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Wednesday, March 27,2013

Looking long term

How Mayor Virg Bernero's budget proposal looks beyond June 30, 2014

by Andy Balaskovitz
Source: City of Lansing Illustration: Rachel Harper
Balancing Lansing’s budget is the easy part. Just ask Virg Bernero, who’s had to annually patch over millions of dollars in budget deficits since he took over as mayor in 2006. Layoffs here, department reorganizations there. Canceling construction projects, closing a few golf courses. 

The real challenge for Bernero — and the City Council, for that matter — is figuring out how to make Lansing solvent for the long run in an era of declining population, property values, average household income, state-shared revenues and skyrocketing health care costs.

Since appointing a Financial Health Team in September, long-term solvency has been an underlying theme in preparation for this budget cycle. Particularly, the more than $600 million in unfunded liabilities for pension and retiree health care hangs from the city’s neck like an albatross that keeps gaining weight.

The head of that Financial Health Team, former Mayor David Hollister, presented the group’s recommendations last week for short- and long-term budget solutions. He spoke with Biblical undertones. 

“To the degree we don’t address these recommendations, the day of reckoning will come sooner if not later,” he said. In this case, the Last Judgment would come from a bankruptcy judge or an emergency financial manager, which could be three to five years out, in Hollister’s view. “We have a structural deficit that threatens the sustainability of this city.”

“From our perspective, the city must begin now to address these long-term challenges,” former Lansing Finance Director Jerry Ambrose — now on the emergency financial manager’s team in Flint — said last week.

On Monday night, this year’s budget process officially began as Bernero handed the City Council numbers to study for nearly two months before it adopts a final budget, which takes effect on July 1. The mayor then has the power to veto anything he doesn’t like about the Council’s budget, which has happened three times since 2006, including last year.

Here’s how Bernero thought long-term in this budget:

Cost-shifting

The crux of Bernero’s budget is built on fees that could free up $5.5 million a year in the General Fund. Instead of the Lansing Board of Water and Light’s billing the city for streetlight and fire hydrant services, BWL would bill residential and commercial customers as part of their water and electricity charges. The administration projects it’ll cost the average residential customer $46 a year.

“I know people aren’t looking for a tax increase, I just see no alternative,” Bernero said in an interview Monday. “I’ve got to get some stability built into the budget.” Later on, he called it a “fundamental restructuring and balancing of revenues paying for essential city services.”

Bernero says the money would be used next year for increased spending on roads, a new police detective and two new fire engines. Also, city employees would no longer be required to take unpaid furlough days.

In the future, he wants the ability to pay down long-term liabilities and increase reserves. “How am I going to do that without cutting into police and fire?”

Bernero said the move is also about “not simply relying on the state” for revenue sharing money, which is projected to be up over $300,000 from this fiscal year — from about $13.1 million to $13.4 million — but which has declined by $8 million since 2001, the administration said.

BWL Spokesman Steve Serkaian said that under the tentative proposal, money paid by customers would go toward operating and maintaining the city’s 34,000 streetlights and 3,000 fire hydrants. The city owns those, he said, but pays BWL to operate and maintain them.

He said BWL will not act on the request until a budget is finalized. “But if asked through the budget process to do this, we obviously will comply with the city’s request,” he said.


Paying it down, beefing reserves and technology

The Financial Health Team recommended last week the city kick in $1 million next fiscal year to both the rainy day fund and for prefunding retiree health care costs. In its report, the team said the city’s reserves are at “dangerously low levels” and pegged the city’s unfunded pension and retiree health care liabilities at over $600 million.

Lansing ranks fifth in the state in population yet is second behind Detroit in unfunded retiree health care liabilities, according to figures from the Financial Health Team. (Lansing is at nearly $432 million; Detroit is approaching $6 billion.)

The administration also recognizes that the struggling Tax Increment Finance Authority will need a $1.4 million subsidy to keep afloat. The administration plans to seek approval from the state Legislature to refinance the TIFA’s debt. Should the city prove successful, Bernero said, that money would be split evenly into the rainy day fund and for prefunding retiree health care.

Another long-term consideration in Bernero’s budget is investing in technology. He wants the city to issue $2 million in bonds for a cloud-based computing system so users can more easily access city services over the Internet. Bernero also proposes starting a dedicated IT Department — with a newly appointed cabinet-level director — to modernize the city’s technology and possibly work with the BWL and the Lansing School District for shared services.


Police and Fire

The Police and Fire departments are held relatively harmless in Bernero’s budget proposal. And aside for requesting each department’s respective employee unions to reopen contract negotiations — and reorganizing the Fire Department’s command staff to save $200,000 — Bernero wants to add a full-time cold-case detective to the LPD (see page 5) and buy two new fire engines.

However, in recent weeks, Bernero has specifically called on the the Fraternal Order of Police for health care concessions. In his budget proposal, Bernero says that a grant funding 11 police officers’ salary will end next year and that health care concessions will be needed to keep them employed.

Perhaps working in the city’s favor is legislation approved in 2011 amending the state’s Public Act 312 involving binding arbitration with police and fire unions. 

Until that point, some municipalities saw binding arbitration as a drain on other areas of the budget because arbitrators at times didn’t properly recognize a city’s ability to pay for the changes. For example, a community may have had to pay for police and fire raises out of a different department’s budget.

“One of the biggest concerns we saw was that some arbitrators, particularly in good times, weren’t fairly characterizing a community’s ability to pay,” said Samantha Harkins, director of state affairs for the Michigan Municipal League. 

The PA 312 amendments specified how communities would pay for new contracts and set a six-month timeline for arbitrations so they wouldn’t last indefinitely. It requires arbitrators to make ability to pay the primary factor when negotiating.

“Some of these changes have led to fewer 312 arbitrations,” she said. “We want to make sure any community going to arbitration has the same standards.”


City Hall: ‘It’s for sale’

It didn’t make it in this year’s budget proposal, but one more long-term change could be where city government does its business. Talking about City Hall Monday, Bernero proclaimed: “It’s for sale. It’s available. There’s work we need to do, but if someone came in tomorrow and wanted to put in a hotel, we’d move quick,” he said.

He foresees “millions” in necessary repairs — from plumbing to the HVAC system — to a building that no longer fits the size of the city’s workforce. “I think we need a smaller footprint,” he said.

Completed in 1959 and designed by the local architectural firm Kenneth C. Black Associates, the new City Hall replaced the old Richardsonian Romanesque City Hall and post office that was built at the adjacent location in 1894. According to the website Michigan Modern, former Mayor Ralph Crego’s campaign to modernize downtown Lansing was highlighted by the new City Hall. In keeping with popular design at the time, granite and limestone was used throughout the building.

The sculptor Leonard D. Jungwirth, also known for his Sparty statue on Michigan State University’s campus, designed the city seal on the fašade facing Capitol Avenue.

Bernero’s goal is to move into an existing building downtown that’s more accessible than City Hall (have you tried parking nearby during the afternoon?). He’s open to the idea of sharing an administrative building with the Lansing School District, and even named the Lake Trust Credit Union building, four blocks south at 501 S. Capitol Ave., as a potential site. Lake Trust announced last week that it plans on opening a new headquarters in Brighton.


Run and hide?

Bernero’s budget this year is $112 million, up $100,000 from last year. At the end of his speech to the Council Monday night, he proclaimed: “Lansing has survived the Great Recession. We’ve come through the storm. We are alive and well.”

Now these proposals sit before the City Council until May 20, when the body is required to adopt a final budget.

Council President Carol Wood was hesitant to comment specifically on the proposals, but she told a local TV station her “biggest concern” is the fire hydrant and streetlight proposal. “Some things we’re going to seriously have to look at.”

Hollister, who seemed to carry a cryptic tone the past several months when talking about the city’s long-term finances, had a message for the Council last week. Inaction, he said, will likely lead to an emergency financial manager.

“The Council can run,” he said, “but they cannot hide.”


The light and hydrant fee

Each year, the Lansing Board of Water and Light bills the city of Lansing for operating and maintaining 34,000 streetlights and 3,000 fire hydrants in the city. It costs $4 million for streetlights and $1.5 million for hydrants each year. That money comes out of the city’s General Fund, 72 percent of which is funded by property taxes, income taxes and state-shared revenues.

In his budget proposal Monday night, Mayor Virg Bernero asked for residential and commercial BWL customers to fund those services directly, which would show up on their water and electric bills. The city’s Financial Health Team also recommended the move and predicted it would cost the average residential customer $45 a year and the average commercial customer $1,394.

Bernero says the user fee would free up $5.5 million annually in the General Fund, which he wants to use next year for increased spending on roads, a new police detective and two new fire engines. Also, city employees would no longer be required to take unpaid furlough days.

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