It’s only $7 million!


Michael Taylor wrote a blog entry recently stating that he disagrees with spending more than the city takes in via taxes.  The city administration authored a document intended as a response, which was apparently sent to all members of council and ultimately found its way to me.

The writing done on this blog is not usually a response to a specific exchange someone else had; it’s about my thoughts and feelings on the issues.  But in this case, I felt it was important to respond to the city because I think it illustrates that there are two sides to every story, and the city’s positions are entirely debatable.  I find it a bit upsetting that the city found it necessary to attack Mr. Taylor in this way, by the way.   Having a dialog on the issues is welcomed.  Saying that Mr. Taylor should be “well aware” of the city’s position of the issue smacks of disrespect, and it is illustrative of what I am increasingly beginning to perceive as an attitude problem on the part of the administration.  Anyway, without further ado, a list of the ten city talking points, some of them paraphrased slightly, and my own responses:

1.  Tax bills are the lowest in ten years.

The reason for this is that taxable values are the lowest they’ve been in ten years, and they continue to decline.  It is disingenuous to state that tax bills are low without stating the real reason why: the underlying strength of the local housing market is weak, and it appears to be getting weaker.

2.  Without last year’s tax increase, the city would have had to lose 120 employees more than it already has.

The tax increase was passed because the city administration provided the residents with a Hobson’s choice: increase taxes, take it or leave it, or we will cut spending on public safety.

3.  We have eliminated very few programs because we have been able to achieve labor concessions.

The labor concessions have been, without exception, an exchange of a promise of no lay-offs for the current fiscal year for going without pay increases.  In a few cases, there have been some very minor increases in costs to the employees, and there have been some unpaid days off.

These concessions, while helpful, do nothing to remedy the long-term structural problems the city faces with regard to labor costs: they’re temporary and are designed just to get us by for the short term.  Should the economy worsen significantly — and record high gas prices in this state were just set yesterday — the city has bargained away one of its few remaining tools to achieve financial relief in promising to not reduce head count.  It is a gamble, and one we can only hope will pay off.

4.  Spending on employee healthcare and retiree health care is lower than it was in the past, while pension funding has only increased due to the stock market decline.

The stock market is the leading economic indicator that should be sounding the warning klaxons against *all* spending over and above revenue, healthcare cost reductions notwithstanding.

5. Council did not mismanage labor contracts, but approved contracts with only inflationary increases well before the housing crisis.

It was easy for council to approve increased labor costs before the housing crisis, because at the time we were in a market bubble and it looked like the sky was the limit on housing prices.

However, the underlying economic picture in the state during the first half of the last decade was already clearly in decline well before the housing bubble burst.  Wages had contracted significantly, and the state’s unemployment rate was well above the national average.  Why were we approving “inflationary increases” while this was going on?  Because we were mismanaging our labor expenses!

6.  The City Council has been very proactive in lowering our costs.

I have not seen one amendment actually proposed and passed that reduces the 2011/12 budget.  Last year we were at least able to reduce it by a few hundred thousand dollars.  We reduced the number of police cars we intended to buy.  We got a used dump truck instead of a new one.  Although the cuts were small on a percentage basis, they were in fact cuts.

When I see cuts this year, a year in which gasoline appears to be headed for the $5 a gallon mark or beyond, then you can make this claim.  Until then, you can’t.

7.  Because the city has been proactive, we have extra money to spend today. (Paraphrasing heavily)

I would word this a bit differently.  Because the city for some reason hasn’t managed to spend every single dime it has gotten its hands on for things like $86K playscapes, we still have $15 million remaining dollars from the period not so long ago before the housing bubble burst.  However, with proposals like a dog park and an ice skating rink already on the table, the spending should exhaust all of the city’s reserves in a few short years.

8.  The city has been pre-funding retiree medical for 16 years.

This is true, and as far as it goes, I believe it is a good thing.  If I am not mistaken, there is still a huge unfunded pension liability looming out there that represents a potential cost of well over $100 million.  With a little luck, that particular actuarial certainty won’t make itself felt for a few years yet, but what happens when it does?

9.  If we don’t spend some of our rainy day fund this year, we’ll have to cut spending by $13.5 million.  Police, Fire, DPW would lose 150-180 positions.

I am not advocating for cutting spending by $13.5 million, I am advocating cutting it by the $7 million of revenue we cannot collect via taxation.  $13.5 million is a canard.  It’s not a real number.  The tax increase passed, for better or worse.  There is no taking it back.  A year has already passed at the new rate.

As long as we’re going to have a substantive discussion about the budget — something the city seems to want to discourage — let’s at least use numbers that have some basis in reality.

10.  Councilman Taylor is well aware of the City’s long-term financial and labor strategies that we have all been working hard on for the past three years to address declining revenues.

Councilman Taylor is well aware that the city is doing something that is financially unsustainable, and he has been almost pleading with fellow members of council and the administration to really, truly address it.  He is well aware that the city has spent the last three years raising our taxes, spending our money on luxuries we can ill afford, and then telling us that spending more than we take in is the only responsible thing we can do.

I have a degree in Computer Information Systems, not one as an economist.  I survive the perils of the world of finance by being cautious, not by implementing plans to spend everything I have and then some in the hope that things will turn around in the future.

I have a proposition that I hope will give everyone pause before voting this November.  It is simply this: the current state of the economy here is the “new normal”.

The housing market is not going to recover to its 2005 level.  It’s not even going to recover to its 2007 level.  You cannot spend enough on city services to attract people from outside the area to move to Metro Detroit.  As a region, we are on a downward trajectory, not an upward one.  There is no reason to expect a meaningful recovery of the housing market in the foreseeable future, and thus we cannot expect city tax revenue to increase substantially anytime soon.

With the potential for Lansing to eliminate taxes on personal property and revenue sharing to continue to decline, it would be better to hang onto our money this year.  We’re going to need it to supply basic services in the not too distant future.

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Posted on May 3, 2011, in Where does the money go?. Bookmark the permalink. 3 Comments.

  1. Kevin Harper

    Another great summary, Geoff. I agree with you wholeheartedly. Our Council seems to want to keep “moving the city forward” no matter what the cost and risk. Anyone living in the real world should realize this is not a time to run-down our cash reserves. It’s a time to pay as you go – at least. You’re right that no amount of spending on City services will attract more people to our City in this economy…people just don’t see the value right now. All people want are rock bottom prices on cheap houses. When things eventually improve, having lower taxes than surrounding areas will be what brings the people in. Money will be the first thing on their mind just like it is now. Unfortunately, by raiding our cash reserve, our Council is putting us on the path to millage increases if our housing values don’t start to shoot up rather quickly (especially if they have the Fire Department take over ‘transport’). I’m a little more optimistic than you about the future of our region (maybe just wishful thinking on my part) but I still feel our Council should be planning for the worst rather than trying to keep the status quo with respect to our services.
    To touch on the ‘transport’ issue, the last thing our Council should be doing is expanding government and taking a risk that may prove to be a money loser. The status quo with SH outsourcing EMS transport costs the city nothing. There’s zero risk of losing money and no objective, reliable, or even recent information that proves we will ever profit from taking over this service. If ‘owning’ transport is such a great idea, why are so many other localities that are doing it losing so much money on it? The ‘Ludwig reports’ are obviously biased; anyone who can use Google can figure out that they are all about promoting Firemen’s Unions. Besides, the report stated that the FD would need to hire 8 more people to take on transport….but now the FD is saying they don’t need to hire any people get it done? Seems like the fiscally responsible thing to do at this time is to keep EMS outsourced with Universal and eliminate 8 Fire Fighter positions. There’s a GUARANTEED savings of $400,000 in wages + benefit costs there. If we can support EMS transport without adding headcount, the Fire Department must be overstaffed for their workload. If the FD disputes that then I guess we should expect to increase our budget for them if they ever do take over transport.

    It pretty coincidental that, at the same time the FD is agreeing to a 10% pay cut Mr. Romano proposed they take on EMS with an amendment to the budget. I love how he stated that he based his amendment on the ‘information he was given’ but failed to mention that all the information he got was provided and paid for by the Fire Department..and nobody else! Way to set yourself up for plausible deniability when things don’t work out. If anything, his amendment should have been to form a Committee to explore the idea. Anything less is totally irresponsible and smacks of backdoor political corruption. I hope there’s an objective, unbiased Committee formed to explore and fully understand the cost/benefit of taking over transport before the City commits to spending so much money one…and I hope you are on it as you requested at the meeting.

    Final note: I think our Council people should be required to disclose if they have any relatives working for the City in any capacity. Some comments & actions at the meeting last night made me wonder.

    • Geoff,
      Excellent read .. The ongoing spirited discussion is what is needed to shed light on the issue. Agree or disagree, more people need to question the numbers proposed in the budget. I highly respect Mr. Baker and Mr. Vanderpool. I think they are bright men. The budget is written as such that it takes quite a bit of peeling back the onion to truly understand where the money is going. I know it is not easy running a city, I’ve never claimed to have all of the answers.

      I tenativley agree with the statement about council members having to answer if they have any friends or relatives when they vote on issue, however, if we are going to hold the council to such a standard, then the same should hold true for the residents. I am starting to believe that some residents must have stock in Universal. So maybe everyone should come clean on all where they stand, who they know, and even go as far as stating the level of education. God knows I’d take a doctors opinion on medical advise before the butcher. I’m sure you get the point … keep up the excellent research ..

  2. Geoff Gariepy

    @Kevin: the major problem with laying off 8 fire fighters is that we’ve promised them via last night’s MOU that we won’t reduce head count through the end of their contract in 2012. There may be overtime problems that would result from that too; without a full overview of all the facts, it is impossible to determine.

    It seems the entire business case for doing transport may well hinge on the fact that they’re under-utilized in their primary mission of fighting fires. This is why I have asked the city for a commission to study the matter. Again, we don’t know all the facts. People whose opinions I respect have looked at the firefighter’s proposal and declared that it seems to hold water, but I don’t know how they obtained the information nor do I know all of the underlying assumptions.

    What I do know is that the speculations are flying about wildly. Ms. Godfrey threw out so many numbers last night my head started to spin. Without seeing things in black and white, I can’t tell who’s got the facts and who doesn’t. Add in some healthy fear about “socializing” transport and the environment becomes ripe for some really wild assertions. Best to get the real facts out in black and white. Hope it happens soon.

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