Five Year Financial Forecast // Eliot Singer

I don't know why, but the East Lansing 5-year financial forecast that was presented at a special council work session at Hannah in February does not seem to be available online. I hope this is remedied soon, so people can see the details.

Suffice it to say, the city is projected to continue seeing hard times. Taxable value for commercial properties, about 37% of all taxable value, is projected to stay flat for FY 2014-2015, then rise at 1% each year after. Taxable value on residential properties is projected to rise 1.5% for FY 2014-2015, then 1% each year. This is an improvement over deflated taxable values in recent years, but still not enough to keep up with increased costs, let alone to catch up with neglected needs. Almost all the development expected to add taxes is in the Northern Tier and not much of that. For 2014 total taxable value is projected to be $873,901,514, for an increase of only ~$26.5 million through 2018. In terms of taxes, in FY 2012-2013 tax collection for general government (not including DDA or brownfield) was $15,006,214, declining to $14,880,270 in FY 2013-2014 and only projected to rise to $15,670,700 in FY 2018-2019, still far below 2009, when tax revenue peaked.

Meanwhile, total expenditures (other revenue includes state revenue sharing, fees, fines, etc.) are expected to go from $31,722,331 in FY 2012-2013 to $36,609,820 in FY 2018-2019. After slow increase this forthcoming year (projected), there will be 2.7%-3.1% projected growth of expenses in subsequent years.

The main reason for this is "legacy" costs, mostly contribution to retirement defined benefits, with the state retirement fund requiring a substantial increase to cover its shortfall, and in fact, the expectation is that after this period, the city will be even further behind in its unfunded future liabilities -- we are in better shape than a lot of places at ~60% this year, though this percentage has dropped. There will be an increase of almost $3 million in retiree defined benefit contribution from FY 2012-2013 to FY 2018-2019.

The residential property value projections are essentially in line with inflation expectations, minus a little for continued drag as houses sell for already depressed prices. The assessor does not factor in sociological and demographic factors, but those of us who live in the neighborhoods can. These factors suggest, even if city hall does nothing to drive homeowners away (like putting up tall buildings near neighborhoods or ageist or general screw you attitudes), there will be an increase in homes on the market with insufficient demand, unless prices drop. We already have a high percentage of homeowners over retirement age, and baby boomers are entering retirement. Okemos and Haslett have considerably higher rated school systems. Although home prices are lower, after inflation, than when we bought our house in 1986, with much lower mortgage rates, mortgage interest is expected to rise in the next few years, and young people are now much more burdened with college loan and credit card debt, and no longer presume significant increases in income with annual raises and promotions. We have very high taxes.

Residential taxable value in 2007 was $570,965,800, peaking at $597,156,850 in 2009, declining to $530,314,114 in 2013. If instead of growing ~6% over next 5 years, to about $560 million, demographics and deteriorating quality of life push a further 10% decline, that would mean $480 million. In terms of taxes, at city taxes of ~21.5 mils, instead of an increase of ~$645,000 in revenue, we would be looking at a decline of $1,075,000. The more neighborhoods are allowed to decay, the more likely the decline will get worse.

Eliot Singer
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