Financial Health Team to help EL City Council address unfunded pension liabilities & healthcare benefits

EAST LANSING, MI (WLNS) – The city of East Lansing is facing a financial challenge when it comes to paying post-employment benefits.

That’s because there is approximately $100 million in unfunded pension liabilities and retiree healthcare benefits.

Despite the city’s efforts to do things like cut-costs, reduce the size of the local government, and reconstruct employee benefits, constraints like reduced state revenue sharing over the last 15 years has added to the big financial problem.

For the last couples of decades, the City of East Lansing has promised to pay it’s employees’ pension and healthcare benefits, without making sure majority of the money was available to do that, although a small percentage of it was.

City council members are taking action to put new revenue and expenditure options in place.

At their last meeting, on February 16, East Lansing City Council members appointed a Financial Health Review Team, to help the city come up with a viable solution to make good on their promise and eliminate any financial burden in the future.

“The City of East Lansing has serious financial problems. People like to call them challenges, opportunities, but really, to be honest, we just have serious problems,” East Lansing Pro Tem, Ruth Beier, said.

Beier is an economist and is also serving as the liaison between the East Lansing City Council and the Financial Health Review Team.

She says the problem at the top of the list is paying promised pension costs. Right now, the city owes about $60 million in unfunded pension liabilities and $40 million in retiree health care benefits.

“So we owe $100 million basically and we have zero dollars to pay for that,” Beier said.

“East Lansing has faced the same sort of challenges that many communities in Michigan have faced, over the past 10 years, we’ve had to deal with the housing crisis, where property values went down significantly,” East Lansing City Manager, George Lahanas said.

City officials also say things like a reduction in state revenue, property tax limitations, and legacy costs have also added to the city’s financial problems, but their top priority is to fix it.

“We’ve sort of been bound in to a problem that we saw coming but we didn’t have the resources to address immediately,” East Lansing Mayor Mark Meadows said.

That’s where the Financial Health Review Team comes in.

There are 11 members involved in it, including:

Michael Moquin, former Chief General Counsel for the Michigan Municipal Employees Retirement System and Former Division Coordinator, Michigan Dept. of Attorney General.

Eric Scorsone, founding Director, Michigan State University Extension Center for State and Local Government Policy.

Robert Kleine, current Principal at Great Lakes Economic Consulting, and former Treasurer of the State of Michigan.

Jill Rhode, current Director of Financial Services for Ingham County and former Financial/Accounting Executive for Innovative Software.

Douglas Jester, current Principal at 5 Lakes Energy, former Mayor and City Councilmember for the City of East Lansing.

Susan Haka, current Ernst & Young Endowed Professor of Accounting, Eli Broad College of Business at MSU.

Aaron Harris, current Financial Advisor at Northwestern Mutual Life and current member of the Board of Directors for Ingham County Economic Development Corporation.

Tricia Foster, current Senior Managing Director and Chief Operating Officer, CBRE/Martin and CBRE/Grand Rapids.

James Butler, current Director of Urban Revitalization Division, Michigan State Housing Development Authority.

Jeffrey Hicks, current Vice President/Commercial Banking Officer at Mercantile Bank of Michigan, current member of Board of Directors, Entrepreneur of Mid-Michigan.

Raymond Vlasin, current Distinguished Professor Emeritus, Michigan State University.

For the next couple of months, they’ll work together to look at these issues and come up with a solution.

“Those include whether we should raise fees, whether we should change the way that we tax our citizens,” Mayor Meadows said.

“And so asking the hard questions, where is this going in the future. We want to know five years from now what we can forecast in order to help improve the city plan to become better funded,” Michael Moquin, chair of the Financial Health Review Team said.

Lahanas said the city has been working diligently to resolve these challenges and a lot of things have been done right, but the issues continue to persist.

“What we’re looking for here is for a panel of residents to come in and look at the problems and say yeah we recommend that you try this, this, and this,” Lahanas said. “The point of it is to say what haven’t we tried, what are we missing here, what else do you think would be a good idea for us to do, potentially bonding for legacy costs or whatever revenue options they may come up with.”

The financial team will start meeting in the spring and is expected to report back to the city council by July 31st with their recommendations.

The team will work until December 15, 2016 to look at all of the other issues to make a final recommendation.

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