Responsible and Irresponsible Bond Financing for Public Works // Eliot Singer

Twenty years ago, East Lansing voters approved debt millages amounting to $10.5 million in principal to build the aquatic center and renovate Hannah Middle School into a community center. The exact city debt millage on tax bills depends on total taxable value of East Lansing properties, so how much this has cost the average single family home can only be an approximation: $2000 over 20 years would be in the right ballpark. (School debt is set at 7 mils, despite change in total taxable value, because of the arrangement with the state over how the bonds are repaid.) City debt millage will go to zero after summer 2018 tax bills, because these bonds will be fully paid off in October.

When city officials talk about selling or closing Hannah to save money, someone ought to remind them that home owners have spent about $2000 each for public works they voted for. Contrast this with the $9.34 million in bonds for the new DPW building, where voters (in 2002, during Meadows first stint as mayor) were told if they voted to sell the old DPW, there would be no need for bonds. These bonds are costing an average of about $600,000 per year for 25 years, with the funding ultimately coming from money that could otherwise be going to public services. The old DPW building could have been renovated for a fraction the cost, and voters would likely have approved a debt millage for that purpose, though probably not for an expensive, showpiece, new DPW.

The traditional approach to building discretionary public works is to ask voters to approve a debt millage. Voters in places like East Lansing have generally approved such millages if they thought paying more taxes was in the public interest. (Other communities tend to be more stingy.)

However, after Meadows, Singh and company hired Ted (Almighty) Staton as city manager, issuing bonds for public works without voter-approved millages became the new normal. For all the pretense that these bonds will self-finance through tax increment financing or some other form of new revenue, they do not, even when projects are completed.

Between 1998, the last time the city came to voters for a debt millage for public works, and December 2017, city officials had issued approximately $45 million in bonds for the new DPW, parking structures, and development projects. With the Lot 1 bonds, the total is now about $70 million. This ignores the discretionary public works projects, such as Anne St. Plaza, that have been piggybacked onto tax breaks for developers.

Parking structure bonds have traditionally been issued as revenue bonds. That means debt service paid for by net revenue from the parking structure. In real cities, where parking fees are high and many downtown residents choose not to have cars, parking structures have been self-financing. Because East Lansing has been more interested in pursuing an ideology of promoting downtown residential (even if predominantly high-priced student apartments), including subsidized parking permits for developments, as well as overbuilding structures in anticipation of growth that never materializes, its parking structures do not come close to generating enough net parking revenue to pay for debt service. (When I did a detailed analysis a few years ago, debt service on parking structure bonds, including repair bonds, was about $2.5 million and net parking revenue from Division St./University Place, City Center, and Albert Place was less than $1 million.) This makes them public works projects, even if tax increment revenue is supposed to partly pay for the lack of parking revenue (it never has).


Eliot Singer

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