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April 24, 2013

Eastpointe begins budget sessions

Budget is balanced but requires millions from reserves

By Sara Kandel
C & G Staff Writer

EASTPOINTE — Eastpointe City Council began budget sessions for the 2013-14 fiscal year at a special meeting April 16.

Despite more than $1 million in budget cuts during the past year, council is faced with a budget that projects dipping into the general fund to the extent of $3.6 million by the end of the coming fiscal year.

“We are presenting a balanced budget, but it’s not a structurally balanced budget,” said City Manager Steve Duchane. “This budget is going to be $1.6 million less than last year’s, but without new revenue sources, the city will not have a sustainable future.”

The city will kick off the new budget year July 1 with slightly fewer than $10 million in reserves. Through additional cost-saving measures expected to be adopted in the next fiscal year, the city could bring the damage down and end the 2013-14 fiscal year with just more than $8 million in reserves, but with not much left to cut and nowhere else to turn to increase revenue, Duchane estimated that money will be gone in three years.

“We are down 55 percent (in the number of) employees from just a short time ago,” he said. “We are at a point where we are going to have to maintain the size of the organization now just to ensure a moderate level of service that’s solvent at all. Any more, and we will have incompetent levels of services.”

About 34 percent, or approximately $6 million, of the city’s $18.1 million operating fund is immediately cut off the top for the pension cost of retirees, leaving $12.1 million to cover the cost of everything else — police and fire, Public Works, treasury and other fundamental city services — and police and fire alone cost the city about $12 million annually.

“All of our money is virtually gone and we are left to run all the rest of the payroll, the constitutional offices, the Treasurer’s Department, Public Works, every function that we have, with what is left — about $3 million — from state revenue and our general fund,” Duchane said.

The financial troubles looming ahead aren’t unique to Eastpointe. The majority of municipalities in the area are facing a similar problem.

In Eastpointe in 2008, the average taxable value per parcel was $56,371. In 2012, that number had fallen to $26,981, bringing the overall taxable value in the city down from $796 million in 2008 to $430 million in 2012.

It’s a problem that doesn’t have an easy solution. Even a significant uptick in housing values wouldn’t do much to improve the situation.

Because of the way Proposal A interacts with the Headlee Amendment, municipalities can never increase taxable value by more than 5 percent a year. Proposal A caps increases at whichever is less, 5 percent or the rate of inflation. The Headlee Amendment removed the floor on how far taxable value can fall.

So even if there was a 10 percent increase in housing values each year for the next 10 years, taxable values still wouldn’t be where they were in 2008.

“If we had this big rebound, and property value increased by 10 percent a year for 10 years, we would rebound to an average taxable value of $38,000 in 10 years,” Duchane said.

The city is looking at ways to lessen the blow to the general fund — special assessments for police and fire, street lighting, and changes to the pension system for retirees.

“We balanced the budget, but we balanced it with the general fund,” said Councilman Ron LaForest. “We have … serious concerns that we will have to contend with in the future because, unless something changes at the state level, we will be out of money in 2015, and I have hopes the state will see the structural problems facing many cities and provide means to the adequate funding needed to maintain services.”

The council will discuss the budget and options for offsetting the hit to the general fund at special meetings scheduled for April 23, April 30, May 7 and May 21. Council is scheduled to adopt the final budget at a special meeting June 24.

For information regarding the budget, contact the Eastpointe City Manager’s Office at (586) 445-5016.

You can reach C & G Staff Writer Sara Kandel at skandel@candgnews.com or at (586)498-1030.