City Financial Crisis: One Last Time, With Feeling // Eliot Singer

I feel a moral obligation to weigh in from afar on East Lansing’s mess, since I was one of the first to call attention to the city’s pending financial crisis and the need for new revenue. I also had carefully analyzed the budget, finding such hidden discrepancies as the DDA not paying fully for downtown maintenance, while it continued to embark on new, discretionary, projects, and huge deficits in self-financing for parking structures. With the help of Vic Loomis, I carefully examined all the city’s brownfield projects, which has allowed me to make several recommendations for reforms so the occasional use of tax breaks can benefit the public, especially with regards to tax revenue, instead of being a drain, starting with such basic principles as tax breaks should be a last resort not a first resort, a principle at odds with the city’s (and MEDC’s) belief that if developers build in designated redevelopment sites they should not have to pay taxes and that a discretionary public works project piggybacked on redevelopment are free money.

I provided the Financial Review team with detailed analysis and recommendations, but Meadows chose to put his campaign treasurer in charge of the team, as well as stocking it with other buddies who had no interest in reforms. I reluctantly offered lukewarm support for Meadows in the 2015 election, on the (apparently mistaken) grounds that a has-been professional politician is less dangerous than an ambitious young one, but it became clear Mark is unwilling to learn from his past mistakes and still thinks the political strategy of blaming others and denying responsibility is effective. East Lansing has indeed lost some state revenue sharing, but the state formula still gives it a much higher amount per capita than places like Traverse City, and revenue sharing (as well as fines) is a much higher portion of the East Lansing budget. It is easy, in a Democrat dominated community, to blame a Republican dominated state capitol, but one major reason for a tight state budget is the huge amount of tax diversion, much of it attributable to an ill-conceived New Deal wannabe economics under Granholm, and it is Republicans, not Democrats, in the legislature who are looking at curtailing abuses of tax diversion.

Stepping back, here is what I was talking about with city revenue needs a few years ago. I was advocating for asking MSU to provide $3 million a year, on the argument that the city’s high cost of policing was attributable to the college party scene, and specifically to revenue sports that generate a huge income for the university (including alumni donations). I suggested a surcharge on revenue sports tickets, perhaps supplemented with some TV money. Whether this would have been persuasive with the trustees, I don’t know, but it would have given the city the moral high ground. Instead, Meadows and the others went into negotiations more or less by blackmailing with an income tax threat and weak arguments that Okemos-resident faculty used city services (not so much).

My other revenue recommendation was a millage dedicated to neighborhood infrastructure, or perhaps a huge debt millage to bond for neighborhood infrastructure. However, this would have been contingent on all money from maturing bonds for parking structures being earmarked for neighborhood infrastructure (or perhaps legacy costs) not plowed back into parking and on putting an end to new projects and programs by and to staffing for development authorities. And, of course, an acceptance of responsibility for past financial mistakes with regard to the development agenda, undertaking commonsense reforms, including something as basic as no-crooks-deadbeats-or-cronies, and making neighborhoods and public services the city’s number one priority, after 15 years where downtown development was the be all and end all.

Instead, city officials continue to spin how great diverting taxes for development is, even though every example and excuse can have holes blown through it based on actual data. (Seriously, do they really think piggybacking Ann St. Plaza, which ended up a poor cousin to its intended design and primarily benefits the developers who use it for outdoor seating for their bars, on the St. Anne Lofts debacle, is a selling point for tax diversion?) The money from maturing bonds for Division St. structure seem to have been swallowed.

And then, while pleading poverty, they went and took Lot 1, which can be valued at $18 million, did an end around the city charter that requires a vote to sell city property, and did a backroom deal to lease it for a fraction of what it is worth for some pet project that claims it will provide apartments for seniors (they don’t talk about 4 times as many beds for wealthy students), even though the developer refuses to make any attempt to convince the public he is really going to do this. They have given away 30 years of taxes to build yet another parking structure, with huge discounts for the developer, and once the phony new revenues are subtracted, there won’t be enough to pay for public services for the development (ignoring that $200,000 per year would take 90 years to pay for what they might have received selling Lot 1 and that the original lease was going to be $75,000, then someone tried to sneak through $150,000, which was caught by an observant citizen).

Or, look at retaining-wall-gate rearing its ugly head once again. The city used CDBG funds too build a retaining wall for the property owned by the city attorney’s law firm. The public yelled and screamed about it at the time. Whatever the legalities, this was politically stupid, as are continued attempts to pretend it was not incredibly stupid. There is also ample evidence that hiring an in-house city attorney would save money compared to hiring a law firm, and certainly would have provided an opportunity to seek out qualified attorneys from around the state, whereas deciding to use a local law firm resulted in hiring the same old discredited and much despised firm, because they are the only ones in mid-Michigan who do this kind of work.

Okay, so now what? Frankly, I don’t know. My East Lansing friends were divided on the income tax vote between those who held their nose and voted yes, despite lack of reforms, and those who voted no to send a message. Clearly, city hall is incapable of hearing the message. (I have no doubt if City Center II, with the same developer, was to come up with this government, it would once again be given a celebrated approval.) If Council has a lick of political common sense, it would put a stop to any further projects and programs by development authorities and staffing costs for their many meetings (and fire the city attorney), before embarking on another quest for new taxes. It is really too late after the Lot 1 boondoggle, but at least it would be a gesture, instead of circling the wagons and pretending the tens of millions of dollars squandered on the development agenda never happened.

Of the new tax proposals, the income tax is undoubtedly the least bad for the most homeowners, if combined with a property tax reduction, as in the last attempt. It will generate more external opposition, but I am convinced if city hall stopped being politically stupid and accepted that homeowners are fed up with tax breaks for developments that end up nothing but high cost student rentals and bars, they can rally enough of the voters who want to send a message to get over the hump. Any of the property tax increase proposals will end up costing most homeowners more, and the way these insidious tax diversions for development work, the DDA district and all those innumerable brownfields would not pay any of the added property taxes (it might even encourage more projects, because it would be easier to get to yes).

As I look at other municipalities, everywhere there are financial issues. Many small towns and big city are in trouble for reasons beyond their control (although some big cities, including Lansing, have made huge financial mistakes in pursuit of development, rampant with cronyism). East Lansing is unique, because of added burden (including added legacy costs) for policing a college town, without the size and expensive real estate of an Ann Arbor, but city government is also heavily responsible for the city’s financial woes because of its snake-oil finance for big projects (the inexcusable unfunded annual debt service for the DPW building and City Center II Evergreen properties alone is over $1 million). From the reports on the citizen input meetings (these things are always orchestrated by city hall to limit opposition), it looks like the same old, not-our-fault spin. Maybe, having failed to persuade voters with not-our-fault last time, a little honesty, combined with reforms, might help.

Eliot Singer

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