Lansing’s rainy-day reserve funds will hit an all-time low after the City Council voted to drain millions from the city’s fund to balance its books and offset cash shortfalls tied to COVID-19.
The City Council passed the administration’s budget plan with amendments Monday, the deadline for setting spending for the new fiscal year, which starts July 1. The new budget is $136.5 million for operational expenses, compared to $140.7 million this year.
The Council cut more than $150,000 from a budget proposal already slashed by Mayor Andy Schor. But those reserves are still poised to drop by more than $4.5 million to their lowest point on record — only about $2 million.
A longstanding city policy aims to keep that figure closer to 12% of the city’s annual operational expenses, which is almost $16 million.
Before the virus arrived, Schor had already planned to dip into those financial reserves, edging the fund balance down to less than 5% of city expenses.
“We don’t have a cushion anymore,” Schor said last week. “If we have another pandemic, there will be much less of a cushion to cover these shortfalls. We still have plans to build that back up, but nobody was expecting the economy to completely shut down. This was unprecedented.”
But unprecedented times call for unprecedented financial measures — especially during budget season. With income taxes declining by nearly $8 million, among other financial consequences of the pandemic, city revenues are slated to decline by nearly $12.5 million over the next year.
That’s a projected declined of at least $7.85 million in income tax receipts, $3 million less in state revenue sharing and reductions in other breadwinning city services.
And those projections are “conservative,” Schor said. Schor cut expenses by more than $7 million. Council members found another $166,000 to cut. But with nowhere else to turn, the city’s reserve funds will still see a more than $4 million blow.
Layoffs may be coming
During the pandemic, the city has tapped the brakes on all nonessential hiring, slashed budgets for temporary personnel and now plans to save about $1.4 million by doubling the number of unfilled positions that will be left vacant across several departments compared to last year.
Council President Peter Spadafore said trimmed city positions do not include any employees at Lansing’s Police, Fire and Public Service departments. He estimates it includes about 15 positions, most of which are administrative and clerical roles that have been vacant for years.
Another $80,000 was slashed from staff training and travel across nearly all departments. The City Council also trimmed $30,000 in temporary staff in the City Attorney’s Office, among other departments.
Schor has also announced that groups of city employees have been offered voluntary furloughs. Volunteers retain medical benefits and collect unemployment. They’d return to work as early as July 31.
Eligible employees include those represented by the UAW and Teamsters 214, including many employees in the city’s Public Services Department. Schor said union members, mayoral staff and all employees not represented by a labor union will be able to volunteer for a furlough.
It’s unclear exactly how much cash the city will save, or whether any employees will sign up. Schor said mandatory layoffs and salary cuts are still on the table, should they become necessary. And while Schor hasn’t cut his own salary, he’s still leaving open the possibility.
“If we ask employees to take pay cuts, I will certainly take them as well,” Schor said. “It’s all on the table. First we’re trying to deal with reducing funding to different programs and finding efficiencies, but if there’s ever a time where we have pay cuts, I’ll absolutely do that as well.”
Spadafore said the City Council is also prepared to vote on a resolution to cut its own paycheck.
Savings from cancellations, closures
With many recreational activities still considered nonessential in Michigan, Schor expects many parks and recreation programs to be on pause this summer, saving a few thousand dollars.
Canceling the city’s Memorial Day and Fourth of July events and closing the city’s two outdoor swimming pools, at Hunter and Moores parks, will save at least another $55,000. And with the Lansing Entertainment and Public Facilities Authority closing the Lansing Center and canceling events, another $200,000 was saved.
About $200,000 was also saved by cutting funding to the Lansing Regional Sister Cities Commission, Common Ground and other subsidized agencies and events that won’t be operating at full steam, if at all, during the pandemic as it persists into the summer.
BWL pitched in nearly $2 million
Before the pandemic struck, the city still faced a revenue shortfall. It was partly tied to a return on equity from the Lansing Board of Water & Light that came in far lower than expected.
That annual payment has been a fixed percentage of BWL’s annual revenues — most recently 6.1%, officials said. After negoations, that payment is now a fixed, $25 million, or about $1.9 million more than last year’s amount.
BWL Manager DIck Peffley said with more marijuana cultivation facilities coming online, revenues are expected to surge as companies eat up more electricity, leading to more cash for both BWL and the city, he explained. The new fixed rate is in effect for two years.
Red Cedar sale helps out
The sale of the Red Cedar Golf Course to developers for $2.25 million will help cover this year’s parks projects.
More than $2.5 million will also be saved through various administrative and departmental changes, as well as newly renegotiated property and casualty insurance plans. At least $462,000 can also be saved by funding a city contract with the Lansing Economic Area Partnership through dollars previously earmarked for economic development in the city.
City officials also found room for three new patrol officers funded through decreased overtime spending, Schor’s proposal said. This year’s budget affords the purchase of heart monitors for the emergency personnel, among other equipment.
The big borrow— if needed
And if all else fails, the city is prepared to borrow up to $22 million to balance the budget, which it must do under state law.
Records show the city has collected only about $24 million of $37 million in anticipated income tax this year, which officials attributed to the extended tax filing deadline of July 31. It’s unclear how much money will eventually arrive, but Schor is also prepared to borrow.
The City Council this month approved a tax anticipation note — a safety-net strategy that allows the city to borrow up to $21.8 million against future property taxes for the next three years — in order to cover short-term budget shortfalls.
The maneuver would allow the city to borrow and spend up to about 17% of the collected and estimated property taxes for the next three fiscal years.
City cash flow is expected to be at its lowest possible point over the next several weeks. Given the delayed revenue, various expenses could become due before the city has enough to cover them, officials explained.
Spadafore said the budget will likely require continued amendments as city officials continue to grapple with financial uncertainties tied to the coronavirus pandemic.
“I loathe to spend the fund balance, and it’s important to avoid unnecessary borrowing, but the reality is that it’s raining and we won’t do it in budget cuts, we’ll spend down our savings,” he said last week.” That’s why those reserves are there. This is different from any other budget.”