City Not This Year

March 6, 2006
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GRAND RAPIDS — Even though city commissioners passed a resolution last month that called on the state to return to dispensing revenue-sharing dollars via the original formula this year, one Michigan lawmaker said that was unlikely to happen in the near future.

“The restoration of the cuts? I don’t see that coming right now,” said State Senator Bill Hardiman, R-Kentwood. “Not this year.”

But the city commission sees that money as vital to its general fund budget, as the city has said the change to the way the state now dishes out that money has resulted in 14 million fewer revenue-sharing dollars coming to the city from 2002 to 2005.

“I’ve managed a budget for the city of Kentwood and I know what that means,” said Hardiman, who was Kentwood’s mayor for 10 years before being elected to the senate.

“I’d like to hold cities harmless to revenue sharing,” he added, meaning that he didn’t want any more cuts made to the sales-tax receipts that urban centers are currently getting.

Mayor George Heartwell told the Business Journal that the FY07 state budget offered by Gov. Jennifer Granholm doesn’t include further cuts to revenue sharing for cities. City fiscal projections show a general fund shortfall of nearly $9 million for the coming fiscal year. And the mayor said that if the revenue sharing appropriations in the governor’s budget stand pat, then the general fund deficit would drop by $2.5 million, from $8.9 million to $6.4 million.

“But what the legislature does with that is anybody’s guess,” said Heartwell of the budget proposed by the governor.

“I’m glad to hear the senator say that at least he supports that. Although I’m disappointed to hear, as a former mayor, that he wouldn’t fight to restore the formula,” said Heartwell of Hardiman’s current position on revenue sharing.

State law requires Lansing to return 24.2 percent of all sales tax revenue generated within an area to local governmental units in that area. The city reported only 15 percent of that revenue was returned last year.

The city has had to trim $50 million from its past five fiscal-year budgets, and a projection shows that an additional $80 million may have to be sliced over the next five. Since 2001, 214 positions financed by the general fund have been eliminated, and that figure represents 17 percent of the city’s total work force. More jobs at the city may be lost in the coming years.

“Our unions know that everything is on the table,” said Heartwell.

“Labor has pretty strong support on the commission, including my support. But it’s not knee-jerk support that would let the city suffer.”

Future city employees are very unlikely to have a pension like current workers do. The mayor said the city plans to shift from offering “defined benefits” to “defined contributions” for new hires, meaning some sort of a 401(k) plan is apt to replace the pension in the near future. Heartwell added the city has no intention of pulling pension benefits back from current employees, and that the system was fully funded.

Heartwell also said he and the other commissioners were open to the idea of privatizing more city services, above those that were provided by the Parks and Recreation Department. More specifically, the mayor said he would like to see a private group take over the operation of special events in the city.

“I am willing to take a look at privatization,” he said.

Although it’s fairly unlikely city residents would approve a tax hike this year — should a request even get on the ballot — Heartwell said raising the income tax to the state statute limit of 1.5 percent would bring an additional $8 million in revenue to the city.

“We would generate the same $8 million from a property tax hike of slightly under two mills,” he said.

Of the two, Heartwell said he favored raising the city’s income tax rate from 1.3 percent to 1.5 percent over hiking the property tax, because it would also bring in tax revenue from non-residents who work in the city. Under the current scenario, those who work in the city but don’t live in it pay at a rate of 0.65 percent. That tariff would rise to 0.75 percent if city residents approved a tax increase on themselves to 1.5 percent.

But the mayor strongly felt the solution to the city’s fiscal problem doesn’t lie with city voters. Rather he saw it firmly in the hands of Lansing lawmakers.

“So we should be jumping up and down with joy that there is no (revenue sharing) reduction,’ said Heartwell of the proposed Granholm budget.

“But the more we come to grips with the fact that the depth of our problem is the state’s reduction of revenue sharing, the more I’m convinced that we’ve got to fight not just to flatline, but to get it back to where it was.”    

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