On August 7th, East Lansing residents voted “yes” to an city income tax proposal, making East Lansing the 24th city in Michigan with an income tax. However, this shouldn’t scare prospective residents away from purchasing their East Lansing dream home. City officials have carefully considered the impact of the tax on residents, and have made considerations to reduce the tax burden on residents, protect property values, and build better city services. If you’re already a resident or you’re considering moving to an East Lansing neighborhood, here’s what you need to know about East Lansing income tax.
Everything You Need to Know About The East Lansing Income Tax
How Much is the The East Lansing Income Tax?
The number one thing prospective residents want to know is how much the East Lansing income tax will be. Those living in East Lansing will pay an income tax of 1% and those working in East Lansing but living outside the city will pay 0.5%.
Retirement income, such as that from social security or 401k plans, is not subject to the tax. Also, those who already pay income tax to another city, such as Lansing, will not pay tax again. Instead, the income tax will be split between the two.
How Does This Affect Property Taxes?
To offset some of the tax burden on East Lansing residents, the city tax amendment also included lowering East Lansing property taxes. East Lansing property taxes will be cut 5 mills, which, city officials say, amounts to about 10% less property taxes on average.
When and How Long is the City Tax Effective?
East Lansing income tax starts at the beginning of next year, on January 1, 2019. As a City Charter amendment, the tax cannot be changed by the city officials alone at any time; any changes to it will require another vote and approval by residents. However, the amendment is time limited to 12 years.
What Does the Tax Fund?
The City of East Lansing provided the following fund disbursement plan: “20% to police and fire protection, 20% to infrastructure (maintenance and improvement of streets and sidewalks; water and sewer systems; and parks, recreation and City-owned facilities) and 60% to supplemental payments for unfunded pension liabilities for retired City employees.”
Why is a City Tax Necessary?
City officials explained that “significant, long-term financial challenges” have created financial planning challenges, particularly where city employee pension plans are concerned. Though the number of city employees has fallen roughly 30% since 2001, the number of pensioners has increased as more employees have retired. This, combined with lower market returns on pension investment plans, approximately $1.5 million less state allocated sales tax revenue since 2001, a lack of tax revenue from tax-exempt Michigan State University, and a drop in property values after the 2009 recession, have created the city’s present financial situation, and a need for additional revenue to continue to fund pension plans and other city services.
What Do East Lansing Residents Receive?
By law, all city employee pension plans must be funded, and not providing additional funds would require city officials to make up the difference from other city services. The 2019 and 2020 budget outlines showed residents what this would look like if the city income tax was not approved. Cutting police, fire, and EMS staff, as well as closing the East Lansing Aquatic Center and Hannah Community Center, were just a few of the potential cuts. With the income tax approved, the more drastic cuts will likely not be necessary and East Lansing residents will continue to enjoy quality public safety, infrastructure and amenities that help to makes East Lansing one of the best places to live in America
Will There Be More Cuts and Taxes?
Alongside the income tax, the city has made budget cuts in several areas. However, the estimated additional $5 million from the income tax will provide much-needed tax revenue, as well as a source of annual revenue growth to continually support city services. Officials do not expect the drastic cuts proposed for the 2020 budget to be necessary now that the income tax has passed. As property values, wages, sales tax revenue allocation and other revenue sources increase as the economy at large expands, further cuts and taxes are unlikely to be needed.
After extensive community outreach and ongoing communication with the public, East Lansing officials and residents decided the income tax proposal was the best decision to keep the city moving in the right direction. With the city’s needs and services shared by all residents and workers, East Lansing’s community spirit and cooperation will help it to continue to grow.
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