Facing numerous financial challenges—including the funding of MSU emergency services and substantial employee-related costs—City of East Lansing staffers and City Council members convened Saturday morning for a special budget meeting. The meeting, held at Hannah Community Center, included an overview of the City’s budget, a review of the City’s General Fund five-year forecast and discussion of preliminary budget assumptions for fiscal year 2017. (The presentation in its entirety is available on the City’s website.)
City Manager George Lahanas presented the budget overview and compared the five-year forecast to driving down a road aware not only of what is straight ahead, but of what might be happening around you that could cause problems. It was a surprise to no one present that the road ahead would be a bumpy one; as ELI reported, an external audit presented to Council in December of 2015 showed the City’s net position financially to be -$37,699,529 as of June 30, 2015.
The biggest budget issue facing the City continues to be employee-related, including retiree-related obligations as well as benefits for current employees. The City recently made a two-million-dollar payment on its pension obligations, which Finance Director Mary Haskell said was “to try to make ground” on the significant debt.
Council member Erik Altmann asked Haskell how much the two-million-dollar payment will affect the debt going forward, to which Haskell replied that “ we can’t even guess ballpark” about the impact of making big, early payments.
MSU was characterized by Lahanas as a positive factor in future budget planning because it is attracts and retains employees, but there is tension about the University’s contributions under Public Act 289 which allows municipalities to be paid for fire services provided to state facilities.
Lahanas stated that the City is “underfunded for fire and emergency services on campus.” Mayor Mark Meadows indicated that the appropriate tool for increasing such funding was Public Act 289. Council members Erik Altmann and Ruth Beier agreed that there should be renewed conversation with MSU about the cost to the City of providing both fire and police services.
In a follow-up interview, Meadows told me that to increase the Act 289 amounts coming into the City’s coffers, legislative action is necessary and every year cities like East Lansing lobby legislators extensively for additional amounts. He tells me that “The City will continue to do that.” As to police services, Meadows explains that ELPD interacts and cooperates with the MSUPD as it does with the police in Lansing, Meridian Township and other adjoining communities.
Haskell led off the presentation of the General Fund 5-Year Forecast and stated that the City probably can’t “cut our way out of this situation.” Repeatedly characterizing the City’s debt as “staggering,” she stressed that long-term predictions are not perfect and may be impacted by a number of risks and uncertainties, including international, national, and state financial environments.
Assistant Finance Director Jill Feldpausch addressed the City’s revenue sources. A point of interest was the fact that ordinance fines (such as parking tickets) are $400,000 under budget predictions, following four years of decline.
Meadows says that Council will “look into the drop in income from fines, but the objective of law is to stop inappropriate behaviors so I want to make sure we are still enforcing. If there is a drop-off even with enforcement, then the law is working properly.”
In our follow-up interview, Meadows characterized Saturday’s meeting as the first step in a long process.
“Generally,” he said, “I expected to get an overview of the City's financial condition and any challenges that seemed to be on the horizon at the initial Budget Retreat. My expectations were met. The real work of creating the budget will begin at the next budget meeting and then continue until we have the entire document together. Subsequent meetings will address discrete parts of the budget and are likely to be directed from questions and requests made by the Council members.”
In response to questions I emailed to all Council members, Council member Shanna Draheim said the retreat “was a really good first step in understanding the financial issues facing the city - both short and longer-term.” She went on to explain that “ In our current budget year we are seeing some unexpected short falls in revenue which may require some mid-year corrections in our spending priorities. As we develop the budget for the coming year, we'll continue to look at specific elements of our revenue stream and proposed expenditures and weigh those against the strategic priorities we've identified.”
“The reality,” Draheim concluded, “is that state laws and reductions in revenue sharing have really hurt local communities like East Lansing. We have been very proactive about making necessary reductions in spending over the years, but I don't think we can continue cutting our way out of the City's budget challenges. We are lucky to have a very talented finance team at the city to help us navigate these challenges, and I think we are also going to get some very important direction on long-term budget planning from our newly formed financial health team.”
Council member Altmann said that he "took two main things away from the retreat. First, we understand the financial pickle we're in fairly well at this point, except for the net fiscal impact of MSU, which we need to understand before we can know how to move forward. Second, we need to look for new sources of revenue, because spending cuts at the level that would solve our fiscal problems would change the character of the city.”
According to Mayor Pro Tem Ruth Beier, “East Lansing has serious financial problems stemming from pension legacy costs, reductions in property tax rates and property values, overuse of tax incentives, reduction in state shared revenue, and crumbling infrastructure. In my first two years on Council, we did very little about any of this, and in fact we made it worse by continuing to grant unneeded tax breaks to developers.”
Beier added, “This Council seems to be taking the problem seriously by appointing an expert financial health team and tasking that team to recommend ways to put the city on a sound financial path.”
As ELi’s Michael Teager reports in this week’s Council Capsule, at its subsequent meeting this Tuesday, Council unanimously approved the appointment of its Financial Health Review Team. Support for the Team was unanimous, with Beier saying she was “very happy” with the movement forward and Draheim calling the group “really strong.”