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Wednesday, March 12,2014

Budget skies clearing

In run-up to budget season, Lansing’s finances looking good — for now

by Andy Balaskovitz
Lansing may have turned a corner on its annual budget woes — at least in the short term.

For the first time in a decade, the administration will propose a budget for the next fiscal year that doesn’t involve cuts to resolve a deficit.

Rebounding home values and an increase in personal income appear to be contributing to increased property and income tax revenues, which represent over half of the city’s budget.

“I am aware we are going to start the fiscal year without a deficit,” former Mayor David Hollister confirmed Monday. Hollister heads the Financial Health Team appointed by Mayor Virg Bernero to study shortand long-term solutions to the city’s fiscal health. Bernero has tapped Hollister and team again to work on long-term budget solutions. Hollister said to expect an announcement from Bernero on a “series of initiatives” to address fiscal challenges. Hollister said the team will be briefed on the details before Bernero presents his budget to the City Council on March 31.

Last week, the Council participated in one of three workshops led by Michigan State University researcher Eric Scorsone, who also worked on the Financial Health Team. Bernero attended the training.

The earliest indications came from Bernero in January, when he announced in his State of the City speech “that our FY15 budget will start in balance — rather than in deficit — for the first time in a decade,” though he has since not provided details.

This year’s budget is $112 million. The administration has cumulatively trimmed $60 million since he took office and reduced the citywide workforce by 30 percent.

He presents his next fiscal year budget to the City Council at the end of the month. The proposed budget book is essentially a prediction of how much money the city will take in and spend between July 1 and June 31, 2015. Each year since he took office in 2006, Bernero has had to balance the city’s ledgers to bring expenditures in line with anticipated revenues. It’s unclear yet whether the city will end this fiscal year with a surplus, or by how much revenues may exceed expenditures for the upcoming fiscal year.

However, Bernero plans to work with the Financial Health Team he appointed in 2012 to continue addressing long-term budget issues, such as legacy health care costs and regionalizing services.

The city faces more than $600 million in unfunded liabilities for pension and retiree health care, which the Financial Health Team has recommended the administration start contributing to annually.

“We will be engaging the (Financial Health Team) early and often, I can tell you that,” Bernero said in an email last week. “We need to be as vigilant in good times as in bad — maybe even more so. There is a temptation to just focus on short-term needs, which are real, but we cannot take our eye off long-tern financial health. So while we will address areas of need that may have been neglected due to budget constraints, it will NOT be business as usual, by any means. And that is why we´ve asked Mayor Hollister and the FHT to stay engaged with us. We are determined to stay on the path to financial sustainability as we make necessary strategic investments to maintain and grow a healthy city.”

In his State of the City speech, Bernero reported 27 straight months of job growth in the city and rebound ing home sales and values, with the median price of a home sold increasing from $67,000 to $95,000.

“Extremely encouraging” is how Council President A’Lynne Boles described the run-up to this year’s budget presentation. “We need to sustain the momentum, if not increase it.”

The first half of this fiscal year’s budget shows a slight increase in the amount of property taxes collected than was predicted, according to a second-quarter General Fund status report presented to the Council on Feb. 24. Property taxes make up a third of General Fund revenues. The city brought in about $300,000 more in property taxes by Dec. 31 than is annually budgeted.

Income tax revenues, which make up 25 percent of the city’s revenue, “have shown sustained strength this fiscal year,” according to the report. In both cases, the revenues were higher than the average of the three previous fiscal years at this point.

The third significant source of revenues, which are statutorily distributed by the state, also are on target, according to the report.

While there was a slight dip in smaller revenue sources, such as fees for services and licenses and permits, overall expenditures are, so far, below the budgeted target.

Councilwoman Carol Wood is more guarded, saying the administration hasn’t provided more specifics about next year’s budget.

“Right now, we don’t have any idea,” she said. “All we’re being told is that the second-quarter numbers are within budget.”

Yet for the short-term optimism, the next challenge is resolving longterm, structural budget problems that can threaten the city’s solvency. For instance, the city’s Tax Increment Finance Authority, or TIFA, required a $1 million influx from the General Fund this year to a balance a deficit there. Health care costs, if not addressed, could continue ballooning.

“He still has a problem long term,” Hollister said of Bernero and his budget. “He still has the legacy issues — health care, retirement, some regional things you’ve got to be thinking about.”

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