City Manager Robert Belleman Explains Options City Has to Fix its Finances

Last month, members of City Council were disturbed by a projection showing the city is spiraling towards bankruptcy within five years if it does not adjust its budget. But to City Manager Robert Belleman, the projection was not cause to panic.

Belleman knew the city needed to change its budgetary habits before the presentation was made. Previous projections showed the city bleeding money and that was before the Michigan Supreme Court ruled the city cannot collect roughly $1.5 million annually from Lansing Board of Water and Light (BWL) franchise fees. 

“We know we’re going to do something different,” Belleman said in a Feb. 25 interview with ELi. “We know we have to align our expenses with our revenue so we’re not burning through our fund balance, or we’re not creating this deficit spending in future years.”

Belleman said the projections are a worst case scenario and he thinks the city may be over budgeting in some areas, and expenses ultimately won’t end up matching the projection.

Still, the projection is evidence that changes need to be made to balance the city’s budget. Belleman, who has now served as East Lansing city manager for about 18 months, sees plenty of opportunities.

Belleman sees viable paths to increase revenue, decrease expenses. 

To fill the hole left in the city’s finances by the BWL lawsuit ruling, there are some economic opportunities that appear to be naturally arising, and others Belleman thinks the city can maneuver towards. 

Belleman said that right now, the University Place properties, the Marriott and nearby office building downtown, are currently paying just $10 per year to the city to lease the land.

The 40-year agreement the city reached with the developer expires in 2026. Belleman thinks the new agreement with the developers could bring in as much as $500,000 annually. 

“They’ve been paying only $10 per year for 40 years, that was the original development agreement,” Belleman said. “That’s what the city did to incentivize them to build the hotel and office building.”

Belleman also pointed to cost-saving opportunities the city has. He said the city needs to look at programs the general fund is paying for, and determine if those programs should be self-sufficient through fees, maintained through a partnership with an outside entity or if the services should not be offered at all. 

“All of those [decisions] will go to council as part of the budget process,” Belleman said. 

If big cuts are needed, decisions might end up being passed on to residents. 

“Some of the stuff that I may present to City Council to cut, may be a question City Council will send back to voters to see if they want to pay for it,” Belleman said. 

He said it’s possible that in a future election, several proposed cuts are on the ballot. The decision to place those items on a ballot would be made by City Council. 

The city could also save money by filling vacant positions. Belleman said that with the East Lansing Police Department carrying many staff vacancies in recent years, the city has had to shell out large amounts of money to officers working overtime. 

Belleman said that Interim Police Chief Jen Brown told him there has been increased interest in the positions recently, giving hope that overtime expenses are reduced in the near future. 

The benefit structure held by some longtime officers who are logging significant overtime hours could end up carrying a big cost for the city.

Belleman explained that police officers hired more recently by the city do not have overtime income included in the calculation of their pension. Officers hired before a certain year, however, do have that amount included in the three-year average of their highest paying years. 

“We’re seeing some pretty significant overtime dollars going to certain employees within the police department,” Belleman said. “I saw some that are [making] 40, 50 thousand dollars a year in overtime.”

Belleman sees the income tax as a necessity for the city. 

In 2018, voters approved an income tax of 1% on residents and .5% on non-residents for a 12-year period. About 60% of the tax is put towards the city’s unfunded pension liability, with 20% going to public safety and 20% dedicated to infrastructure. 

The tax is set to sunset in 2032 if it is not renewed by voters. Belleman said he sees renewing the income tax as a necessity.

Belleman pitches the income tax as a fairness issue because MSU does not pay property taxes, and the income tax forces MSU employees to pay for city services that the university utilizes. The income tax came with a property tax reduction of five mills, so Belleman said the benefits of the tax are more pronounced for city residents. 

Leading up to the 2018 passage of the income tax, MSU administrators and East Lansing city officials traded barbs, with MSU trying to stop the tax from going to voters. MSU went as far as to offer the city $20 million over 10 years to take the measure off the ballot, ELi reported in 2017. 

Prior to passing the income tax in August 2018, voters rejected a similar proposal in November 2017.

Belleman does not want to slow down payments on the city’s pension liability. 

Belleman doesn’t see slowing payments to the city’s primary beneficiary of the income tax, its pension fund, as a wise route to take to balancing the budget. 

Like many older municipalities, East Lansing found itself with a tremendous amount of pension liability, as many former city employees continue to draw from the plan. For years, the city has been struggling to pay down the deficit. 

“Cities had a tendency to make promises but not set aside sufficient money,” Belleman said.

East Lansing’s pension plan was about 63% funded at the end of 2022, according to a presentation given to City Council last year. Belleman previously told ELi the plan would ideally be at least 75% funded. 

To chip away at the deficit, the city has been paying well over its required contributions. In 2022, the city put about $17 million toward the pension liability, well over the required $9.8 million. The city needs to cut its expenses, but Belleman doesn’t see the pension fund as an area to make cuts. 

“If we’re ever going to gain, we have to maintain the required [payments] and then anything we can throw on top gets us to a better funding ratio,” he said. 

One reason the city has made payments well over the required amount is the city is not using the income tax money as part of its required payments. Rather, the city is making its required payments and then including the income tax money on top.

Belleman said if there is ever surplus money available, he thinks the pension liability is a good place to expend those funds. 

Leveraging DDA income could help with the city’s budget woes. 

The East Lansing Downtown Development Authority is primarily funded by property taxes paid over a baseline amount by properties within its downtown district. The recent addition of high rise buildings within DDA district has shot the body’s budget up in recent years to more than $2 million in the current fiscal year. 

The budget is used to pay for infrastructure projects in the downtown area and to make payments on the bond for the DDA-owned Evergreen Avenue properties, which the DDA has owned since 2009 and has been unable to sell. 

Belleman said the increased DDA budget could help the city’s general fund, as the DDA will cover some costs that typically fall on the general fund. He said this fiscal year, the DDA picked up the cost of street lights, which usually is paid for by the city. 

The next “big conversation” between the city and DDA will be about law enforcement costs, Belleman said. In recent years, ELPD has had a strong presence downtown to help reduce the number of violent incidents in the area, especially on busy nights. With the increased police presence, overtime costs have gone up. A draft budget for next fiscal year requests the DDA contribute $200,000 to help pay for ELPD staff expenses. 

“It will help both the DDA and the city in the sense that it addresses a problem that our residents have expressed concerns [about],” Belleman said. “But it is paid for by the DDA, so it benefits the businesses in that area.”

The budget request also asks for more than $20,000 from the DDA to pay for part of an ELPD social worker salary. That employee would work with homeless people downtown. 

Financial challenges aren’t unique to East Lansing. Some structural challenges are.

Belleman, a former Bay City city manager and Saginaw County controller, has more than 20 years of experience leading municipalities. Perhaps the reason he remains collected in the face of the city’s financial woes is that overcoming budgetary obstacles is nothing new to him. 

“I think that I shared with some of my staff that aside from maybe the first three years of my career, where there was an abundance of resources, I’ve dealt with nothing other than trying to adjust line budgets… expenses with revenue,” Belleman said. “It’s kind of depressing after a while, but it is where my area of expertise has been fine tuned.”

He recalls a time in Bay City when the city was struggling financially largely due to stagnated population growth.

Belleman went to the unions representing Bay City employees and told them the percentage of their budget the city needed to slash. He asked union leaders how to reach that benchmark. Ultimately, the city had to furlough employees, reduce some wages and adjust employee benefits. 

Unlike Bay City, East Lansing isn’t dealing with a stagnated population. The city is, however, facing different structural challenges related to its position next to a major university and the state capitol. Working around these challenges can be a balancing act. 

East Lansing isn’t in a spot where it needs to take the drastic actions that Bay City did. Belleman said laying employees off isn’t something that is on his radar. In fact, Belleman said that some workers’ salaries may be increased soon. The city is in the middle of a wage classification study to see if the benefits and salaries offered are competitive with other entities that have been poaching city employees. 

East Lansing’s location near the state capitol, Meridian Township and Michigan State University puts the municipality in a conundrum where it is constantly at risk of losing its employees to nearby competitors. So, even in difficult financial times, the city has to shell out wages that are competitive with wealthier entities. 

East Lansing’s location next to Michigan State University also creates increased public safety costs. The young student population that brings a vibrant nightlife downtown also increases the need for a large police presence, particularly on weekends and after big events like MSU football games, Belleman said. 

The unknowns: Federal spending cuts and the BWL settlement are clouds hanging over city. 

As optimistic as Belleman seems about the city’s ability to turn its financial situation around, there are still a couple of variables that could throw a wrench in the effort. 

The first is the settlement from the BWL ruling. The city stands to lose the roughly $1.5 million annually when it no longer collects the franchise fee from BWL bills, but it will also pay out a hefty settlement to BWL customers who have been paying the fee for years. 

When a court initially ruled against the city in 2022 in the matter, a statement from the attorneys representing plaintiff James Heos said the city would need to pay back $6.6 million. That amount has likely gone up considerably, as the city continued to collect the fee until the ruling last month, and may owe interest. 

“That’s the multi-million dollar question,” Belleman said about the financial impact on the city from the ruling, considering factors like insurance. “That’s the issue we’re still trying to figure out. We don’t have answers to that yet.”

Belleman said part of the Michigan Supreme Court ruling was sending the decision on what the damages are and how they are to be paid back to a Circuit Court. He said he hopes a decision on this is made quickly, but a timeline can be hard to predict. 

Belleman said the city is no longer collecting the franchise fee, and that BWL will return franchise fee payments to customers that have been collected but not yet transferred to the city. 

Recent erratic actions from the federal government also present uncertainty to the city. 

Last month, a freeze on federal funding left nonprofit organizations and government agencies nationwide wondering what the impact on their budget would be. While the blanket freeze on grants was rescinded, entities are still left in limbo as the federal government promises to make major spending cuts. 

Belleman said the city receives a large federal grant to run its after school programs at the Hannah Community Center. The grant of about $600,000 comes from the Department of Education, which President Donald Trump’s administration has said it intends to dismantle. Belleman said in this scenario, he is hopeful the funds used to run the department are pushed down to the states, and funding is not interrupted. 

Other grants the city is currently slated to receive, Belleman is confident will be honored. But in future years, “your guess is as good as mine,” he said of federal grant funding.

Belleman explained that the city primarily seeks grant funding for special projects and capital investments, not for operational purposes. He gave the example of a grant that renovated the third floor of the Hannah Community Center to provide more space for students, the city’s childcare program and senior programs. 

“I don’t know how you pick fights with either end of that spectrum,” Belleman joked.

Budget season is just beginning.

The city has not yet entered the thick of budget season. In the coming months, department heads will submit and give presentations on their proposed budgets. City Council will then hold several meetings to discuss staff recommendations to create a budget for fiscal year 2026, which begins July 1.