Lansing’s reserve funds dip to seven-year low 

City Council remains optimistic amid $3 million shortfall 

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TUESDAY, March 17 — The Lansing City Council voted, 6 -2, Monday to approve a budget amendment that chips away $3.15 million from the city’s “rainy day” reserve funds, a financial cushion designed to help offset unexpectedly declining revenues and increasing expenses in governmental operations.

And it leaves only about $6.8 million in the bank. 

Officials said about $2.5 million in federal fines were recently assessed against the city and were triggered, in part, by the failure of the Finance Department under former director Angie Bennett to file paperwork required by the Affordable Care Act. Officials said her office also failed to submit various tax records to the federal government. 

Additionally, a $1.25 million settlement was paid out by the city over a lawsuit involving sewage-flooded homes on the south side and the city received a far lower return on equity from the Lansing Board of Water & Light, creating a budget shortfall already exacerbated by income tax revenues nearly $2.5 million below projections. 

Those fluctuating revenues and expenses required an amendment to the city’s budget, said Mayor Andy Schor. 

“We had a shortfall at the close of books. We couldn’t raise money. We couldn’t reduce services. The only option was to take from the fund balance,” Schor explained earlier this month. “It is a priority of this administration to have a balanced budget. We believe this is the low point. We have identified the problems and are fixing them.” 

Bennett said the recent financial missteps can’t be blamed squarely on her former role with the city. A statement sent to City Pulse earlier this month contends Schor’s administration was aware of outstanding problems long before she resigned from the job last year and they were “actively” being addressed as she left. 

Still, over the last 18 months, the city’s general fund reserves were drained by about $7 million — representing the largest, one-time fund balance drop since at least 2007. Older records were not made available to City Pulse. But Schor is optimistic that city officials will be able to recoup some of the losses and stash aside the extra cash. 

Officials this week suggested the IRS fines are still negotiable, but had to be booked as an expense in case the penalties cannot be waived. Additionally, the lawsuit settlement might eventually be able to be deducted from the city’s sewer fund rather than its general fund  — infusing another $1.25 million into general operations. 

Schor also attributed the shortfall to an additional $1 million that was allocated to help fund health savings accounts while the city continues to grapple with $736 million in unfunded liabilities for employee pensions and post-employment benefits. The latest amendment also shifted an additional $560,000 to the city’s Police and Fire departments to account for rising retirement contribution costs, among other unexpected appropriations. 

Former Mayor Virg Bernero established the city’s 18-member Financial Health Team in 2012 and set a threshold to keep the city’s general fund balance over 12% of annual expenditures. And as the Financial Health Team continues to call for more reserve funds, the latest amendment puts that figure below 5% of city expenses. 

A motion to table Schor’s budget amendment failed, 4-4, at the last City Council meeting but passed this week with objections from only Councilwoman Carol Wood and Councilman Jeremy Garza. Wood didn’t elaborate on her opposition, but Garza voted against it because it also trims funding to the Lansing Entertainment and Public Facilities Authority — an entity that he thinks could use the cash as events are canceled in the region. 

Schor said additional budget amendments later this year could continue to change the city’s financial landscape, but officials anticipate his upcoming annual budget proposal to bolster reserves much closer to the 12% target. 

“Business as usual” simply won’t be an option and “immediate corrective action” is needed, according to a recent letter from the Financial Health Team to Schor and every member of the City Council. Schor warned that any efforts to bolster those funds, however, will come at a price. He said residents shouldn’t expect to see any shiny new programs or costly initiatives in the immediate future as he looks to tighten up the city’s financial belt. 

“We’ve only just been able to uncover these issues, and it’s a systematic problem that dates back years,” Council President Peter Spadafore said this month. “These problems weren’t created in the last 18 months. It’ll take time to pull them apart and get them corrected. And I’d rather take from the fund balance than cut from services.” 

Visit lansingcitypulse.com for previous and continued coverage from Lansing City Hall.  

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