Income Tax Proposal

2018-Income-Tax-Web-Banner
On May 14, 2018, the East Lansing City Council voted to place a new time-limited and dedicated income tax proposal on the August 7, 2018 Special Election ballot. View the ballot language

About the Proposal

 
The proposal, while similar to the proposal that was placed on the November 2017 ballot, includes three key differences:

  • The current proposal is a City Charter amendment instead of a policy resolution, meaning it cannot be changed by the current or future City Council without another Charter amendment, which would require another vote of the people. 
  • By City Charter, the tax would be time-limited to 12 years.
  • By City Charter, funding generated by the tax would be dedicated for specific purposes: 20% to police and fire protection, 20% to infrastructure (maintenance and improvement of streets and sidewalks; water and sewer systems; and parks, recreation and City-owned facilities) and 60% to supplemental payments for unfunded pension liabilities for retired City employees. 
If the income tax ballot question is approved by voters, East Lansing residents would pay a 1% income tax (some income would be exempt, including retirement income) and non-residents would pay a 0.5% income tax. If a resident lives in East Lansing and works in another community with an income tax or works in East Lansing and lives in another community with an income tax, they would pay 0.5% to East Lansing and 0.5% to the community in which they work or live.

According to Plante Moran’s Income Tax Studythe income tax is expected to produce approximately $10 million, but with an estimated $5 million less in property taxes as a result of the property tax reduction (see Property Tax Reduction info below), the total net revenue is estimated to be $5 million annually to be used for the dedicated purposes outlined above. The income tax will help the City to maintain its core services, make supplemental pension payments and reinvest in City infrastructure and public safety.

Property Tax Reduction


If the income tax is approved by voters, the City Charter amendment approved by voters last November would go into effect, reducing City property taxes from a maximum of 20 mills to a maximum of 13 mills. Similar to last November, the current Council does plan to reduce property taxes by a flat 5 mills, from the current operating millage of 17.5679 mills down to 12.5679 mills, if the proposal passes. This reduction in property taxes will lessen the impact of the income tax on property owners.
 

Financial Challenges


The City of East Lansing is facing significant, long-term financial challenges due in large part to relatively flat revenue growth over the past 12 years and rising legacy cost obligations.

When looking back 12 years (FY 2007-FY 2019), the City's general fund totals have only increased 1.9%. This can be attributed to less revenue sharing from the state, tight state restrictions on the ability for local governments to raise new revenue, the ongoing impact of the drop in property values as the result of the recession and Proposal A/Headlee Amendment limits and the fact that the City has a relatively low taxable value per capita (the average amount of taxes that are collected per person residing in a community). Contributing factors of the City’s low taxable value per capita include the fact that the MSU campus is non-taxable and makes up a large portion of the City and a limited number of large commercial businesses in East Lansing.

The City's legacy cost obligations have increased due in large part to the recession and below-average market returns. The City’s pension plan obligations were 80% funded in 2003 (pre-recession) and are only 50% funded today. The City's pension plan liability was $90 million (as of the last valuation on 12/31/16) and the City is required by MERS (the Municipal Employees' Retirement System) to have the pension plan fully funded by the end of Fiscal Year 2041. The City's OPEB (healthcare) liability was $35.8 million (as of the last valuation on 12/31/16). The City is legally obligated to fund its pension and healthcare plans for retired City employees.

Community members can learn more about the City’s financial challenges and the steps that have been made to address the challenges over the years at
www.cityofeastlansing.com/financialbackground.

Citizen Engagement


Council’s decision to place the income tax proposal back on the ballot was preceded by an intensive citizen engagement process, which included three in-person citizen engagement meetings with surveys, two online surveys and a scientific phone survey of 300 registered East Lansing voters conducted by EPIC-MRA. The meetings and surveys served to provide education on the City’s ongoing 
financial challenges and gather community feedback. As a result of the community engagement process, it was determined that East Lansing citizens were most supportive of a solution that combined both cuts to services and new revenue and that an income tax was preferred over an increase in property taxes by the majority of voters polled as part of the EPIC-MRA survey. There was increased support for an income tax that included a time limit and included dedicating the funding for supported services, such as infrastructure and public safety. 

Cuts to Services


In addition to the income tax ballot proposal, City administrators have proposed a series of budget cuts over two years as a method of freeing up additional funding for the City’s pension obligations. Council’s plan is to make some initial necessary cuts to service in Fiscal Year 2019; however, service cuts proposed for Fiscal Year 2020 would largely only be necessary in the event that new revenue is not secured. Learn more.

Taxpayer Impact Calculator


A Taxpayer Impact Calculator is available to assist East Lansing residents with gauging the impact the two Charter amendments would have on their taxes. The taxable value of a resident's home can be found on their tax bill or by visiting www.accessmygov.com. This calculator is designed for East Lansing residents with a household income in excess of $5,000 and there is a $600 deduction for each personal and dependency exemption that can be claimed on an individual's federal income tax return.