Volunteer Team That Will Put City Finances Under a Microscope Holds First Meeting

A new income tax approved by voters in 2018 was a boon to city finances, but a forecast presented last year showed East Lansing needs to make adjustments to avoid bankruptcy. What’s the problem?

A volunteer committee assembled by City Council started its search for an answer to this question at a Jan. 15 meeting, as the East Lansing Financial Health Review Team gathered for the first time. 

“The big thing we need to know is what is the problem we’re dealing with?” said Robert Kleine, a committee member who served as Michigan’s state treasurer for four years. 

Kleine pointed out that East Lansing was budgeted to run at a significant deficit during the last fiscal year, but ended up running at a surplus. He wondered if the city is budgeting too conservatively, or if there is another reason for the discrepancy. 

City Manager Robert Belleman explained the difference between the budget projection and reality was mostly caused by staff vacancies, delaying large projects and a large grant the city received during the fiscal year. 

“That’s the pressure we’re seeing, as the police department – which is where a lot of our vacancies existed – continues to staff up, that wiggle room is going to continue to narrow, ” Belleman said. 

Throughout the nearly two-hour meeting, committee Chair Jill Rhode set the table for the review period, which is expected to be six months. The committee spent much of the first meeting learning background information about the city’s finances and budget process. Committee members also recommended some experts to bring into future meetings. 

The committee will conduct a thorough review of the city’s general fund, looking at things like infrastructure and post-employment benefit costs, and making recommendations like how the city should proceed with its income tax, which will sunset in 2030 unless voters decide to renew it. 

The review team will also compare East Lansing to other similar cities, namely college towns, to see if the city faces unique or shared financial challenges. 

Committee Member Dale Kruithoff said he could take financial information from communities around the state and filter it down to communities the committee wants to compare East Lansing to. 

“This is what I do every day,” said Kruithoff, who works as a financial analyst in the state treasury department. 

The city finds itself in an uneven financial situation. It hopes the committee can find solutions. 

The committee held its first meeting just months after voters soundly rejected a millage that would have replaced the general fund’s contribution to the city’s parks and recreations department. The millage was seen as important by some city leaders, as former Mayor George Brookover said the City Council will have the “job from hell” if the millage is rejected. 

Right now, the city has about $13.4 million in reserve funds, which is about 24% of the city’s expenses during the last fiscal year. 

While the 24% reserves-to-expenses ratio is healthy in a vacuum, the city is budgeted to lose $3.1 million in the current fiscal year, which runs through the end of June. At a meeting last budget season, Belleman explained that if the city’s reserves-to-expenses ratio falls under 12%, it could hurt the city’s credit rating. 

If the city loses $3.1 million this fiscal year and next fiscal year, it will dip very close to the 12% ratio. Further, a five-year financial forecast presented to the City Council last year predicted the city’s deficit will grow each year without adjustments. East Lansing Chief Financial Officer Audrey Kincade told the committee an updated forecast will be presented to council next month.

 Looking ahead, the committee will continue to grow its knowledge about the city’s budget. The committee agreed to hold a marathon four-hour meeting Jan. 29 where city department heads will explain their department’s budget, and the impact it has on the general fund.