ELi Readers Brainstorm How to Help the City of East Lansing’s Financial Woes

With the City of East Lansing suffering millions of dollars in lost revenue from the Covid pandemic and lacking a definitive plan for the City’s pensions to be funded by the date required in 2040, ELi convened readers on Monday, April 19, to brainstorm ideas about how the City could increase revenues and decrease expenses.

We had twelve people in total on the Zoom call and enjoyed a lively conversation for about 90 minutes. Here are ideas that were discussed:

Use the $12.5M expected from the American Rescue Plan Act to address urgent infrastructure needs, freeing up General Fund dollars for other purposes.

Local governments all over the country are still figuring out what the new round of federal stimulus funds can be used for, but we know East Lansing is poised to receive around $12.5M, half this May and half next. East Lansing’s Finance Director Jill Feldpausch has said, “Broadly these funds can be used to: address the revenue losses experienced as a result of the pandemic; cover costs incurred in responding to the public health emergency; provide support for economic recovery, including assistance to households, businesses, and essential workers; and investment in water, sewer, and broadband infrastructure.”

In other words, the funds can’t simply go to the pensions, but it appears they could backstop some other needs and free up funds for supplemental payment pensions of the kind East Lansing has been funding out of the income tax revenue to try to deal with the pension debt.

At Thursday’s DDA meeting, City Manager George Lahanas said that staff are first looking at using the American Rescue Plan Act funds to replace lost revenue from the income tax, Parks & Rec user fees, fines and tickets, court fees, and more. But at ELi’s meeting, one suggestion was to use much or all of the $12.5M for the ongoing improvements to the wastewater plant and sewer system to stop foisting so much of the cost of that into rocketing water/sewer bills.

MSU’s Institute for Public Policy and Social Research will be hosting a special forum on Tuesday, May 18, at noon to review the impact of the American Rescue Plan Act on Michigan communities. You can register here.

Revisit the Financial Health Team recommendations and take advantage of recommended actions the City Manager and Council have yet to take.

ELi’s Chris Root (who holds bachelor’s and master’s degrees in Economics from American University) performed an analysis on this topic for our readers in May 2018. She concluded, “City leaders, including Council and the City Manager, have taken the recommendations [of the Financial Health Team on the pensions] seriously although some options have yet to play out.”

In ten years, the City’s unfunded pension liability has increased by about $41 million, to about $93.5 million. The total now owed in pensions is approaching $200 million. (This does not include retiree health obligations, which are also underfunded.)

The City continues to offer some employees some degree of defined benefits – traditional pensions – where many employers have moved entirely to defined contributions, which allow for much better cost control. The City Manager has largely dropped public mention of this issue since the income tax was passed. But contracts are now being renegotiated with unions, and this issue could perhaps be pressed in some cases.

The Financial Health Team (FHT) made recommendations not only on pensions. It also weighed in on issues like the use of Tax Increment Financing, regionalization of services to save costs, going to the voters with a Headlee Rollback proposal (basically a property tax increase), and more. One FHT recommendation was to examine fees and bring them up to line with actual costs, and at our session, one idea proposed was to charge more for rental licenses to help make up for the fact that many rental properties pay far less in taxes than their assessed value, because of being “capped” for so long.

The FHT was a group of volunteers with expert knowledge, and a similar group could be asked to visit the recommendations and figure out which have not been employed and are still worth pursuing. See the material produced by the FHT here.

Reduce spending on policing (personnel and equipment), jailing, and prosecutions.

One recommendation at our meeting was to reduce ticketing, arrests, and prosecutions for minor offenses, thereby saving time and money in policing and prosecution. This could particularly benefit people on the lower end of the income spectrum. 

Another recommendation was to develop a regional center where people who are intoxicated from drugs or alcohol (but not at a level requiring hospitalization) could be sent to safely “dry out,” rather than being kept in jail, which is costly and potentially more dangerous.

Several people at the ELi meeting supported reducing the number of sworn officers in East Lansing, perhaps in favor of more unarmed outreach workers. One person suggested that emergency-call social workers be regionally managed to save costs and improve care to people in crises. (ELi reporters have been surprised to see just how many police responses are for mental health calls over the last two years.)

Sworn officer positions are some of the most expensive in the City because officers receive pensions and healthcare insurance after they retire as early as age 55.

Stop engaging in costly deals and creating unnecessary new infrastructure that requires long-term debt and expenditures.

East Lansing has a history of committing to projects that turn out to cost far more than originally intended. We’ve seen this, for example, with the Center City District project and Avondale Square. Those projects will suck up millions more in tax dollars than originally intended – tax dollars that would otherwise be going to the General Fund. Many feel the City can’t afford to keep making these deals.

Meanwhile, the Parks & Rec Department has been seeking to build more and more new infrastructure as it uses matching funds to leverage local tax dollars. But the more that’s built, the more it costs to upkeep. For example, Tim McCaffrey, head of  Parks & Rec, has sought more and more East Lansing tax dollars for new bridges for trails and additional courts to be built at Patriarche Park because his team is able to get matching funds via regional and state taxes. But the City already faces many unplanned expenses for facilities like the Hannah Community Center and the Aquatic Center.

Just this week, Council approved a contract increase for the HVAC system at Hannah. That had been expected to cost $19,950 but will now cost almost $38,000. The Aquatic Center needs a new pool lining before it reopens, and that will cost at least $150,000.

At our meeting, one person suggested the Parks & Rec Department at least reach out to see if neighborhoods want improvements being enacted in their areas. (They may well see better uses of money.) Another suggested that all department heads be trained to forecast costs of upkeep of new infrastructure.

Reduce what the City Manager can approve without Council’s consent in order to make spending more controlled and more transparent.

In 2019, the City Council voted through a change that allows the City Manager to make a number of spending decisions without City Council’s approval – and that means they happen without the public being aware before the decisions are made.

For example, the City Manager can now approve vehicles purchases in a way he could not before. Last September, ELi’s Emily Joan Elliott and Nathan Andrus brought a report showing that the City Manager elected to approve nearly $2 million in new vehicle purchases, including many vehicles personally assigned to managers. We found this out only through use of the Freedom of Information Act; the way budgets are presented would have made it very hard to “see” this large expense.

Cut discretionary spending.

One example: the City Manager is looking to maintain “mileage” payments to a couple dozen City white-collar employees. These are not reimbursements for miles actually driven; they are payments made to these employees every month regardless of how much they actually drive. Our report in 2020 showed these are totaling about $47,000 annually, and far less would be spent if actual miles were reimbursed. (The Library Director, for example, is getting $200/month even though East Lansing has only one library.)

Meanwhile, cars that are only a few years old are being replaced rather than repaired, in spite of low mileage in many cases. There are other examples of discretionary spending that could be eliminated, as our team concluded when we discovered how much the City is spending at Quality Dairy ever year (several thousand dollars).

Renegotiate contracts that are favorable to the other party and not the City.

For example, the owners of the Marriott Hotel have been leasing the public land on which that project was built at $10/year for almost forty years. What might the City obtain in fair market value? Other contracts might also be open to negotiation to increase City revenues and decrease expenses.

Have Council direct the City Manager to create a more open and transparent government to minimize conflicts that arise and to minimize the associated waste of human resources and government costs.

On this subject, the recent struggles over the City’s survey of attitudes toward policing came up. But there are many other examples of such struggles.

All that resisting of release of materials comes with real cost. We have been seeing bills from the City Attorney, Foster Swift, top $10,000 per month just for FOIA review. That is up significantly from when City Attorney Tom Yeadon was in office.

What now?

We will be sharing these ideas with City Council, but we want to remind you that you can directly participate in the ongoing budget discussions. You can email City Council with your ideas and also speak during the public comment session of any City Council meeting. (Council seems to pay much more attention to spoken comment, but most effective is sending written and providing oral remarks.)

The next City Council Budget Work Session will be next Tuesday, April 27, starting at 7 p.m.

Correction, Apr. 26, 2021: The original version of this article indicated that the new budget calls for increasing millage reimbursements. This was based on a presentation made in an earlier meeting about the Parking staff reimbursements. Finance Director Jill Feldpausch let us know that the plan is not to increase reimbursements in the next budget.