East Lansing forecast shows multi‑million shortfall; council urged to consider revenue or cuts

Audrey Kincaid, East Lansing chief financial officer, told the City Council on Feb. 18 that the city’s five‑year General Fund forecast projects $48,798,501 in revenue for fiscal 2025 against $52,025,840 in expenditures, producing an approximate $3 million gap for the year and growing structural deficits in later years.

Kincaid said the forecast is the city’s budget kickoff document and includes assumptions, risks and conservative revenue estimates. "Property taxes are the single largest source of revenue that we currently have in the general fund," she said, and the forecast incorporates a $1,000,000 annual transfer from the income tax to cover a supplemental pension payment.

The forecast assumes taxable value growth of 4.5% for residential property in 2025 and a modest 0.3% for commercial property in 2025, with more normalized growth in subsequent years, city assessor David Lee said. "We try to be conservative," Lee added when describing the valuation assumptions.

Council members pressed staff for more detail about the income tax fund and how much of the roughly $14.4 million in income tax receipts flows to the General Fund. City Treasurer Andrew Smith and Kincaid explained that income tax revenue is held in a separate fund; after administrative costs and required allocations (including a 60% portion that currently goes to pension liabilities and a two‑tiered split that places 20% to the General Fund and 20% to infrastructure), the portion showing in the General Fund is lower. Kincaid said the 2024 collections included withholding and return payments that affect the net amounts transferred.

Kincaid highlighted grant‑related volatility in the forecast: fiscal 2024 included about $6.5 million tied to a "Protecting Michigan Pension" grant and another $6.5 million in ARPA funds that offset police and fire wages; those one‑time amounts drive a spike in 2024 revenue that will not recur at the same level in later years.

Council members asked for more transparent breakdowns. Mayor Brookover and others asked staff to provide a clearer pie‑chart style breakdown of the income tax receipts and transfers so the council and public can see what the income tax has netted the city since its adoption. Kincaid and City Manager indicated that additional material would be provided during the budget process and that Treasurer Andrew Smith’s earlier presentation to the charter review group could be scheduled for a council discussion.

Council members also flagged other revenue risks: a reduction in franchise fee revenue from the Board of Water and Light was discussed as a near‑term shortfall and one member described the HEOS decision and pending state/federal legislation as additional downside risks to state and federal shared revenues. Kincaid advised the council that absent changes the forecast shows use of fund balance of about $3 million per year and that the city’s available fund balance could be exhausted later in the decade if no corrective steps are taken.

Kincaid and staff said they will bring options as the formal budget process advances, including proposed expenditure reductions and alternative revenue scenarios. "Ultimately you will have the say in whether those cuts are implemented or deferred or other revenue opportunities are pursued," the city manager told the council.

The council did not take any formal votes on budget reductions at the meeting; Kincaid’s presentation was received and will be the basis for upcoming budget workshops and decisions.