State needs to reform tax structure

February 21, 2010
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Before George Heartwell became mayor of Grand Rapids in 2004, he served as a city commissioner and represented the Third Ward from 1992 to 2000. He remembers those years as a much better time.

“Those were surplus years. It was pretty easy and a lot of fun,” he said.

But since 2001, he said the city hasn’t had budget surpluses, it hasn’t been easy, and no way has it been fun to let 450 employees go during the past 10 years. Over that decade, Heartwell said the city has resolved $100 million in budget deficits and got $5 million worth of concessions from the city’s bargaining units.

“Not once did we have to go back and ask voters for more,” he said.

But that scenario changed last week when city commissioners put a request for a two-tenths of a percent income tax increase on the May 4 ballot that would raise about $7 million annually for the city beginning July 1.

The rate for residents would rise from 1.3 percent to 1.5 percent, and from .065 percent to .075 percent for nonresidents who work in the city. The request is for five years.

City Manager Greg Sundstrom said if voters approve the hike, the additional dollars would go to public safety and park maintenance, but wouldn’t cure what ails the city. An increase, though, would give him and his staff a chance to change how the city delivers services and reduce the cost.

“I want to be clear: A successful ballot proposal will not solve our problems, but it will provide us time,” he said. “We know what we must change. We know how to change. But we need time to change.”

Sundstrom has an eight-point plan to deliver that change; it’s available on the city’s Web site under “Transforming the City Organization.” He said, however, it would take five years to accomplish that. That’s why the city is asking taxpayers for additional revenue for the next five years.

But the Grand Rapids Area Chamber of Commerce announced its opposition to the hike request after commissioners unanimously decided to put it on the ballot. The chamber said now is not the time to raise taxes on employee wages.

“Increasing taxes on employees is not the answer,” said Chamber President & CEO Jeanne Englehart. “Citizens want a more efficient government and they expect our elected officials to take actions that reflect economic realities.”

Heartwell, though, said the city can’t cut spending any further without risking the viability of city services. He also said the city can’t successfully remake itself on its own. “The state of Michigan is in a death spiral and it is pulling us into it. No matter what a city does, if the state doesn’t reform taxes, cities will still be facing difficult times.”

It’s unlikely that tax reform at the state level will happen this year, at least not in the manner the mayor expects. That conclusion can be interpreted from what Becky Bechler of Public Affairs Associates, the Kent County’s Lansing lobbyist, recently told the county’s Legislative Committee.

When County Commissioner Brandon Dillon mentioned that one proposed reform measure would rely on charging a 5.5 percent sales tax, he asked Bechler how someone could pay a 5.5 percent tax on a purchase. She told Dillon not to worry because it’s an election year and no lawmaker in Lansing wants to deal with taxes now.

There are, however, two bills pending in the legislature that some in Lansing might call tax reform, as both would reallocate revenues from the counties to the state.

County Commissioner Ted Vonk, who chairs the Legislative Committee, wrote in a memo that the state would take about $200,000 the county jail currently receives each year as booking fees and put it in Lansing’s budget, if lawmakers approve both bills.

Heartwell and city commissioners said it’s a tough time to ask for a tax increase with the city’s unemployment rate about 12 percent and its poverty rate at 24.7 percent. But the city’s general fund is looking at a $27.4 million deficit for the next fiscal year, which City CFO Scott Buhrer said may go up another $3 million by July 1 because the governor has called for another cut to revenue sharing.

“We have to come up with a short-term solution but also look at 10, 15, 20 years out,” said Rosalynn Bliss, 2nd Ward commissioner. “We need to have that conversation.”

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