Team Looking at City Income Tax Wonders What Public Thinks

Friday, November 11, 2016, 2:25 pm
By: 
Alice Dreger

The members of the City’s Financial Health Team are trying hard to get the public to talk to them, but for the most part, it’s not been working. Turn-out at the groups public forums has been low. Now, as the Financial Health Team considers recommending various financial bootstrapping options to City Council—including a possible East Lansing income tax—it is pushing news of two more “citizen engagement meetings” in the hopes more people will participate.

The meetings will take place at 6:30 p.m. at the Hannah Community Center and will be focused as follows:

  • Monday, November 14, members of the team will provide updates from the Development Incentives, Real Property and Citizens Communications and Services work groups. The team says that its “recently commissioned Income Tax Study and MSU Cost Study will also be discussed.”
  • Monday, November 28, members of the team will provide updates from the Infrastructure Renewal, Legacy Cost Funding and Revenue Options work groups. Again, “the team’s recently commission Income Tax Study and MSU Cost Study will also be discussed.”

 

What does the Income Tax Study say? You can read it for yourself, but the basics are these:

State law allows East Lansing’s City Council to propose to registered East Lansing voters the option of instituting an income tax up to 1% for residents and 0.5% of non-residents. The law requires non-residents earning qualified income in East Lansing pay not more than half of what residents pay. For the income tax to happen, a majority of those voting on the ballot in East Lansing would have to say “yes” to the specifics.

Twenty-two cities in Michigan have income taxes, but the last one that managed to get its voters to approve one was Ionia in 1994. That said, East Lansing is a left-leaning town—so not generally anti-tax—and it is facing a total debt that is approaching $200,000,000, so voters here might be willing to pass an income tax, particularly if—as has been talked about—the City effectively exempted seniors and people with low incomes and lowered the real estate tax, so that homeowners did not really end up paying a lot more in tax to the City.

According to the report produced by consultant Plante Moran for the City on this issue, without discounting real estate taxes, an income tax of 1% for residents and 0.5% for nonresidents could net the City of East Lansing an extra $10,000,000 per year, which would make a significant difference for a City with an annual budget of around $33,000,000. Much of the income would come from non-residents who work at MSU; MSU is the employer for over half the people who work in East Lansing.

The income tax approach is in many ways an attempt to get MSU to effectively pay something significant to support the costs faced annually by the City of East Lansing, including the costs of police and fire which are relatively high because of MSU existing in East Lansing. (We have reported how East Lansing’s emergency services are strained, practically and financially, by MSU-related activities.) MSU’s administration has responded that the benefits the university provides the City outweigh costs. The administration appears not to want an income tax.

Word on the street is that the City is looking into the income tax in order to motivate the MSU administration to find some new way to help East Lansing financially. What else could MSU do? Some have bandied about the idea of MSU adding a surcharge on tickets to MSU football and basketball games that would then go to the City of East Lansing to pay the emergency service-related costs of these activities.

None of these possibilities alone will be enough to deal with the financial crisis East Lansing is facing, wherein its pension-related debts are ballooning yearly even as City staffing has been cut dramatically. Additionally, much of the City has an infrastructure that is a hundred years old, and it is in need of major repair and replacement. As ELi’s Chris Root has reported, the Financial Health Team has been looking at cuts to City services, including to police and fire services, to try to rein in costs.

The Financial Health Team has been very aware of the spiral effect that can be caused by various moves. For example, creating an income tax can create a significant revenue source for the City, and cutting back on infrastructure costs can save money—but if all this causes people to avoid living in East Lansing, it can cause property values to fall, which then means that City income from property taxes falls. Similarly, if the financial problems are not managed well and soon, the City’s bond rating could fall, making it more expensive to borrow money, further driving up the City’s costs of doing business.

The overriding message of the Financial Health Team—the members of which have volunteered a great deal of their time at no compensation—is that there are no easy answers, but that they want the citizens of East Lansing to be active members of the decision-making process about which hard answers to choose.

 

Note: This article was corrected after publication. It originally said, "For the income tax to happen, over half of registered East Lansing voters would have to say 'yes' to the specifics.” In fact, for the income tax ballot question to pass, a majority of people voting on the question would have to vote for it. (Underlining added.)

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