Mayor Schor submits reserve-gutting budget plan as COVID-19 settles in

A budget shortfall exacerbated by the coronavirus is poised to drain millions of dollars in reserve funds from the city of Lansing, even as officials look to lay off staff and slash annual expenses.

In a budget plan that the administration has revised in light of the pandemic and staggering economy, Mayor Andy Schor has proposed a savings of nearly $700,000 by freezing the hiring of all nonessential employees and leaving dozens of unfilled positions vacant across several departments.

Those and other changes were outlined Monday to the City Council, which has until Monday to decide on a budget for the FY 2021 budget year, which begins July 1.

About $2.25 million from the sale of the former Red Cedar Golf Course would supplant funding for Lansing’s parks projects, freeing up already obligated cash for other city functions. 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.

The cancellation of the city’s Fourth of July event and the closure of the city’s two swimming pools, at Hunter and Moores parks, will save at least another $55,000 this year. With the Lansing Entertainment and Public Facilities Authority closing the Lansing Center and canceling events such as Common Ground, another $200,000 can be saved by slashing its subsidy.

Cutting funding for arts and culture grants, the Lansing Regional Sister Cities Commission, Common Ground and other subsidized agencies and events will save another $214,000. Another $80,000 was slashed from staff training and travel across nearly all departments.

And if all else fails, the city is prepared to borrow up to $22 million to keep the budget balanced.

“It’s challenging when you have so much uncertainty on revenues and when the economy will open back up,” Schor said. “It’s challenging, but we’re navigating it and doing our best with these recommendations. This will be an ongoing process. There’s certainly some uncertainty.”

With projected income taxes declining by $7.85 million, among other financial consequences of the coronavirus pandemic, revenues are slated to decline by nearly $12.5 million over the next year.

To keep the budget balanced, Schor outlined a series of cuts and other tweaks to reduce expenses by more than $7 million. But with nowhere else to turn, the city’s rainy-day reserve funds are poised to dip to an all-time low as officials look to keep the city’s finances in the black.

With fewer businesses open and less income taxes being collected both in Lansing and across the state, local tax revenues and anticipated state revenue sharing payments have plummeted. And projections for Lansing are still “conservative,” Schor said. In other words, things could always get worse.

Current projections show Lansing will lose out on at least $7.85 million in income taxes, assuming Gov. Gretchen Whitmer’s lockdown orders are lifted by June 1. If restrictions remain in place through July, the city could lose $9.8 million. Estimates get worse as more time passes.

Accordingly, state revenue-sharing payments are predicted to decrease by at least $3 million. Other breadwinning city services — like recreation fees and other permits — also haven’t been fully operational for weeks, edging down initial anticipated revenues by more than $1 million.

To help cushion the blow, Schor has proposed a series of budget cuts and other changes.

Among the tweaks:

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.

Schor also proposed a few more obvious budget cuts.

And while cuts have been proposed, they’re still not enough to cover the revenue shortfall.

Schor’s proposal calls for the city’s fund balance to see a $4.8 million hit this fiscal year, bringing it below $2 million or less than 1.5 percent of its operational expenditures — the lowest the fund has ever dipped. A longstanding city policy had aimed to keep that percentage closer to 12%.

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. His new proposal drops it even further.

“It means we don’t have a cushion anymore,” Schor said. “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.”

Schor also announced this week that groups of city employees are being offered voluntary furloughs. Volunteers are able to retain medical benefits, will be able to collect unemployment — in many cases making more than their usual salary — and then can return to work by 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 take the 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.”

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 cash if necessary.

The City Council last week 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, should immediate cash flow become a necessity.

The city hasn’t pulled the trigger on the bonding proposal, but is now authorized to do so as officials deem necessary. The maneuver would allow the city to borrow and spend up to about 17% of the collected and estimated property taxes collected for the next three fiscal years.

City cash flows are expected to be at their lowest possible points over the next several weeks — immediately before the July 31 income tax filing deadline. Given the delayed revenue, various expenses could become due before the city has enough to cover them, officials explained.

The City Council has until Monday to pass a budget proposal under city charter. Amendments could always be made. At least two more meetings are scheduled between now and passage.

Council President Peter Spadafore said passing the budget will be “uncomfortable from a timing perspective,” given that the Council will either have to rely on best estimates and pass a budget knowing that it’ll need to be amended later this year as the impact of the pandemic is assessed.

“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.” That’s why those reserves are there. This is different from any other budget we’ve had.”