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Wednesday, February 16,2011

Fund raising

Are city residents ready for a tax increase to help balance Lansing's budget deficit?

by Andy Balaskovitz
Lansing City Council members A'Lynne Robinson (right) and Kathie Dunbar lead a presentation on what a proposed tax increase in the city might look like. Andy Balaskovitz/City Pulse

Inside Fire Station No. 6 on the corner of Jolly and Pleasant Grove roads on Saturday morning, 16 city residents sat through an hour-long math lesson led by City Council members A’Lynne Robinson and Kathie Dunbar.


Robinson, the Council president, was leading her monthly “Second Saturday” meetings with constituents. Dunbar, Council vice president, was presenting an idea to let voters raise property taxes in the city this year.


When Dunbar and Robinson started the lesson with the idea that most of the people in the city will pay less property taxes in 2011 — even with a potential 4-mill increase from last year — the residents were perplexed.


How can you tell me my taxes will be less next year, even with a proposed tax increase? They wondered.


Dunbar is proposing a special May 3 election in which city voters could elect to increase property tax rates by $4 for every $1,000 of taxable property. The estimated $8.5 million in new revenue would go toward maintaining police, fire and road services. Those services have a combined budget of $68 million this year. The millage would be levied on residential, commercial and industrial properties. She wants it to sunset after five years.


Because of the way Michigan’s property tax system is structured and due to a depreciating housing market, Dunbar says two-thirds of city residents would still see a drop in property taxes for 2011. With the millage, an average property owner may pay about $60 less in property taxes than he did last year. Without the millage, he might pay about $200 less.


The semantics of Dunbar’s proposal have heavy implications.


It’s clear the city has a revenue/expenditure problem. The city is (at least) $15 million in the hole for the next fiscal year. Initial figures show it will cost $118 million to run the city, while only $103 million is expected to come in. The city can fix this by a) finding more money to come in; b) reducing the costs to run the city; or c) both.


Dunbar’s plan calls for both. And she hammers the selling point that two-thirds of residential property owners will still pay less property taxes — even with the increase — next year.


However, the proposal could fail if she can’t explain in plain English what the fiscal situation is and how property taxes are figured.


At Saturday’s meeting, they calculated the 2011 taxes due — with and without the millage — on Wes Thorp’s property near Holmes and Waverly roads. (Thorp was videotaping the meeting.) The assessed value of his south Lansing home in 2010 was $42,500. Thorp’s property taxes will be lower this year than they were last year. So will the market value of his home.


“I’m having a hard time visualizing this,” says Linda Appling, a Third Ward resident.


Claude Beavers, a Colonial Village Neighborhood resident, didn’t understand how his property tax bill would be lower next year even with the millage. He suggested Dunbar come up with a clear and simple message voters can understand.


So Robinson and Dunbar drew up the numbers on a white marker board. After about 15 minutes, the board was covered with numbers.


“That’s your whole problem,” one resident spoke out while pointing at the marker board in the front of the room. “You’ve got too much information up there.”


Dunbar understood. “I know this looks like I’m in a physics class,” she said.


After the roughly 5-foot-wide marker board was covered with additions, subtractions and multiplications, they found that, with a 4-mill increase, Thorp would be paying about $60 less in property taxes than he did last year. Without the levy, he’d be paying about $222 less.


“The light turned on,” Beavers said. “I got it. Thank you.”


Simply put: “A millage increase does not necessarily mean a tax increase,” Dunbar said.


A look about


In the November General Election, voters in Mason voted to allow their City Council to increase the city’s operating millage by .5 mills to go toward Mason’s park system. That passed by 66 percent. In that same election, though, 12 of 13 townships in Ingham County voted no on funding police road patrol services that the county could no longer provide.


Lansing’s homestead millage rate — which includes countywide millages — in 2010 was comparable to Battle Creek and Saginaw. Though Lansing’s population is about twice as big, Battle Creek and Saginaw have had to deal with revenue shortfalls too. But they have done so in different ways.


Saginaw City Manager Darnell Earley said the Saginaw electorate approved a five-year, 6-mill levy for operating expenses in November. That includes a 1.5-mill increase devoted to the costs of public safety. Saginaw’s general fund budget is about $34 million, and two-thirds of that is made up of police and fire costs.


“People here are pretty supportive in terms of the community’s recognition of the high cost of providing police and fire services,” Earley said, who has been city manager for more than five years.


While
Saginaw’s budget and Police and Fire departments are smaller than
Lansing’s, Saginaw too has seen similar reductions in property revenues.
Earley said it’s the same common denominator to handle it.


“The
management is the same. People want to know their money is going to an
effective service delivery system. If you can make that case, you’re
much better off building that trust city leaders need to have with
citizens.”


Of
course, the city could have unilaterally raised the taxes. “That’s
usually a last resort kind of thing,” Earley said. “It gives the
appearance things are done in a vacuum.”


But
if you head about 40 minutes southwest of Lansing, the electorate might
not be so favorable to tax increases, said Jim Ritsema, finance
director for the city of Battle Creek.


“We
have been challenged with the same situation with respect to stagnant
or declining revenues and increased costs,” Ritsema said. “All in all, I
think the tendency (here) has been to keep the millage the same in
terms of what we levy and live within our means.”


Ritsema
said the approach has been “realignments in expenditures and some
layoffs. We aren’t thinking that is going to stop any time soon, that
philosophy.”


Battle
Creek’s operating millage is about 1-mill less than Lansing’s, at
14.476. Ritsema said home property values have declined about 8 percent
this year compared to Lansing’s 10 percent.


“If
we levied anything more we’d have to go to a vote of the people,” he
said. “So far there hasn’t been the willingness to do that. We haven’t
even recommended that.”


On both sides


It’s not even March
yet, but the city of Lansing is waist deep in its fiscal year 2012
budget process, which starts July 1. On May 16, the Council will vote to
approve a budget that may or may not have an extra $8.5 million
contribution from city residents.


The city’s General
Fund budget has tapered off the past few years, from $112 million in
fiscal year 2010, to $109 million this year. Next year’s is projected at
$103 million.


It is ultimately up to Mayor Virg Bernero how a budget is crafted, but the Council will recommend changes between March and May.


A special election seems likely. It would take five votes by the Council to call the election, and the support is there.


Following
Monday’s City Council meeting, five Council members — Dunbar, Robinson,
At-Large Councilman Derrick Quinney, Second Ward Councilwoman Tina
Houghton and Fourth Ward Councilwoman Jessica Yorko — expressed support
for letting the voters decide on a millage increase. At-Large Councilman
Brian Jeffries and First Ward Councilman Eric Hewitt both said they
needed a little more time to study exactly how property owners would be
impacted.


State
Rep. Joan Bauer, D-Lansing, served three consecutive At-Large terms on
the Council starting in 1995. While she now has a different budget to
help balance at the state, she said the Council members are in a
difficult position.


“Lansing
has continued to cut and cut in the last few years. As a resident of
Lansing, I see it,” she said. Bauer added that she would vote for a
4-mill tax increase.


In
her 12 years on the Council, economic times were good. Bauer said she
never had to look at such extensive cuts to services. In fact, it was
the opposite at times. But her experience at the state level has been valuable.


“We
had the luxury of arguing over what programs we would add — not a lot,
but we were still able to do that,” she said. “I’ve faced (budget
problems) at the state level. I absolutely have a sense of the
difficulties they’re facing.”


All eyes on the state


A discussion about how
to fix the state’s $1.8 billion budget deficit can sometimes be at odds
with how to fix a local budget. What if revenue sharing is decreased
(the money municipalities get from the state)? What if the personal
property tax is eliminated, which local governments also see? Those are ideas floated to balance the state budget that would cut into revenues for municipalities.


Without those, Bernero has said Lansing’s deficit could climb to $20 million.


“I
am very concerned and fearful that the governor’s budget will have
significant cuts to revenue sharing,” Bauer said. “For municipalities in
Michigan, that would be a very difficult blow.”


Gov. Rick Snyder is expected to release a proposed budget Thursday. Local officials are waiting with breaths held.


Michigan
State University Professor Charles Ballard has written two books on
Michigan’s economy. While he understands the pinch municipalities are
in, it’s like they are getting revenue from a broken money machine.


“Unfortunately the state budget has structural defects,” he said. “It has been eaten away like a house full of termites.”


Ballard
added that he is a “big fan” of revenue sharing because it is “more
efficient” for the state to raise money than local governments.


A
1994 state ballot initiative — Proposal A — is also factoring into
property tax revenues. Prop A essentially created the property tax structure we have
now, where taxes are based on the home’s assessed value, which is half
of the market value. Property tax increases are also capped at 5 percent
or the rise of inflation, whichever is less. This year the rate of
inflation is 1.7 percent.


The
idea is that when times are good and home values go up steadily, taxes
won’t go up at the same rate. That’s what happened for about 10 years
after Prop A. Owners started seeing an increasing gap between the
assessed value and the taxable value of their properties.


When
you buy a new home, the taxable and assessed values reset and are the
same. When home values tank like we’re seeing now, taxable values are
either going up at 1.7 percent to equal out to the assessed value, or
they are dropping about 10 percent along with the assessed value
(taxable value can not exceed assessed value).


Last
fiscal year the city collected about $39 million in property taxes.
This fiscal year projects them at $37 million. Without a millage
increase, they’re expected to come in at about $33 for next fiscal year.


Ballard
said Prop A has many legacies — “some are very good.” If everyone’s
taxable value dropped like they would have before Prop A, local
governments would be seeing even less revenue this year.


Cuts nonetheless


Even if Lansing voters
approve the increase, Bernero will still have to come up with a budget
filled with new cuts. It’s looking like he’ll either have to cut $15
million or about $7.5 million, depending on what voters say. Bernero
said he would present a budget in March that is cuts-only.


Bernero said on “City
Pulse on the Air” last week that he can craft a budget with a “meat axe
or a scalpel.” He was referring to the extent and breadth of cuts he’d
have to make. “I would prefer to use a scalpel,” he said.


Over
the past few years, the city reduced staff by about 20 percent,
shortened work weeks, closed golf courses, restructured health benefits
and regionalized services with the county, such as Potter Park Zoo.
Because more cuts to services are coming, Dunbar said options include
reducing the workweek and the number of city employees even further. The
idea of closing one or two fire stations is also being floated, she
added.


And while nearly two-thirds of residents may not see increased property taxes with a millage, a third will.


Dunbar
said those most likely to feel the effects of a property tax increase
are those who have owned their homes for more than 10 years and seniors.
Seniors, she said, are more likely to be on fixed incomes and their
property taxes are increasing despite lower home values.


“Seniors
are going to be the ones most affected by this,” Dunbar said. “A lot of
seniors will see an increase, not a decrease. That needs to be known.”


The politics of it all


Todd Cook, a political
consultant with Main Street Strategies, said if the city is serious
about getting voters on board with a tax hike, that the issue needs to
be laid out in terms of what would be lost without the increases.


“You have to talk
about it in terms of providing services to people,” he said, adding that
those who typically vote in May elections are “tuned in a little more”
to city government. “If they (Council) take it and try and run it past
(voters) and not present alternatives — that’s not the way to do it,”
Cook said. “No one wants to pay taxes unless they absolutely have to.
It’s human nature.”


But Cook is speaking from a strategist’s point of view.


“Clearly,
people are going to decide what they want to have happen,” he said.
“It’s an opportunity for them to participate in the process. Whether
they choose to or not is up to them.”


Back at the fire station, the math lesson turned into a semblance of campaign strategy.


Politically, getting residents to understand this information is important, but you wouldn’t want to confuse them either.


“No one is going to take this formula around with them. We need little snippets” to present, Robinson said.


A
few residents had trickled out before I asked how they would vote on
the increase: 10 (including Dunbar and Robinson) support a 4-mill
property tax increase. Three were unsure even after the math lesson and
one woman was against it. She declined to comment on why.


“Raise
my taxes — I don’t care,” Beavers said. “But does this sound like
government double speak, or what? The more information I have the more I
can say this looks real.”


Appling from the Third Ward wanted it even simpler.


“I
don’t care what they raise it to. But I want to have the right to raise
my taxes,” she said. “I want to know: How much (revenue) do you need?
What do you need it for? What’s going to happen if you don’t get it?


But
Claude’s son Tom Beavers, a greenskeeper at Groesbeck Golf Course,
expressed concerns that there would still be staff layoffs or more
furlough days, even with a tax increase. “How do I know — if I vote yes —
if three days later all of this other stuff comes down the pike,” he
asked.


Robinson took his question, offering no guarantees.


“I’ll be honest,” she said. “I can’t say for sure.”

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