East Lansing will be spending more on expenditures this year than it will generate in revenue in terms of its general fund, primarily the result of increased city obligations to pensions.
The City of East Lansing formed a Financial Health Review Team which met for the first time Feb. 29 to discuss and assess the city’s financial standing during a five year period.
The city holds a fund balance, or money saved to be used in cases of emergency, that can offset any shortcomings revenue but that is generally frowned upon because it would indicate the city is spending more than it can afford.
Currently the city budgeted a total revenue of $34,752,715 but expectation forecasts for this year put the number at about $34,126,385. Expenditures or costs, however, were budgeted at $36,045,985 and expected forecasts show the number to be as high as $36,070,990. This would leave the city short $1,944,605 in revenue compared to expenditures.
The Financial Health Review Team was formed by East Lansing City Council on Feb. 16. The team is tasked primarily with finding ways to fund a growing former city employee retiree population being owed pensions.
The city has more retirees than current employees meaning the retirees are pulling more money from the pension accounts faster than current city employees are putting in.
With about 26 percent of the city’s general fund revenue going toward paying past pension services, annual payments and health care costs the emphasis on boosting general fund revenue is becoming increasingly significant.
“In 15 years that could be 50 percent,” Mayor Pro Tem Ruth Beier, City Council liaison to the Financial Health Review Team, said.
But, her 50 percent estimate does hinge on what future general fund budgets will be. Nonetheless, Beier still called pensions something that would “eat the general fund” in coming years.
Forecasts show the city’s revenue will decrease by just more than $950,000 in 2017 but rise in the years following 2017.
Besides pension payments, the city faces challenges with an aging infrastructure, low property values, a decrease in the amount allotted to the city by the state’s shared revenue program, a decrease in gas and weight taxes and the state of the city’s recreational facilities.
In terms of the housing market, total property values in East Lansing sat at more than one billion dollars in 2009 but fell in the years following to more than $900 million by 2013. Property values have increased since 2013 to $946,742,825 in 2015.
State shared revenue dipped from about $7 million in 2001 to just more than $4.76 million in 2010-11. It has been increasing since, though it currently sits at an estimated $5.17 million for 2016.
With decreasing general fund revenue the city will have to find new ways raise revenue or extract more revenue from current sources such as taxes and permits.
Losses in revenue will mean the city will have to make tough choices as to what it needs to spend on. A loss in revenue could signal a loss of money being spent on city funded service and city run programs. But all that remains to be seen depending on the Financial Health Teams future decisions.
The team is comprised of 11 members with many having ties to the city and backgrounds in either business, economics or municipal government.
No action was taken at the meeting other than to form small groups to address the various challenges and the Financial Health Team will have until July 31, 2016 to recommend to City Council how it should address the financial challenges.
The Financial Health Review Team will meet again at 9 a.m. on March 14 with the location for the meeting to be determined.
Chairing the committee is Michael Moquin, former chief general counsel for the Michigan Municipal Employees Retirement System, and vice chair Jill Rhode, director of financial services for Ingham County.
