Fact-Checking by ELi: The Yes and No Income Tax Mailers

Tuesday, October 10, 2017, 5:55 am
By: 
Alice Dreger and Jessy Gregg

Above: Images pulled from the “yes” and “no” mailers showing Don Power (“no” mailer) and an ELFD truck (“yes” mailer).

ELi is a nonprofit, nonpartisan, citizen-journalism organization that serves the people of East Lansing. One of the services we provide is to fact-check political mailers for local elections, particularly mailers on contentious issues. Today, we're providing results of our fact-checking of the Yes and No mailers on the income tax ballot question set for November 7.

As noted below, official campaign committees now exist for both the Yes and the No sides. Both campaigns provided ELi with high-resolution images of their mailers for fact-checking purposes, and those mailers are hotlinked below so you can view them yourself.

Before we dig in, we would note that the Yes campaign is pushing yes-votes on the two tax proposals on the ballot: the City income tax and the City property tax reduction. The No campaign is pushing for no-votes on only one proposal—the income tax—and does not mention the City property tax reduction in its mailers.

You’ll see there’s a lot more fact-checking by ELi of the Yes mailers than the No mailers. That’s due to the simple fact that the Yes mailers present far more text, and thus far more claims, to check. (Needless to say, for both sides, we can only fact-check the objective-sounding claims.)

The Yes campaign mailers:

The Yes campaign mailers are put out by the Committee to Protect East Lansing’s Future. You can see their two campaign mailers here and here.

The first Yes campaign mailer says that the “two-part tax proposal…would permanently lower your property tax bill by 10%.” This statement seems to assume the recipient is a property owner. Renters effectively pay property taxes through rent, and it is generally acknowledged that landlords are unlikely to pass any property tax reduction on to renters.

The property tax reduction would be enacted only if the income tax proposal passes, and it does appear accurate to say that, if enacted, it would lower property taxes by about 10% for East Lansing property owners (residential as well as commercial).

But to say that it would “permanently lower your property tax bill by 10%” could be seen as misleading.

East Lansing voters could later elect to increase property taxes, and other property tax increases (e.g., at the County level) could increase East Lansing property tax liability. The Yes mailers acknowledge taxes could later go up. The first, for example, says, “no future City Council can undo this cap [of 13 mills] without a vote of the people.” The second says, “THIS IS A CHARTER AMENDMENT, SO NO FUTURE CITY COUNCIL CAN UNDO THIS CAP ON OUR PROPERTY TAXES WITHOUT A VOTE OF THE PEOPLE.”

That’s true, and it means a yes vote on these proposals would not “permanently lower” property taxes, as the first Yes mailer states.

The first Yes campaign mailer also says that “severe financial strain” has been “caused by cuts in state funding for communities, the rising costs of retiree pensions due to [longer] life expectancy and economic downturns, aging infrastructure (roads, sidewalks, water, and sewer), uncompensated costs of providing fire services for MSU, and plummeting property taxes due to the Great Recession. While property values have been recovering, the taxable value of property has not because of state law.” The second mailer also names as causes “the stock market crash” and “unfunded costs of providing millions in services to MSU (a 5,200-acre tax exempt campus).”

All of those factors have caused financial challenges to the City of East Lansing, although MSU disagrees with the degree to which costs of fire services for MSU have gone “uncompensated” or “unfunded.” In a September 12, 2017, letter to Mayor Mark Meadows, MSU President Lou Anna Simon estimated an annual shortfall of $1.55 million in the cost of the provision of emergency services by East Lansing to MSU. The City's special Financial Health Team estimates it to be more like $3.75 million per year.

The first Yes mailer says retirement income would not be income-taxed by the City. It is true that “under state law, retirement income (Social Security, pensions, 401(k)s, IRSs, etc.) cannot be taxed by cities,” as the mailer says. But if someone’s “retirement” income comes from some other source—like rental properties or stock investments—then it may be taxed.

The first Yes campaign mailer says that “the city has shrunk its workforce by 25% over the past 17 years. We simply can’t cut any further without cutting absolutely essential services and impacting our quality of life and our property values.”

The claim about the shrinking of the workforce is accurate. What counts as “absolutely essential services” is subjective, and whether your quality of life would be diminished would depend on which services contribute to your quality of life.

The Yes and No side differ on the question of how these proposals would affect property values. The Yes side has claimed that if the City must slash services because the income tax doesn’t pass, property values will fall. The No side has claimed that an income tax will drive people to live in nearby towns without income taxes, causing property values in East Lansing to fall. We don’t know which is true.

Both Yes mailers suggest, “If these proposals fail, we will be faced with substantial cuts to infrastructure and public safety,” and indicate that “police, fire and EMS services…would have to be cut significantly.”

Public safety-related costs make up about two-thirds of expenditures in East Lansing, so it would be difficult to cut much more expenses without cutting public safety costs.

Additionally, the current City Council has explicitly said that, if the tax proposals don't pass, cuts in public safety will be necessary because of the looming budget crisis, so we can expect that this City Council would indeed look to cut these services. This City Council won’t change much after the election; Mark Meadows, Erik Altmann, and Shanna Draheim retain their seats for two more years, and since only three people are running for two seats on Council, it is likely at least one incumbent—Ruth Beier or Susan Woods—will continue serving on Council.

The second Yes mailer says, “Cuts would mean longer response times and could increase the cost of our property insurance.” Fire chief Randy Talifarro has said response times for ambulances and fire trucks would increase with cuts in ELFD staffing. In fact, Talifarro says we are already not meeting standards for response time. Whether cuts in ELFD staffing would increase personal property insurance bills is unclear.

The Yes mailers indicate, “We may also have to eliminate funding for our Parks and recreational facilities and support for our Library.” This would be up to Council, and Council has indicated that they consider all potential cuts as being “on the table.”

ELi has previously reported that the East Lansing Parks millage has recently ended and City Council has decided not to go back to voters at this time with a renewed Parks millage. That’s because there are State limits on how much the City can ask of taxpayers, and Council has indicated it may come back to voters for something like bonds to help pay for pension expenses. That means Parks & Rec is a division of East Lansing whose future budget is very uncertain at this time.

As for the Library, the Library millages passed by voters have been used to prop up the City’s general fund. As ELi reported in July 2016, “Of the approximately $2,000,000 additional taxes being raised per year from East Lansing taxpayers via the two Library millages, the Library is netting about $250,000 more than it otherwise would have gotten from the City if the City had kept funding the Library at a relatively steady rate, and the City’s general fund is being propped up with about an extra $1,750,000.”

The City could further cut funding to the Library, although to some degree the Library millages will function as a form of protection to the Library’s budget.

The first Yes mailer says, “The proposals will raise $5 million in new revenue by lowering tax rates and broadening the number of taxpayers so we can more evenly distribute the responsibility of funding the services and infrastructure we all rely on.” Saying it raises revenue by lowering property tax rates strikes us as a strange choice of wording.

In fact, the Financial Health Team estimated the paired tax proposals, if passed, would raise about $10 million in income taxes and reduce revenue from property taxes by about $5 million, netting about $5 million.

As ELi has explained, if the proposals pass, some East Lansing residents will have their total tax liability to the City go up, and some will see it go down. The City’s website on the issue suggests the average home-owning East Lansing household will see their total tax liability to the City go up a few hundred dollars per year.  The City website also includes a taxpayer impact calculator, that lets each person figure out how much his or her own tax bill would change based on their income and assessed value of their home.

ELi has also explained that City Council, in estimating a net revenue gain of $5 million a year, has failed to account for how the property tax reduction could lead to increased City costs in terms of redevelopment debt. (The Yes mailers make no mention of this.)

The Yes mailer that makes the above claim also says, “A majority of the new revenue will come from people who work in East Lansing but don’t live here.” Contrary to this claim, the tax study from Plante Moran actually shows that $5.3 million of new income tax would come from residents, and $4.7 from non-residents. (An additional $400,000 would come from businesses.) So, while it may be true that some resident homeowners will see their total tax liability to the City drop, it is not accurate to say the majority of new (income tax) revenue will come from non-residents.

The first Yes mailer says, “One percent is the maximum for all city income taxes under state law. Someone who pays 0.5% to Lansing or another City with an income tax will only [owe] 0.5% to East Lansing. People who work here but don’t live in the city will pay 0.5%.” That limit is true for any new City income taxes in Michigan. Some cities have higher income taxes that predate this limit, but in East Lansing, residents will pay at most 1.0% to East Lansing and non-residents at most 0.5% to East Lansing.

The first Yes mailer says “our property taxes are already high and increasing our operating millage to the maximum limit under state law would only raise $2 million annually.” That appears to be correct. The mailer also says the income tax “broadens the tax base to include more people who use and rely on our services and infrastructure,” which is true because it would tax thousands of non-resident workers in East Lansing.

The other Yes mailer says, “Our property taxes are the fifth highest in the state, and it’s time to lower them, not raise them.” ELi has previously relayed MLive’s analysis that East Lansing’s property taxes are among the highest in the State. But, to our knowledge, Council has not proposed lowering the property tax because they believe “it’s time” to lower property taxes. Instead, Council opted for this approach of instituting an income tax while lowering property taxes because of the political calculation that this could pass with East Lansing voters.

The first Yes mailer says that “State law doesn’t allow local sales taxes” on things like sports tickets and beer sold in bars. That is true.

The first Yes also mailer indicates “new revenue will be used to invest in our most essential services: roads, sidewalks, water, sewer, parks, police, fire, and EMS.” It says the City will engage in “repairing and maintaining our infrastructure…providing excellent police, fire and EMS services, reinvest in our aging parks, and meet our Constitutional obligations to retired city employees.”

Our City infrastructure is old and in need of repair or replacement in many areas, according to various studies and reports. The Michigan Constitution does require meeting pension obligations to retired employees.

The other Yes mailer says, “City Council has adopted a policy to put $3 million of the $5 million [net income per year] in new revenue towards paying down our pension obligations, $1 million toward our decaying public infrastructure…and $1 million toward city operations, which have been cut to the bone over the last 17 years.”

City Council did recently pass such a policy resolution. But, as with all policy resolutions, Council can simply undo the resolution with another vote. Whether services have been “cut to the bone” is a subjective statement, but we would note that the Yes campaign and Council have said that if the income tax doesn’t pass, the City will cut more services, which would suggest we are not yet “to the bone.”

One Yes mailer concludes, “In 6 to 8 years, all our property taxes will be required to make pension payments to retired city employees, which we are obligated to make under the state Constitution. There will be no money left to maintain police, fire, or EMS at current levels...East Lansing would become a much different city than the one we know and love.”

Changes in requirements with regard to our schedule of pension payment obligations along with ballooning retirement-related debt means East Lansing is facing a very serious financial crisis a few years from now. Whether it would be “a much different city” would seem to be a subjective statement as it would depend on what city one “knows and loves.”

The No campaign mailers:

The No mailers are put out by Citizens for East Lansing’s Future. You can see their two mailers here and here.

The first No mailer is based around the claim “East Lansing’s city budget needs reform.” The mailer says, “A volunteer team of financial experts recommended more than 40 reforms to improve East Lansing’s financial sustainability. Yet the City Council has ignored most of those reforms, and instead has jumped straight to proposing a costly new income tax.” It continues, “City leaders should look to make reforms before saddling residents with a costly income tax.” (The second No mailer says essentially the same.)

It is true that the City Council has not yet tackled most of the 40 recommendations from the Financial Health Team. Council indicated they were taking on the income tax now to try to quickly raise revenues in a significant fashion. The City has been working on the recommendations with regard to reducing employee- and retiree-related costs and has considered some of the other recommendations. The No campaign has not specified in its mailers which of the recommendations it believes should be followed.

The first No mailer also says, “This income tax provides city officials with a blank check with no accountability or transparency.”

Is there “no accountability”? As noted above, the Council has passed a policy resolution saying how they will spend the expected $5 million annual net revenues, but City Council can undo that policy resolution with a new Council vote. That said, every year, City Council votes on the annual City budget and there are public hearings at which the public can comment. Each year, if money is to be spent differently than the budget, Council votes on major changes. City Council members can be voted out, and also recalled by vote.

To that extent, at least, there is “accountability.”

What about transparency? The budget process is public, with draft and finalized budgets published. Additionally, the Freedom of Information Act allows citizens to drill down pretty much as deep as they wish in terms of financial spending by the City.

The first No mailer continues, “There is no legal guarantee that they’d have to spend the funds on East Lansing’s budget priorities.” Whether this is true depends on what one thinks “East Lansing’s budget priorities” are. As noted above, the Michigan Constitution obligates the City to meet its pension obligations, and the City budget process is effectively a legally-regulated process.

The second No mailer quotes Donald Power, identified as “a Pinecrest Neighborhood resident and longtime community advocate,” saying, “I’ve always supported local tax proposals that are necessary, such as the local school millage, but enough is enough.” He is also quoted as saying, “City officials got themselves into the city’s current financial situation through fiscal waste and mismanagement.”

While Mayor Mark Meadows has served on City Council, including as Mayor, years ago, the rest of City Council is relatively new. We have previously reported the role Meadows played in the Avondale Square project costing taxpayers $5 million more than originally expected. But today, none of those on Council started their current terms sooner than November 2013 (when Susan Woods and Ruth Beier were elected). So to say this Council “got themselves into the city’s current financial situation” would not be accurate, given where our City’s $200 million debt came from, and how long it has been building.

It is true that the City Manager, George Lahanas, helped lead the Human Resources division of the City since he began working for the City in 1999. This means that many of the employee- and retirement-related costs the City is currently struggling to meet were negotiated under Lahanas. That said, Lahanas has strongly denied financial mismanagement in a detailed interview with ELi.

Additionally, what is somewhat surprising about Don Power being quoted in this way is that Power, now retired from a long career in labor advocacy, has often taken credit for being a key mentor to Lahanas. Power was, in fact, instrumental in selecting Lahanas for the position of City Manager during a nationwide search to replace former City Manager Ted Staton, when Power was on City Council. (The No mailers only identify Power as a neighborhood leader and public advocate and do not disclose that Power served on a past City Council for a short period, before he resigned.)

 

You may also be interested in:

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Ask ELi: Would Homeowners’ Tax Liability Really Be “Offset”?

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