I have already commented about the East Lansing tax proposal arguing that the imposition of a City income tax or an increase in the property tax are inherently limited as a solution to the City’s fiscal issues. The main point is that the City is relatively small and surrounded by similar suburban communities with essentially equivalent access to major employers, making it relatively easy for individuals and businesses to select locations outside the City.
The point of this comment is the City has some other options, which should be considered independent of the tax vote.
By way of truth in advertising, I work in East Lansing at MSU, live in Meridian Township, but also in the East Lansing School District. My perspective is based on my research expertise and does not necessarily represent the views of Michigan State University or its officials.
1. Coordinate with other local governments to encourage state government action, including fully funding the fire protection grant program ($1.6 million annually for EL) and reversing the substantial decreases in revenue sharing to localities. The Michigan House Fiscal Agency estimated that state revenue sharing payments to cities, villages and townships were between $500 and $600 million less in 2017 than if the formula had been funded fully. It is often more efficient and equitable for the state government to increase taxes to provide grants to local governments than for any individual locality to raise taxes. The state government provides less such support in Michigan than the average nationally, and it has been decreasing.
2. Reopen negotiations with MSU for a reasonable PILOT payment to the City.
3. Explore opportunities for cooperative provision of some services (Aquatic Center, Community Center, Farmers’ Market and …) jointly with neighboring communities, especially Meridian and Bath Townships. Area local governments should examine what Kalamazoo accomplished with one large farmers market (https://farmersmarketcoalition.org/kalamazoo-farmers-market-serving-honest-healthy-transparency/).
4. Consider options for contracting (with private firms or jointly with other governments) for some public services at the same quality as currently provided.
5. Begin negotiations with representatives of past employees regarding revising pension and health care benefits.
6. Expand the process (already begun) of converting future (and additional current) City employees from a traditional defined-benefit pension system to a defined-contribution plan, something the FHT reviewed and recommended.
7. Stop providing substantial financial incentives for private development, which research has shown commonly to be either ineffective, unnecessary, or cost inefficient.
There are two risks of the tax approach, one that voters will reject new taxes and the other that voters will approve higher taxes with the effect of driving away potential residents and businesses. It might very well be that the City has a greater chance of success trying the various expenditure and budget ideas noted above as well as those suggested by the FHT and others.
Ronald Fisher
Professor of Economics
Michigan State University
