parking—it is likely that any new parking structures added by the City will become a further drag on the City’s budget. This may matter in calculations of the City’s need to build a new parking ramp on the west side of downtown to support the planned large developments in the “Park District” area.
Second, new accounting standards are coming down the pike that will require the City’s finances to be represented in conjunction with its large unfunded commitments to retirees in terms of pension and healthcare benefits. As we previously reported, the City is now about $186 million in debt, with over half of that attributable to the City owing about $105 million in pensions and “other post-employment benefits,” or OPEB.
Because this roughly $105 million debt is “unfunded”—meaning we have not banked the money to pay it—according to auditor Block, the looming accounting standards change will make this debt much more visible in terms of how the City’s finances look.
Block told Council “you have a very significant amount” of unfunded liability in pensions and OPEB. He added, “Your net position will very likely not be positive anymore, and that will tell a story.”
Mayor Pro Tem Diane Goddeeris asked how our City compared to others in this fashion. Auditor Heffernan said it was impossible for them to say because current accounting standards don’t make this information easy to collect and compare. He said that to date, this information has been “buried in each financial report.”
Heffernan did say that where other cities stand in terms of their pension and OPEB debt is “all over the board.”
Goddeeris asked him if it would affect the City’s bond rating. Heffernan said that bond agencies have already been taking this into account, because they’ve already recognized it as a serious financial issue.
Third, property taxes are going up, reflecting a market recovery in local property values. For several years the City faced declining property tax revenues, which was a serious problem because property taxes are the largest source of City income. The City had been adjusting expenditures to meet the revenue fall.
The second largest source of income, state revenue sharing, is also expected to go up.
Public safety (police, fire) continues to be the largest cost to city taxpayers, coming in at about 62% of the costs. “General government” is the second largest cost.
The auditors’ report indicated that City Finance Director Mary Haskell keeps very organized and accurate accounts. The auditors had only very minor suggestions with regard to her work.
At the close of the discussion, City Manager George Lahanas reminded those present that there is a “financial retreat” coming up which will be open to the public. That will be on Saturday, February 7, at 8:30 am at the Hannah Community Center and will involve discussion of the City’s financial situation.
UPDATE, January 22, 3 pm: The starting time of the "financial retreat" was corrected to 8:30 am.
UPDATE, January 23, 11:45 am: The spelling of auditor Dan Block's name was corrected and the sentence "This review happens every year" was changed to "This audit happens every year."
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